Who can you turn to when you see financial troubles on the horizon? Who has experienced the effects of the law and its unintended consequences on you and your family? What bills should you deal with first to minimize the damage? Who can show you how to delay judgments and/or foreclosure without an attorney? Who can explain what steps you should take so you can plan for the worst? Who can show you the details of a bad loan sold to you by greedy mortgage companies? Paul Stemborowski is that person! Paul has spent the last ten years restructuring finances for thousands of people, helping them avert financial catastrophe. He has also helped thousands after they went bankrupt. In his attempt to solve every problem for everyone, he listened to all the stories in an attempt to learn from clients past experience. The outcome was a person with the knowledge and negotiating skills everyone facing financial issues wanted to talk to.

How to Modify Your Loans

And Save Thousands of Dollars by Doing ItBy Paul Stemborowski

AuthorHouse

Copyright © 2009 Paul Stemborowski
All right reserved.
ISBN: 978-1-4389-9056-9

Contents

#1 TITLE...................................................................................iii#2 DISCLAIMER..............................................................................v#3 ACKNOWLEDGMENTS.........................................................................vi#4 WE ARE A NATION OF LAWS.................................................................1#5 THE HISTORY OF THE HOUSING CREDIT BUBBLE................................................2#6 REFINANCING AFTER THE CREDIT BUBBLE.....................................................8#7 THINKING OF USING YOUR 401K TO STAY OUT OF BANKRUPTCY...................................10#8 NEW BANKRUPTCY LAW......................................................................11#9 VERBAL COMMUNICATION MEANS NOTHING......................................................13#10 HOME RETENTION DIVISION................................................................15#11 LOSS MITIGATION........................................................................16#12 OUTSOURCING AND CUSTOMER SERVICE.......................................................17#13 ORGANIZATION...........................................................................19#14 HUMAN FACTOR...........................................................................23#15 I MODIFIED BEFORE MARCH 4, 2009........................................................26#16 KNOW YOUR OPTIONS......................................................................27#17 HOMEOWNER AFFORDABILITY PLAN...........................................................29#18 I DON'T QUALIFY FOR THE HOMEOWNER AFFORDABILITY AND STABILITY PLAN.....................33#19 CHOOSING A LOAN MODIFICATION COMPANY...................................................39#20 LOAN MODIFICATION PITFALLS.............................................................41#21 I WAS DENIED A LOAN MODIFICATION.......................................................45#22 BEHIND THE CURVE.......................................................................52#23 BE PREPARED FOR THE WORST..............................................................55#24 ALL THE DOCUMENTS YOU CAN FIND.........................................................56#25 THE INTERNET IS WHAT YOU MAKE OF IT....................................................59#26 HARDBALL...............................................................................61#27 FAX BOMB...............................................................................64#28 NO INCOME-VERIFIED LOAN MODIFICATION...................................................66#29 EFFECTS ON THE SELF-EMPLOYED...........................................................68#30 SPOUSE PASSED AWAY.....................................................................71#31 SECOND MORTGAGE LOAN MODIFICATION......................................................72#32 NEIGHBORHOOD ASSISTANCE CORPORATION OF AMERICA (NACA)..................................75#33 TWO PEOPLE TO BE AFRAID OF.............................................................76#34 A JUDGMENT FOR FORECLOSURE FILED.......................................................77#35 REVERSE PSYCHOLOGY.....................................................................79#36 PRE-FORCLOSURE LETTER..................................................................81#37 I KEEP GETTING FORECLOSURE LETTERS.....................................................83#38 TWO PROPERTIES AND FOUR MORTGAGES......................................................85#39 I HAVE THREE PROPERTIES, AND I CAN'T CLAIM CHAPTER 13..................................87#40 SHORT SALE.............................................................................88#41 SHORT REFINANCE........................................................................90#42 HOW TO DISPUTE THE VALIDITY OF THE DEBT................................................91#43 COURT OF EQUITY........................................................................93#44 SHERIFF'S SALE DATE....................................................................95#45 MEDICAL BILLS..........................................................................96#46 KEEPING YOUR CREDIT CLEAN..............................................................98#47 LIFE AFTER BANKRUPTCY..................................................................104#48 CLEANING UP YOUR CREDIT REPORT.........................................................106#49 CREDIT CARD DEBT.......................................................................115#50 HOW TO BEAT THE BANKS..................................................................118#51 HOW TO AVOID FINANCIAL PROBLEMS........................................................138#52 DIVORCE: A REAL NET-WORTH DESTROYER....................................................140#53 QUESTIONS AND ANSWERS..................................................................142#54 MAKING MONEY AT LOAN MODIFICATIONS.....................................................145

Chapter One

WE ARE A NATION OF LAWS

We are a nation of laws. A lot of politicians are or were lawyers. The United States of America is so successful because we have rules, and they are law. We have a court system that keeps the majority of us law-abiding citizens. A lot of our problems stem from not understanding the rules and how they affect us. If we can learn the rules and understand the effects of our decisions, we will have a better chance of making the correct decision. I do not know everything, but I do know the effects of the law on people experiencing financial difficulties.

Since 2000, I have listened to the problems of a cross-section of people in the United States. I listen to the mistakes they have made because they did not know the rules or who to go to for advice in a time of financial trouble. Also, it is hard to predict what the future holds. In writing this book, I have tried to relay the problems that a lot of people have experienced and put them on paper in hope that you can benefit.

Do not get frustrated. You can overcome this temporary financial distress by learning how foreclosures and bankruptcy really work. Understand what your creditor can do to you. Better yet, understand what your rights are. There are a lot of laws. The laws are geared to protect the consumer. We all get a three-day right of rescission when we refinance or sign a contract. If a company violates the many rules made to protect you, you could win an award or have the loan nullified! Google Troy Doucet and 23 Legal Defenses to Foreclosure. The tactics explained in Troy Doucet's book are interesting and could help you negotiate. The more you know, the better your chance of success!

Chapter Two

THE HISTORY OF THE HOUSING CREDIT BUBBLE

Since 1977, when I started in the real estate business, this country has been through many cycles of ups and downs. If you understand the rhythm, you could work hard and save money through bank CDs, stocks, bonds, and the purchase of real estate. Most of us only heard of the Great Depression. We have never experienced that kind of economic disaster. My parents and uncles never let me forget that saving for a rainy day was very important. To tell you the truth, I was sure that the global economy would never let a great depression happen again.

Now that the events from 2001 to 2009 have unfolded, I am not so sure. To be successful helping yourself and your family, you must understand what did occur. I will start with the 1930s. So, let's go back to when the banking system failed during the Great Depression. Home loans were three to five years in length, with no amortization. Remember this because the term of a loan is part of my solution for where we are today, and amortization is the key to saving hundreds of thousands on interest. Anyway, back to the 1930s. When the banks failed, there was no refinancing available and the banks called back their loans. With few people working, the banks foreclosed on the homes. However, with low property values, the bank had few valuable assets.

Therefore, in 1934, the National Housing Act was passed, and the Federal Housing Administration (FHA) was created. The FHA allowed more homes to be purchased, and the values of homes increased.

In 1938, Fannie Mae was established for the purpose of making more loans available to low-income families. It succeeded by creating liquidity within the mortgage market.

In 1944, Congress passed the Servicemen's Readjustment Act, which guaranteed loans made to our servicemen.

By 1968, Fannie Mae became a stockholder-owned corporation charted by Congress. Its purpose was to purchase and securitized mortgages to ensure funds were available to the institutions that loaned money to homebuyers.

In 1970, Freddie Mac was created to expand the secondary market for mortgages. Freddie would buy mortgages on the secondary market, pool them, and then sell them as mortgage-backed securities. The secondary mortgage market increases the supply of money available for mortgages! More money available means more loans, more homes built, more people working, more people who need homes, and the economy expands.

In the late 1970s, securitization of mortgages evolved to become a big part of the mortgage market. A securitization is a structured finance process, which involves pooling and repackaging of assets that produce cash flow. It allows a company to sell its mortgages to another company. Once it sells the mortgage, it can lend more money to new borrowers for homes.

By 1985, securitization techniques that had been developed in the mortgage market were applied to nonmortgage assets. Car loans were the first; by the next year, lenders were securitizing credit cards.

In 1977, the Community Reinvesting Act was passed. This was an attempt to address deteriorating conditions of American cities.

In 1989, the Financial Institutions Reform Recovery and Enforcement Act was passed in the wake of the savings and loan crisis of the 1980s. This increased public oversight of the process of issuing Community Reinvestment Act ratings to banks. Agencies were required to issue Community Reinvesting Act ratings publicly. Again, this was an attempt to address deteriorating conditions of American cities.

In 1992, the Safety and Soundness Act required Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that purchase and securitize mortgages, to devote a percentage of lending to support affordable housing.

In 1997, First Union Capital Markets and Bear Stearns Investment Company launched the first publicly available securitization of Community Reinvestment Act loans. They issued 384 million of this type of securities, and they were guaranteed by Freddie Mac. The rating was AAA. The public offering had more buyers than securities available.

In 1999, Congress enacted the Gramm-Leach-Bliley Act. It was also known as the Financial Service Modernization Act, which repealed part of the Glass-Steagall Act, which prevented a bank from offering a full range of investment, commercial, and insurance services.

Also in 1999, Fannie Mae came under pressure to expand mortgage loans to low- and moderate-income borrowers. Plus, institutions in the primary mortgage market (mortgage brokers, banks, and mortgage bankers) pressed Fannie Mae to ease credit requirements on mortgages it was willing to purchase.

In 2000, in order to expand the secondary market for affordable community-based mortgages and increase liquidity for Community Reinvestment Act-eligible loans, Fannie Mae committed to purchase and securitize two billion of My Community mortgage loans. In November of 2000, Fannie Mae announced that the Department of Housing and Urban Development (HUD) would require it to dedicate 50 percent of its business to low- and moderate-income families.

I had sold my third mortgage company in 1996. I had a two-year contract as a senior vice president with the Fortune 1000 company that purchased it. The new owners were securitizing all types of loans on real estate, commercial and residential. This company promised to deliver millions in loans to Wall Street. Every month! The company would securitize a pool of loans at one time, deliver them, and collect a huge fee based on interest rate, length of the loan, loan to value, and credit quality. Example: Let's use $1,000,000.00 in loans. If the average interest rate is 14 percent and the average term of the loan was twenty years, with a AAA credit rating, the company would receive $1,070,000.00. Plus, our company would collect the payments and earn a percentage. If, after a review by the credit-rating agency, the $1,000,000.00 in loans was not graded AAA, the credit-rating agency would charge us a fee for an insurance wrapper, which would raise the grade of the crediting rating to AAA so they could be securitized on Wall Street. We got our $1,000,000.00 back to make more loans, and we made a profit! Wall Street got a 13 percent return on its money, and the rating agency earned its fees plus the insurance wrapper. The world was great!

In 2001, September 11, as we all know, the attack on our great country put fear into every American and the financial markets. In order to restore calm, the Federal Reserve reduced interest rates thirteen times.

I wanted no part in owning another company, so I went to work with a mortgage firm close to my home. The mortgage business was great because of low rates and the invention of FICA scores, which is a computer scoring system. Desktop underwriting, which was Fannie Mae's computerized approval system, loan originator, which was Freddie's approval system, and desktop originator, which was FHA's approval system, made it easy for a salesperson to give a client an answer on the spot. As long as the information about income, assets, and home value were correct, the loan closed! The Fannie/Freddie systems were great because they had a four-tier approval system. Approve eligible was the best rate. Level 1 was about half a percentage higher. Level 2 was another half percentage higher. Level 3 was another half percentage higher in interest rate. It was great because. if the client had a couple of credit problems, they would get a thirty-year fixed at a slightly higher rate. If you could not get it approved through Fannie or Freddie, you had the FHA. If you still could not get it approved, you had level four, which were the hard moneylenders, such as Option One and New Century. Plus, we had a great outlet for jumbo loans and no income verified through Countrywide.

From 2001 until about 2006, there were few loans we could not close. We would joke in the office about products that would allow someone to buy a home with no money down, no income, and FICA scores under 500! I found out when David Faber from CNBC reported on his show House of Cards that the product did exist! By July of 2007, the real estate and credit bubble had burst. Why? Well, it turns out that lower credit standards, relaxed government regulation, and the ability to securitize the lowest credit, no income-verified, no money down loans on Wall Street, who then sold them all over the world as mortgage backed securities, which historically had been then a safe investment, caused the problems that we have been going through since 2007. That's not all. Many companies on Wall Street started selling credit default swaps before the bubble burst. A credit default swap has been compared to insurance, but it's not.

It's a commitment between the counterparties. The buyer makes periodic payments to the seller and, in return, receives a payoff if an underlying financial instrument defaults. As an example, securitizations that were sold to Wall Street could be put in a collateralization debt obligation. It's a structured asset-backed security whose value and payments are derived from a portfolio of fixed-income assets, such as securitization mortgage or other loans or debt. A mix, if you will, because why put your eggs in one basket? Different types of loans spread the risk in the event that one asset class performs poorly. So, Wall Street would go to the investor, fund, group, or whoever was holding a lot of debt and suggest they should pay a fee in the event the collateralization debt obligation perform badly or fail. This way, if it fails, we will pay you for your loss. The only problem is a credit default swap is not insurance! Insurance regulations state to insure against loss, you must have a certain amount of assets in the event of a huge payout. So, if you are an insurance company and you insure a million dollars of homes, you musts have between $100,000.00 and $250,000.00 in cash or liquid assets to ensure your insurance company can pay a reasonable amount of claims in the event of loss. Credit default swaps have no such regulation. When the home values dropped and the borrowers stopped paying, the counterparties that purchased the credit default swap contracts could not collect. That's when the dominoes fell one by one! Next came higher unemployment, more mortgage defaults, and so on.

The government has propped up banks, raised FHA loan limits, and put the home owner affordability and stability plan into effect. How does it affect you? How can you save your home? Just turn the page!

Chapter Three

REFINANCING AFTER THE CREDIT BUBBLE

The first place to start is your current mortgage company. Order a payoff in writing from customer service. This should create a call from the loan retention division of your company in a week, asking you if you are refinancing. Your second call should be to a bank near your home. Banks charge less and want to provide you with great service, because they want your bank accounts. There are some banks left that hold the loans. However, it's not very important if they do; what's important is lower rates with lower fees! The third place to apply is one of the biggest mortgage companies in the United States: Bank of America, Citibank, Wells Fargo, Countrywide, Wachovia, Flagstar, National City GMAC Mortgage. Most mortgage companies and some banks sell their loans to them and only add fees you do not want to pay. The big national mortgage companies have fewer restrictions on FICA scores, which makes it easier to qualify! If your timing is right, you will know the rates and fees from your bank and the national mortgage company of your choice by the time your current mortgage company calls from the loan retention division. Your current mortgage company should be able to beat every other company in service, fees, and rate. If it doesn't, let the company know you have a better deal with another mortgage company. Remember: you can run your credit as many times as you want with a mortgage company and your scores will not drop for forty-five days. If a loan officer tells you any differently, he is trying to stop you from shopping! I am not suggesting you have your credit run ten or twenty times. My plan has it run three times, maybe four. I also avoided Internet websites like Lending Tree, because some sell your information to mortgage brokers that run your credit many times and call you at work and home or e-mail you over and over again! Lending Tree is owned by one of the national mortgage companies anyway. After you're approved with your current mortgage company, a bank, and one or two of the national mortgage companies, you should have about ninety days to close without having to run another credit report. Your approvals are only as good as the information you gave each loan officer, so make sure all your information is accurate! Home values should be checked with www.cyberhomes.com, www.zillow. com, or www.realtor.com, or a realtor in your area. Retirement statement balances should be current, and that's the account balance that should be given to the loan officer. Most approval processes are computerized, and there is no need to pay for an appraisal before your loan is approved. With the correct current information, you should be 99 percent sure the loan will close at the interest rate, points, and fees disclosed to you up front. Don't forget to compare your loan to the same terms you have remaining! If you had a thirty-year loan and you've paid on it for five years, compare your payment to a twenty-five-year loan. That will be proof you're really saving money. You can still take the thirty-year loan if you wish, but comparing apples to apples is the best way to make sure refinancing makes sense. A lot of low-interest rate programs are government loans. And government loans have one or two mortgage insurance charges, so make sure you take that into consideration when comparing payments. Also be careful with your monthly escrow charges. If your current mortgage company raised your payment due to an escrow shortage, you could get an incorrect number on the amount being saved. You can ensure against this by reviewing your current mortgage statement and comparing your principal and interest payment to your new principal and interest payment. Again, don't forget to take into account any mortgage insurance charges!

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