In a report issued this week, The Center for Responsible Lending (CRL) demanded that California legislators enact policies to help homeowners avoid what it insists are unnecessary foreclosures. The report put together a four point plan which it feels can help more people avoid foreclosure and stay in their homes. Here is a breakdown of the CRL plan:
The plan would first require mortgage servicers to “…fully consider loan modification applications before starting the foreclosure process.” California bill SB 1275 covers this aspect of the CRL plan. It currently sits with the Assembly after being passed by the state Senate. This language is also similar to the language in the Obama Administration’s HAMP program which suggested and encouraged lender actions but had no requirements beyond that.
- Require that principle reductions be a part of loan modification programs. This suggestion is curious due to the fact principle reductions are already an optional part (for lenders) of loan modifications. The problem is that they’re just not done very often.
- Allow bankruptcy judges to reduce mortgage principle balances. This was also proposed at the federal level but was defeated last spring after intense lobbying by the banking and mortgage industries.
- Provide more funding for housing counseling and legal aid.
The report comes after an analysis of over 600,000 foreclosures in California found that Latinos and African Americans had much higher foreclosure rates than Caucasian and Asian homeowners. “We need solutions now that ease the pain everywhere,” says Paul Leonard, director of the center’s California office.
One solution proving to be more powerful than the CRL’s proposed plan is a new software generated analysis called the REST Report. The REST Report provides the same information the Lenders use for determining if it's more profitable to offer the homeowner a HAMP or "in-house" loan modification, short sale under HAFA, or proceed with foreclosure.The loan disposition software contains the calculations for "Net Present Value" (NPV), the complex algorithms used for determining if it's more profitable for the Investor that holds the note to modify the mortgage or foreclose on the property.The report can provide a huge value to homeowners either facing foreclosure or trying to modify their loans by providing information very similar to what is used by lenders to determine whether loan modification or foreclosure will provide the best financial return. Lenders have been using these secretive net present value (NPV) tests with increasing regularity and they are likely playing a role in the “unnecessary foreclosures” cited in the CRL report. "We have seen so many homeowners declined for permanent loan modifications after making all their Trial Mod payments on time due to NPV", says California bankruptcy attorney Ron Chini, partner at the Law Offices of Zhou & Chini.
Homeowners can now use REST Reports to assess workout options and represent financial outcomes resulting from a variety of modification and foreclosure scenarios. Prior to the availability of REST Reports, lenders held all the cards in the negotiation of mortgage terms. Homeowners can now engage in a modification process with as much information as their lenders, giving them a much better chance at a positive outcome. Additionally, a REST Report lets homeowners know whether they qualify for a loan modification under HAMP guidelines, if they should be pursuing other modification options, short sale or consider filing bankruptcy.
So many homeowners have defaulted on their mortgages only to have been declined loan modifications with little to no explanation, even after doing everything they were asked by their lenders. It's unfortunate they did not have the REST Report available up until now. When someone wanted to refinance or purchase a home they paid for an appraisal report before paying points and lender fees, right?
Now homeowners trying to modify their mortgage can buy a REST Report and get the information the bank will use to determine HAMP eligibility rather than end up in foreclosure. Additionally, if you have been declined or strung out with delays the sending the REST Report to your Mortgage Servicer will certainly get their attention.
If you are contemplating a loan modification, been declined or facing foreclosure, don’t let your lender call all the shots. For a consultation on how a REST Report can help to modify your loan or perhaps to save your home call the Law Offices of Zhou & Chini today.
