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5 Essential Tips To Understand Your Mortgage Loan

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mortgage debt

Figuring out what your home loan balance is can be harder than a calculus exam.

For most people, their mortgage is their biggest debt.  And their home is their most important asset.

Yet, the people accounting for your payments are increasingly incapable of the very basics of their job.  And that makes your job, as borrower and homeowner, more challenging.

Not your parents’ home loan

Things have changed since the local bank made you a loan to buy a house and collected the payments you made on that loan.

Now, home loans get sold to someone else the moment the deal closes.  The right to collect the loan payments is bought and sold separately from the right to the payment amount.

And increasingly, the servicers make mistakes as they cut  corners to make a buck.

What do you need to know to assess whether your loan servicer has got the numbers right?

1.  Principal balance isn’t what you owe

Ask someone what they owe on their mortgage and they’ll recite the principal balance.  The principal balance is the remaining part of the amount originally borrowed that is still unpaid.

Yet you may well owe additional sums:  delinquent payments that are mostly interest;  late fees;  escrow advances; or the junk fees that most delinquent loans are larded with.

Finding the principal balance gets trickier yet if the loan has been modified to include a non-interest bearing amount or some other, non standard adjustment.

So the amount necessary to pay off the loan upon sale, or refinance, may well include charges from the past, plus fees for calculating what you need to pay to satisfy the debt.

2.  Payments are credited to oldest month unpaid

If you fall behind on a home loan, then resume making payments, your payment is credited to the oldest month still unpaid.

So the payment you make in June may be credited to February if you haven’t paid the payment that first came due in February.

And the servicer will report that you remain due for June, even though you sent a check in June.  It’s all in the rules about how payments are credited under the terms of the note.

3.  Payments may not be credited

Loan servicers seem to have a separate “pocket” labeled “Suspense”  into which they sometimes dump your payment. They’ve got your money, they just haven’t credited it to the amount you owe. The money is in “Suspense”.

The only reason for putting funds in suspense that seems justified is when the payment is too little to make a full payment on the loan.  Servicers don’t have to credit partial payments.

So, they put the money in suspense until they receive enough money to make the regular payment.

For reasons no servicer has ever adequately explained, I’ve seen suspense accounts in the tens or even a hundred thousand dollars.

So, a mortgage statement that doesn’t address any funds held in suspense doesn’t tell the whole story.

4.  Escrow accounts are padded

If your property taxes and hazard insurance are paid by the lender, you have an escrow account.

Under federal law, the lender is allowed to collect more than the sum of the year’s taxes and insurance as protection against the borrower’s non payment.

The extra money, the “cushion”, can be no more than 1/6 th of the annual expenditures.  It remains your money, it’s just held by the servicer should it have to pay when you haven’t paid.

You should get an annual escrow analysis that shows income and expenses in the past year’s escrow account and a projection of the coming year’s expenses.

That projection will determine what you pay in escrow payments going forward.

5.  Statement doesn’t come from owner of note

Ever since loans were bundled up and sold on Wall Street to investment trusts, the work of collecting your payments has been handed off to loan “servicers”.

The owner of the note pays a company to deposit your payments, keep track of fees and expenses, and take action if you don’t pay.

The servicer seldom owns the note, they just own the right to collect the money for the holder of the note.

And servicers change.  Sometimes as often as we change the oil in our car.

When there’s a loan handoff from one servicer to a new servicer, details about anything unusual in the loan account sometimes get lost.

Get behind the monthly statement

The problem of finding out what the servicer thinks you owe became such a problem that regulations written pursuant to the Dodd-Frank act gave borrowers some clout.

Now, a borrower with a home loan can make a Request For Information about their loan and expect answers within a shorter period than under the old law.

If the servicing of the loan has changed hands, the borrower has a window in which to request information from the old servicer, to compare with what the new servicer thinks.

Find the “how-to” for a Request for Information.

More

Your mortgage and your credit report after Chapter 13

Bad mortgage accounting violates your Chapter 13 discharge

Get tax credit for curing mortgage defaults in Chapter 13

How Chapter 13 works

Your Right To Credit Reporting After Bankruptcy

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credit report after bankruptcy

You’ve finished your Chapter 13 and emerged from bankruptcy with your home loan current.

But your credit report is a blank page as to your mortgage.

The mortgage servicer isn’t reporting your payments to the credit reporting agencies [CRA’s].  

Nothing. Nada.  Crickets.

So, even though you’re making regular payments, you’re not visibly rebuilding your credit.

Ask the servicer and they’ll tell you that they can’t report your payments “because of your bankruptcy discharge“.

But they are wrong.

Mortgages aren’t discharged

In Chapter 13, your liability on your mortgage is an exception to the discharge.

 The mortgage loan is not discharged as a personal obligation.

And therefore, there is no legal bar to the servicer reporting your payments, and every danger should they not report.

Here’s the part of the Bankruptcy Code that excludes long term debt like your mortgage.

Section 1328 says,

(a)… the court shall grant the debtor a discharge of all debts provided for by the plan …, except any debt—

(1) provided for under section 1322(b)(5); 

 Section 1322(b), defining the debts excepted from the discharge,  says

(b)Subject to subsections (a) and (c) of this section, the plan may—

(5) … provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;

So, among the debts excepted from the Chapter 13 discharge is a secured claim with a payment schedule that extends beyond the life of the Chapter 13 plan.

Servicer’s obligation to report

Put simply, if a creditor reported to credit reporting agencies  before the bankruptcy was filed, then there is an obligation to report after the bankruptcy.  

The “furnisher”, the creditor who supplies information to the credit reporting agency, has an obligation to make the information on file fully accurate.

In contrast to an unsecured debt like a credit card, which should be reported as having a zero balance after the discharge, the mortgage loan after Chapter 13 has a balance.

Presumably, it is also current.  Both facts which should appear on your credit report.

Get mortgage payments reported

If you find that your post discharge payments on your home loan aren’t being reported, challenge the accuracy of what is on your report about that loan with the credit reporting agency.

It is the CRA’s responsibility to see that information in your credit file is accurate.  The CRA is supposed to ask the furnisher to reinvestigate the challenged tradeline.

The Consumer Financial Protection Bureau has a how-to, with a template letter, on how to dispute inaccurate information on your credit report.

Get the good information reported as part of your fresh start.

More

How to find and fix credit reporting errors

Your post bankruptcy to-do list

How To Save Your House With Chapter 13 Bankruptcy

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Saving your house ranks high on the list of reasons people file Chapter 13.

The automatic stay stops foreclosures; Chapter 13 gives you time to fix the problem.

Powerful stuff.

But the stay and more time, alone, aren’t enough to save the day if you run afoul of other rules, written and unwritten, about homeownership in Chapter 13.

So, here’s your manual for Keeping Your Home Through Bankruptcy.

Read your Chapter 13 plan

The basic premise of Chapter 13 is that you continue making payments on your home loan during the plan.  Typically, you make the payments that come due after you file, plus catch up on any missed payments via your payments to the Chapter 13 trustee.

In the Bay Area, debtors can choose direct payment or a conduit plan

Every Chapter 13 district does things a little differently  but they all treat post filing payments in one of two ways:

  • either the homeowner makes the payments directly to the mortgage servicer, just as if there were no bankruptcy.
  • or, the on going payments are made to the Chapter 13 trustee, who in turn pays the mortgage servicer. (Those are called conduit payments.)

Make sure you know how it works in your district,  and when your first payment after filing bankruptcy is due.

Keep track of payments you make

Future disputes about whether you made payments directly to the servicer are virtually certain.  Arm yourself with a paper record.

You want your paper trail to be complete and retrievable.  Chances are, the servicer’s records won’t be as good.

I suggest clients pay by personal check (so you get a cancelled check) and transmit that payment by a means that gets you a receipt showing delivery.  With a receipt, you can monitor whether the servicer is promptly crediting your payment, as they are required to do.

Any automatic payments from your bank account or even your ability to pay electronically will undoubtedly be canceled by the servicer.

Compare monthly statements

A new federal rule requires servicers to continue sending you monthly mortgage statements.  That’s a welcome change.

More on the new mortgage statement format

The rule breaks out what is happening with your loan, both as to any pre-bankruptcy default and as to the post-filing payments.

Check out the statements to see if they are consistent, and save them for support in case there’s a dispute in the future.

Watch for payment changes

Your monthly payment on your home loan may change during the Chapter 13.  Escrow amounts for taxes or insurance may change; your loan may have an adjustable rate, or a time-limited interest only feature.

Bankruptcy rule 3002.1 now requires the servicer to give you advance notice of any change in the monthly payment you must make.  If you are in a conduit district, where the trustee makes the on-going payment, ask your attorney how increases in payments are handled.

The rule also requires the servicer to disclose any fees, expenses or charges that it adds to the loan balance during your case.  The disclosure must be made to you, your attorney and the court within 180 days of the expense being incurred.  You have the right to challenge the expense and have a hearing on whether it’s truly owed.

Pay your property taxes

Depending on your loan terms, you may pay property taxes directly to the local taxing authority.  Staying current on property taxes is a condition of being in good standing on your loan.

Know whether your property taxes are escrowed and thus included in your monthly payment, or whether you pay them directly.

If you pay property taxes directly, make it a habit to set aside 1/12th of your annual property taxes when you make your mortgage payment, so you don’t fall behind.

Avoid suffering a motion for relief from stay

The automatic stay is automatic, but it’s not necessarily forever.

If you fail to make required ongoing payments or fail to keep the property insured, the servicer can file a motion asking the court to lift the stay and allow it to foreclose.

More about motions for relief from the stay

Even if you manage to get a deal to cure any defaults, a motion to lift the stay will add to the lender’s attorneys fees, which they will want to collect from you.  And that’s on top of whatever you have to pay your own attorney to protect your property.

Don’t go there:  stay current.

Deduct the mortgage interest you pay

A large part of most mortgage payments is made up of interest on the loan balance.  That interest and any property taxes you pay to the lender are probably tax deductible.  But for reasons I can’t explain, servicers don’t give you a tax form 1098 showing the deductible payments you’ve made or the trustee has made on your behalf.

Follow our how-to on calculating your deduction and assembling the records to support your claimed deduction.  If you don’t do it, you can be sure the IRS won’t do it for you.

Reducing your income tax bill frees up money to make your plan payments.

Heads up and keep your house

This post bankruptcy to-do list isn’t complicated but it is important.  Armed with knowledge of the possible pitfalls, you can head off trouble and sail through Chapter 13.

More

Mistakes that crater Chapter 13 plans

If you can’t make your plan payments

Why discharge gets snatched away at plan’s end

Before You List Your Home For Sale: The Essential First Task

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Selling your home?  

  • Before you list your home,
  • before you interview a realtor,
  • before you lift a paint brush, or clean a closet, you need to write a letter.

A letter to the servicer of your mortgage.

You want full disclosure of what charges, fees, expenses and other “stuff” they want to collect from you when your sale closes.

For all you know, they’ve stuffed your loan full of fees, not authorized by law or agreement,  that pad their bottom line, and suck money out of your pocket.

Or, they’ve misapplied your payments or failed to note a mortgage modification.

So, your first step in selling your home is to get a handle on the loan payoff, while there’s still time to strip the mistakes and the junk fees from the payoff demand.

Why tackle your loan first?

Is it really necessary to explore your existing loan before you list your home for sale.  Yup.  You start with the existing lender because getting informatin takes time. Federal law requires them to make full disclosure if you ask, but they get 30 business days to do so.

So it may be a month and a half before you have their first response.  And if you don’t agree with the figures they produce, it takes longer still to resolve the dispute.

All too often, the inflated payoff demand doesn’t surface until your sale is about to close.  Maybe the payoff demand from the servicer bears little relation to the mortgage statement you’ve been receiving monthly.

And with a sales contract in place, a deadline for closing, and a buyer’s loan commitment about to expire, too many sellers are forced to accept the servicer’s numbers or lose the sale.

They end up paying too much because there’s no time.

Since good information takes time, start here first.

How to make a Request For Information

The Dodd Frank Act beefed up your rights as a home loan borrower to get information from the servicer of your loan.  Time lines were shortened;  broader inquiries were permitted.  And some consequences created for failure to respond.

Here are the essentials of a Request for Information under Reg. X 1024.36

An enforceable request must

  • Be in writing
  • Identify the borrower, the loan and the property address
  • Indicate that the property is your principal residence
  • Set out the information you seek
  • Be sent to the specially designated address of the servicer for RIF’s

The last requirement, delivery to the servicer’s designated address, that trips people up.  The magic address is often found on the back of the monthly mortgage statement.

Sometimes the address designated uses the previous name for the kind of request we’re talking about: Qualified Written Request.  Servicers usually have the address on their website, tho it may require digging to find it.

Don’t send an RFI with your payment.  Don’t ask for it over the phone.  You have a right to good answers only if you follow the procedures in the regulation.

What to ask the servicer

If you are selling your home, you want a payoff figure, itemized.

RFI example

Chances are you know what the principal balance is.  It’s the other stuff that doesn’t necessarily appear on your statement that you want to flush out.

Are there late fees, escrow deficiencies, non-interest bearing balances, inspection fees, appraisal fees, processing fees.

You get the picture.  Fees, fees, fees.  For too many servicers, their profit is all in the fees.  Find out ahead of time what you are facing.

Heading to sale

With your RFI in the mail, you’re ready to list your home for sale and turn to the myriad of other things to do to get your house on the market.

Mark your calendar for 30 business days so you know when to expect good information.

What if you get a response and you don’t agree with it.

Call the servicer.  Complain to the CFPB.  Ask a HUD certified housing counselor for help.  Get an attorney.

Consumer rights are only meaningful if they are used.

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The Judgment Lien That Escaped Your Bankruptcy

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I Have Forgotten Something

What do you do when you discover old judgment liens on your home long after you filed bankruptcy?

Your bankruptcy case is closed.

You’re recovering nicely.

Then you find there’s a judgment lien on your house that you didn’t know about.

And the law says that liens survive a bankruptcy case, unless the bankruptcy court orders otherwise.

Is there anything you can do to get rid of the lien?

Most likely, yes.

Can the lien be avoided

The debtor (that’s you, the person who filed the bankruptcy) can ask the bankruptcy court to void a lien on their property if

  • The debt existed when the bankruptcy case was first filed
  • The lien is a judgment lien
  • The property to which the lien attaches was claimed exempt
  • The property had too little value to pay any senior liens, the judgment lien, and your exemption

Let’s look at each requirement for an avoidable lien, found in Bankruptcy Code 522(f).

1. Predates the bankruptcy

Bankruptcy impacts only debts that predate the filing of the case.  That doesn’t mean that there has to be a default on the debt or a lawsuit filed.

But the events that create the debt have to have happened before the bankruptcy was filed:  you used the credit card;  you were involved in an accident; or you were transported by ambulance.

Your bankruptcy case potentially effects all debts arising before you filed.  But the legal rights involved can’t have arisen since your bankruptcy was filed.

2. Lien secures a judgment

Liens that can be wiped out because they impair exemptions must be judicial liens, that is a lien created by a lawsuit.

Voluntary liens, like mortgages and home equity lines of credit can’t be eliminated because they interfere with exemptions. This section of the law deals only with involuntary liens.

You can’t eliminate statutory liens, either.  Tax liens are created by statute.  They aren’t covered by this provision of the bankruptcy code.

3. Property was claimed exempt

Because this part of the law is focused on seeing that you get the full benefits of the exemptions you claimed, the property affected by the lien must have been claimed exempt.

Some courts will avoid a lien if the property in question could have been claimed exempt.

4. Lien frustrates claim of exemption

To meet this condition for avoidance, some math is required.

As of the day the case was originally filed, the value of the property then had to have been insufficient to pay the balance of any voluntary liens on the property, the exemption, and the lien you want to avoid.

It may be that the lien at issue is avoidable only in part, if the value of the house would pay mortgages and the exemption, and something beyond.

The fact that there is no value in excess of the voluntary liens doesn’t prevent you from avoiding the lien. It’s not an all or nothing thing.

Revisiting your case

So, what do you do when old judgment liens are discovered well after your bankruptcy case is over?  Reopen the case, and ask the court to avoid the lien or liens that impair your exemption.

Your motion to reopen needs to tell the court what you want to achieve.  Usually, you attach your motion to avoid the lien to the motion to reopen the case.

Most courts will want you to pay a new filing fee, to pay for the new work the court is going to do.  You can ask that the fee be refunded, but usually, you’ll have to pay up front to get started.

This isn’t a new bankruptcy case. You aren’t endangering the financial recovery you’ve made since your bankruptcy.  You are revisiting the old case to take care of old business.

The lawyer who helped you with the original case can handle the lien avoidance, or you can engage another bankruptcy lawyer to accomplish this task.

When time is tight

The overlooked judgment lien usually pops up when you are ready to sell your home or to refinance it.

Often that means you are working to deadlines.

A motion to reopen and to avoid a lien is likely to take 45-60 days before you have a bankruptcy court order in hand, voiding the lien.

If you find yourself short of time, consider negotiating for the escrow to hold the money that would otherwise go to the holder of the lien when the deal closes, while you go back to bankruptcy court.

If you didn’t check the public record before you filed your bankruptcy case to check for judgment liens, do it now.  Don’t wait for a time crunch.

Thankfully, bankruptcy courts are accustomed to helping with the overlooked lien.

More

Tax liens after bankruptcy

What was discharged in my bankruptcy case

Stripping off mortgage liens

Post bankruptcy check list

Image: Fotolia.com

 

Mortgage Forbearance For Non-government Backed Loans

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Covid 19 home loan forbearance

Are you one of the homeowners whose mortgage isn’t eligible for the government’s COVID forbearance protections?

Home loans not backed by the federal government are excluded from the protections for borrowers implemented by FHFA .

But as much as one third of US home loans are not backed by the federal government. If that includes you, here’s what the National Consumer Law Center has to say about your options in times of COVID-19.

Assisting Homeowners Who Do NOT Have a Federally Backed Mortgage Loan

If a homeowner has a mortgage loan that does not meet the definition of “federally backed mortgage loan,” CARES Act protections do not apply (except for the credit reporting provisions in CARES Act § 4021, discussed above).

State Foreclosure Relief

Many states have adopted broad foreclosure moratoriums that protect borrowers regardless of loan type, and some states have instituted mortgage loan forbearance programs.

For a continuously updated list, showing which actions are still current, see Covid-19 State Foreclosure Moratoriums and Stays.

Voluntary Federal Guidance

Federal bank regulators have issued guidance encouraging institutions to work with borrowers and relaxing some standards that may previously have limited a servicer’s flexibility to offer relief.

How to Get Non-CARES Act Relief and What to Ask For

Borrowers should contact their servicer by phone or online. Online may be the faster option as servicers are currently overwhelmed by the number of calls they are receiving. Log in to the borrower’s account and see what options the servicer is offering. It may be possible to apply online.

Borrowers can also request assistance by writing to the servicer. Check the servicer’s website or a recent account statement for the appropriate mailing address. Letters to the wrong address may be delayed or lost (or not effective if intended as a Request for Information).

Frame the letter as a Request for Information (RFI) about loss mitigation options. Such a letter will be governed by the response rules in RESPA’s Regulation X.

A sample RFI borrowers may use to ask about available loss mitigation options can be found here (PDF version) (MS Word). A sample RFI that advocates may use for information about a loss mitigation application can be found at of NCLC’s Mortgage Servicing and Loan Modifications Appx. E.2.7.

There is a private right of action to enforce these rules.

Used with permission. The entire NCLC article is found here.

Protecting your home

For those with loans not backed by the government, the options are clearly going to be less standardized and less predictable.

It’s worth watching the news for further government programs that impact non-federal home loans: the situation is certainly in flux.

Know that if you can’t reach an acceptable deal with your servicer, Chapter 13 is a workable tool for curing mortgage arrears while being protected from forclosure.

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How Chapter 13 works to save your home

How 13 Works To Save Your House From Foreclosure

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save house

Saving a house from foreclosure is the single reason most people file bankruptcy.

Bankruptcy stops foreclosure- that’s a given.

But then what?

How can bankruptcy save the house from foreclosure,  rather than just putting off the inevitable loss?

After all, the mortgage lender has a lien on the house, and liens aren’t discharged in bankruptcy.

So, how does bankruptcy help?  Meet Chapter 13 of the Bankruptcy Code.

Chapter 13 bankruptcy is the chapter of choice if your goal is to keep living in the house.  Or it works to enable a sale to realize equity or to avoid the credit hit of a foreclosure.

Chapter 13 imposes a payment plan on lender

Chapter 13 is built to allow the homeowener to cure defaults on long term debts like mortgages.

Gone is the ability of the lender to refuse to take catch-up payments or to insist on cure in a single payment.

This is federal law, and the homeowner is at the helm of this ship.

The homeowner in Chapter 13 proposes a plan for payments to the Chapter 13 trustee.  The court approves the plan. The trustee pays creditors according to the plan.  The usual distribution scheme pays secured claims, like home loans, first.

So,  your plan can provide that you pay the trustee a monthly payment that catches up on that default.  Chapter 13 plans last a minimum of three years and a maximum of five years.

Your plan will need to provide that you make the on going payments on the mortgage as well.  Each district has its own protocol as to whether you write the check to the mortgage lender for ongoing payments or whether you pay the trustee, who pays the lender.

Once your plan is confirmed, the lender is required to accept the payments.  Absent some post filing breach on your part, the lender is unlikely to have any way to push back against the payment plan.

Trustee challenges to confirmation

Because the confirmed Chapter 13 plan has such power, both the Chapter 13 trustee and the mortgage lender have opportunity and incentive to object to your plan.

coins in a stackThe trustee’s objection is often focused on feasibility.  Does your projected budget show that you can pay enough into the plan to do what’s required?

Remember that the amount necessary to fund the plan is not just the amount of the mortgage arrears.

The Chapter 13 trustee gets a commission on the money she handles in the case.  So, to get $1000 to the mortgage lender, you have to pay the trustee $1100, where the trustee’s commission is the 10% maximum.

Also, if you owe priority taxes, the Bankruptcy Code requires that those taxes be paid in full over the life of the plan.  Likewise,  any delinquent family support claims must be paid in full.

So, the total payments to creditors through the plan may need to cover other creditors as well.  It depends on the means test or the net value of your assets.

The trustee will look at the total amount your plan provides over the life of the plan and compare it to your projected income on schedules I and J.  Does it look like you can pay your current living expenses and the amount required by the plan?  If you propose to increase plan payments in future months, is there reason to think you will have the money to do that?

If not, your plan may not be feasible.  If it’s not feasible, it doesn’t get confirmed.

Mortgage creditor fights back

The mortgage creditor has standing to oppose confirmation as well.

Even if the secured creditor doesn’t challenge feasibility or good faith, both required for confirmation, the secured creditor has another, less direct weapon.

When you file bankruptcy, the secured creditor gets to claim not only the missed mortgage payments, but any money the lender has advanced for taxes or insurance.  And, they may have an escrow shortage projected for the current year’s payments.  That’s not to mention foreclosure costs and other fees.

So the lender’s claim may be larger than you expected.

The beauty of Chapter 13 is that the lender has to make full disclosure of those claims and you get to challenge whether the accounting is correct.  You can also challenge whether the fees sought are really allowed by the mortgage.

Mortgage check up at plan’s end

So let’s assume that you get your plan confirmed and faithfully make all the payments required.

New bankruptcy rules work to make sure that you emerge from Chapter 13 fully current on your home loan.

Bankruptcy Rule 3002.1 requires a lender secured by a principal residence to give notice to the court, the trustee and the homeowner of payment changes that occur during the case.

Also, if the required escrow payment changes, or any fees get added to the loan during the case, the lender has to file a notice describing the change.

And the homeowner can challenge changes or additions to the debt.  If it doesn’t get sorted out, a judge will look at the situation and make a ruling.

After the last payment to the plan, there’s a mortgage check up. If the lender contends you aren’t fully current on the loan, it has to file a detailed accounting showing how much it claims is unpaid.  That accounting is subject to challenge.

Debtor’s rights after 13 is over

mortgage tools for homeownersOne of the few good things included in the 2005 amendments to the Bankruptcy Code, in my opinion, are the provisions that make it a violation of the debtor’s discharge to improperly credit payments made pursuant to a Chapter 13 plan.

All too often, the lender or mortgage servicer either has two sets of books on a loan, or the entries it has made for payments during the plan get altered after the Chapter 13 is over.

Bingo, the lender now claims the borrower is in default, and foreclosure looms.

The bankruptcy court is now a forum for challenging those contentions and getting redress, including the borrower’s attorneys fees to make it happen.

Chapter 13 saves houses

The power of Chapter 13 goes far beyond the automatic stay in giving homeowners a chance to save their homes from foreclosure.

Not only does it get the homeowner some law to counter balance the endless rights of the lender in the loan documents, it gives the homeowner a referee in the form of a bankruptcy judge who can resolve disputes.

Bankruptcy judges over the last decade have seen much of the mortgage meltdown up close.  They’ve also seen the deterioration of mortgage servicing.  They are familiar with the problems and less and less tolerant of lender abuses.

Chapter 13 can be a struggling homeowner’s lucky number to save their house from foreclosure.

More

Our best advice on keeping your house

Image copyright Fotolia and Jakub Krechowicz

Feds Offer Deferral Option For Home Mortgage Payments

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save house

Homeowners with federally backed mortgage loans just got a lifeline for payments skipped under COVID 19 home loan forbearance agreements.

The feds have mandated that servicers offer deferral as one way to repay those payments that came due while the loan was in forbearance.

Deferral results in the missed payments being added to the back end of the loan. When homeowners resume making payments, their payments are the same as they were before the forbearance.

The deferred payments will be due when the home is sold or refinanced, or when the loan reaches the end of its term.

Without a deferral option

This action saves homeowners from facing a lump sum payment of the skipped payment the month after the forbearance ends.

The home loan forbearance agreements that I’ve seen all said that the missed payments were due in full at the end of the forbearance. Or the homeowner would have to negotiate a loan modification.

Pronouncements from governmental sources similarly suggested that each borrower with a forbearance agreement would have to negotiate with the servicer a modification of their loan terms.

Requiring loan modification for each loan in forbearance threatened a repeat of the disastrous round of mangled or illusory loan modifications we experienced in the Great Recession.

The pandemic has put far more homeowners in jeopardy than we experienced a decade ago. And there is no sign the servicing industry is any better prepared to deal with a tidal wave of modifications.

Guidance only for federally backed loans

While the federal government owns or backs some 2/3’s of home loans nationally, the remaining loans are not guaranteed the same mitigation options that FHFA directs.

You can find out if your loan is owned by Fannie Mae or Freddie Mac, the huge governmental financing agencies through these look up tools:

Fannie Mae

Freddie Mac

More on personal finances & coronavirus

Paying your bills

Tax deadlines moved

Chapter 13 cases imperiled by lock-down

Future of small business

Thinking about filing bankruptcy

Mortgage Payments During California Shelter-in-Place

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mortgage in pandemic

Is my house at risk if I have no income due to coronavirus?

With economic activity at a dead halt due to COVID-19, California homeowners worry about next month’s mortgage payment.  And the month after that, for as far as the pandemic can see.

While it’s early days, and I fully expect broad governmental measures to protect homeownership, here’s what we know at present.

Federal protections from foreclosure

HUD has imposed a 60 day suspension of foreclosures and evictions on loans from the FHA.  Loans backed by Fannie Mae and Freddie Mac will also get a 60 day reprieve, with promises of further extensions if the circumstances require.

So, how do you know if Fannie or Freddie owns or guarantees your home loan.  There’s a tool, or rather two tools, for that.

Look up your loan.

Fannie: 

Freddie

Thus, California homeowners with existing foreclosure or eviction actions are protected for at least two months.  I fully expect that period will be extended.

Dealing with missed payments

What if  you were current when the shut-down was imposed but you can’t make next month’s payment?

What’s a loan servicer?

If  your loan is owned or guaranteed by Fannie or Freddie,  servicers have been directed to  offer flexible payments or a suspension of all payments for up to a year.

I anticipate federal regulations that will require servicers to offer loan modifications or payment extensions.  We can hope that the system has more teeth than the HAMP modifications following the Great Recession.

Not Fannie or Freddie?

It’s less clear, at this point, how lenders with loans that aren’t federally insured will proceed.

Early data suggests that lenders are prepared to be flexible.  We’ll have to wait to see if the federal government requires it some time down the road.

Check on line for the latest from your lender/servicer.

California 90 day grace period

Governor Newsom has reached agreement with 4 of the top five federally chartered banks who own or service home loans.  (Bank of America is the hold out.)

Two hundred state chartered banks and credit unions have joined the agreement

The banks agreed to waive mortgage payments for 3 month  regardless of income level.  No fees or penalties will accrue, and there will be no negative credit reporting.

Borrowers do have to document that their inability to make payments was traceable to the coronavirus.  Details on what kind of documentation is required varies among lenders.

For Californians, the most reassuring news is that California foreclosures take a long time.  While California foreclosures don’t involve the courts, the notice and cure periods mandate 4-6 months between the start of foreclosure and an actual foreclosure sale.

And the people who conduct foreclosure sales are in lock-down, too.

Write and call

For every debt that you can’t pay because of the shelter in place order, call the creditor to tell them how you are affected.  That’s what the creditors all say.

I say, follow up that call with a short letter repeating the facts of your situation.  Doesn’t have to be long or fancy.  Just get paper in the creditor’s hands.

Keep a copy for yourself.  Don’t count on the creditor to be able to file your letter and find it later.

Then you’ve made a record of your call and your situation.

Looking forward

I fully expect that we will see muscular, nationwide programs to keep people in their homes.  As a society, and an economy, no one benefits if masses of families lose their homes.

It will take time to work out just what those programs look like and how well they work.

But work it out we will.

Updated 3/30/2020

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When you can’t pay your bills during pandemic

 

 

Home Mortgage Forbearance: Will It Save Your Home From Pandemic?

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mortgage forbearance

Mortgage forbearance for homeowners, shout the headlines.  No need to make a house payment.

Borrowers who can’t make this month’s mortgage payment were thrown a lifeline of sorts in the coronavirus rescue package.

Only it’s probably not the help you think it is.

And the lifeline may be far more fragile than you will need in the long run.

So, let’s take a tour of the CARES Act as it applies to home loans and see what the neighborhood looks like.

Not all home mortgages are covered

Only home loans that are made, owned or backed by an arm of the federal government are covered.  That’s approximately two-thirds of all home loans.

Fannie Mae and Freddie Mac handle most of the federal loans.  See whether your loan is one of the covered federally-backed loans with these look up tools.

Fannie Mae

Freddie Mac

If your loan is not federally backed, you need to look to your loan servicer or to local and state protections if you can’t make your mortgage payments.

Hardship must be virus-related

virus and moneyTo invoke the protections of the rescue package, your inability to make the mortgage payment has to be traceable to the virus or the fight against the virus.

Apparently, all that is required is a statement that your financial hardship is caused by the National Emergency.

No magic words, no sworn statements, no documentary proof.  Just blame the virus.

Claiming the protection

Early discussions said “call your lender”.  Well, we know how practical that is when millions are trying to get through on the phone.

Calling works, if you can connect.

Better, check out your servicer’s website for a Coronavirus hardship page.  Many allow you to sign up for help by checking a box, or sending an email through their site.

Always, when  claiming a benefit, follow up in writing with the statement of hardship and your contact info and loan number.

We have to expect screwups and delays.  As a society, we’ve never experienced a crisis this sudden, dire, and widespread. So back up your claim in writing, and keep a copy.

What is forbearance

The CARES Act offers forbearance to borrowers with federally backed loans.  Just what is forbearance.

Forbearance is a suspension of payments

In essence, the lender puts on hold its right to invoke legal consequences for failing to pay.

Contrast forbearance with deferral:  deferral adds missed payments to end of loan

Forbearance doesn’t change the amount due monthly, or change the life of the loan.

Importantly, at the end of the period of suspension, all of the suspended payments are then fully due.

Ouch!

So, take the six month forbearance provided in the law, and in month seven, those six months of payments are due. (The law allows for a request to extend the period of forbearance for another six months.  A request for a further forbearance MUST be made during the first period of forbearance.

What comes after forbearance

Here’s where the short-term nature of the remedy comes up short.  This bill just pushes the nonpayment problem down the pike.

What the feds are saying is that at the end of the forbearance period, each borrower will have to make a deal with their servicer to get current.

UPDATE:  Feds assure borrowers that their homes aren’t at risk of loss due to forbearance.  The alternatives are still to be worked out individually.

At the current time, there are no regulations or even templates about what that “deal” might look like.

But if you were involved in mortgage modifications following the Great Recession, you’ve looked into the maw of chaos.

Given the much broader path of these troubles,  the mess to follow will make 2008 look orderly.

What lenders are offering

enticing offerI’ve seen a number of offers stuffed in mortgage statements in the last month offering forbearance to borrowers, apparently without asking.

Typically, the lender offers to suspend payments for three months, with all missed payments due in month 4.  I’m fearful that borrowers will snap at that offer without understanding it, or without any real expectation of how they’ll make four months’ payment at the end of the forbearance.

Neither do I know whether these offers are going to homeowners with federally backed loans or whether they are being offered more broadly.

I suspect the offers are made in good faith and on the spur of the moment.   However, I’m fearful about the lender’s plans (or lack of plans) for what happens after forbearance.

Details to follow

Obviously, the CARES Act was cobbled together quickly in the face of emergency. It surely won’t be the last word from Congress on getting homeowners through this crisis.

Watch for the next round of remedies, and  raise your voice for a fair, enforceable, efficient process to preserve homeownership in a time of pandemic.

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