Mortgage Foreclosure & Refinance Resource

Neither one of the choices should be taken lightly, and of course you need to talk to your attorney, but here are some facts if you’re thinking about filing for bankruptcy to avoid foreclosure.  First, we caution against falling for some of the schemes that have been developed that entice a homeowner who is facing foreclosure to transfer a portion of the title to his home to a third person, who then files for bankruptcy. While that may temporarily delay the foreclosure courts are getting wise to the scheme and the delay may be very temporary. Typically the homeowner pays large fees and loses his or her home anyway. Some of the people engaging in such schemes have also been charged with fraud.  But now, with that warning out of the way…

When you file either a Chapter 13 or Chapter 7 bankruptcy, the court automatically issues an order (called the Order for Relief) that includes a wonderful thing known as the “automatic stay.” The automatic stay directs your creditors to cease their collection activities immediately, no excuses. If your home is scheduled for a foreclosure sale, the sale will be legally postponed while the bankruptcy is pending—typically for three to four months. However, there are two exceptions to this general rule:

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Hundreds of lenders told federal housing officials Thursday that a $300 billion mortgage aid program requires too many losses for consumers and lenders to realistically help 400,000 Americans avoid foreclosure.

“This program is extremely difficult and complex and just not logistically possible,” said Jason Graydon, a mortgage loan officer with Bank of Travelers Rest, in Travelers Rest, S.C.

Drawbacks to the government’s “Hope for Homeowners” program include requiring lenders to forgive massive portions of defaulting loans and forfeit future equity to the government. Another provision leaves homeowners owing the federal government half the value their home gains years down the road.

“The home is one of your biggest investments in your life. When you take away so much of that equity … are you really helping the homeowner?” asked Nebraska-based housing counselor Stacy Hlavacek, one of more than 500 lenders and counselors gathered in Atlanta for a two-day national conference.

The meeting is one of dozens the Federal Housing Administration has planned to publicize the program, which lets troubled homeowners trade risky loans for 30-year fixed rate loans with lower rates.

The program began Oct. 1, and is off to a slow start, the government conceded. The FHA received just 111 applications during the first month.

Critics point largely to losses that are tough for already troubled banks to stomach. [Read more →]

Fannie Mae, Freddie Mac and HOPE NOW, along with the Treasury and Federal Housing Finance Agency (FHFA), devised a free market plan to help only those homeowners whose mortgages are guaranteed toxic. In compliance with the Bush Administration doctrine – assist no homeowner who can make his payments or can be foreclosed profitably. [Sarcasm homegrown].

In any case, here is a list of mortgage servicers who have joined the “Streamlined Mortgage Modification Plan” or SMP for short, plan and will hopefully make it easier for some of their borrowers to alter their loan terms.

Who qualifies for the Streamlined Mortgage Modification Plan? Borrowers who are 90 days or more past due on a single-family home payment, occupy the property and owe at least 90 percent or more of the current value of the home. They can be in foreclosure, but can’t be in bankruptcy

Lenders:

Citigroup: About 130,000 mortgage customers are expected to qualify for the program, resulting in the workouts of over $20 billion of loans. Bank executives said they believed it would reduce losses by hundreds of millions of dollars, and possibly more. Like some of its competitors, Citi will also hold off foreclosing on troubled borrowers who have income enough to make their monthly payment and who make a good-faith effort to work out their loan with the bank.

JPMorgan Chase, which acquired Washington Mutual and its troubled loan portfolio, announced plans in late October to cut monthly payments by lowering interest rates and temporarily reducing loan balances for as many as 400,000 homeowners.

Bank of America, which acquired the large mortgage lender Countrywide Financial, announced a similar program aimed at 400,000 borrowers as part of a settlement with state officials a few weeks earlier.

HSBC ramped up its mortgage modification effort in January, and has adjusted 61,000 mortgages so far this year.

Wells Fargo & Co. of San Francisco spokesman said it is among those participating.

If we’re missing a bank that has joined the Streamlined Mortgage Modification Plan program, please post it in the comments and we will update this post.