From the eyes of an Expert Witness.

Comments on Comments:
These comments are meant to relay information about the mortgage industry, Mortgage Workout Options and Tustin Law Center to consumers with the sole intent of informing the public and guiding borrowers into making informed decisions. All my statements are true and accurate to the best of my knowledge. If you discover that one of my statements is wrong or inaccurate please let me know so I can change or delete it.

Fraud in the Loan Mod Industry
Two years ago (2007) a few of us went into this industry with the intention of helping borrowers. I remember pulling a title search and seeing a lot of loans adjusting in 2009 from 1.5%-5% to 7% plus. With Alt-A and sub-prime gone, how were borrowers going to afford the higher payments? I started a company and created the loan audit system to force lenders to the bargaining table. The idea was to audit the loan, turn the results over to an attorney, and have the attorney negotiate, or even sue the lender to get you a loan you could afford. I used brokers and loan originators to sell the program so resources wouldn’t be spent on sales. Better than half the brokers and loan officers I approached thought it was a great idea but instead of helping us they started doing loan mods. Some of these “Mod Shops” would take your check and your information, and then throw the package in the trash once the check cleared. In a couple of months they would say you were denied. The DRE came in and shut down a number of these offices. Next it’s the “forensic audits”. Forensic is “the application of a broad spectrum of sciences to answer questions of interest to a legal system”. The scammer’s had taken a word from the popular TV show and used it to make it sound really good. The truth is there was no audit, just a mod shop. Again a lot of shops were shut down. By now most “moders” that were not in jail looked at the federal laws that define “foreclosure consultant” and decided that they need an attorney to hide behind. To make matters worse the “moders” who found attorneys and explained the process created even more competition because now attorneys went into the loan mod business. Now you have two general types of “moders”; mod shops who have to say they have attorneys but don’t and attorney’s who know little about the mortgage industry doing modifications just for the money. How do you know where to get help? The first step is to ask the questions! What are my options? If they say loan modification hang up! Next, if they plan on doing an audit ask to see a completed audit. They can’t give you borrower information but if they are for real they can hide borrower information and show you an audit. Look at the audit. If it’s a generic print out that has “TILA”, “RESPA” and “HOPA” violations only, run! TILA has no teeth for litigation and RESPA and HOPA are only enforceable against brokers by the state authority. (DRE for California). This kind of audit is just a show and is in-fact a scam. Ask for the plan if your modification is denied. If there is no plan “Mod Shop”. If the plan of a failed modification is Short- Sale, it’s a “Mod-Shop”. (Shameless Promotion) Mortgage Rescue Options actually does what we say we will do. Call us and discuss your options and if you live in Southern California, come see us. Ask us the hard questions and we will have honest answers. If we don’t feel we can help, we won’t take your case. (or your money)

Why Would You Pay for a Mortgage Modification When the Bank and the News Media (Even the President) Are Telling You That You Can Do it Yourself?
The truth is you can do it yourself BUT do you know how? Every Bank is different. Look at http://www.ustreas.gov/press/releases/reports/modification_program_guidelines.pdf for an example. This is the President’s plan and the reason why my phone blew up after his speech with comments like “The President said he’s going to save my house so why do I need you?” Some key factors are your lender/investor/servicer must be in the program, the house must be owner occupied only, you can only be modified under this program once, the 1st mortgage must be less than $729,750, and the lender has to be willing to put your loan in the program. Some lenders only allow you to submit one time per year so if you screw it up you have to wait until next year to try again. If you make too much you’re declined, if you make too little you’re declined. If your hardship letter explains how you got into this situation, but you have no way out, you’re declined. If the hardship is not accepted or believed you’re declined. For example: If you are recently divorced and your income has decreased because you lost one income, will that be accepted as a hardship? It seems like it would be BUT many lenders will reject it outright. They see divorce as a choice not a hardship. Mortgage Rescue Options / Tustin Law Center have experience with almost every lender and have a much greater chance of success than the average home owner. If you want to try it yourself at least use the borrower assisted modification program we offer. It may save you thousands of dollars over the course of your loan and you can’t afford to do it wrong.

Everywhere I Read I’m Told Never to Pay Upfront, So Why Do You Charge Upfront?
In a perfect world we would do this for free. I love to take on lenders and talk to borrowers about their problems. Unfortunately everyone who works for me expects a paycheck. The idea of collecting money after we do our job sounds very noble on the surface but what’s the incentive to pay after the work is done. A borrower in financial trouble is not the best credit risk and as much as I’d like to help I have to pay my people. If I collected the money after the fact I’d have to start my own collection company and that’s not what we do. You also have to expect to get what you pay for. Any company that charges after the job is done will only work on the jobs they can get paid for. The industry average for successful settlements is around 20%. That means 80% of the customers won’t be helped. Our success rate is around 80%. In short if we only charge after the job 60% of the customers won’t be taken. Are you one of these 60%?

I Have Heard Banks Are Giving Principal Reductions. Can You Do That?
Principal reductions on primary mortgages are possible BUT it’s like seeing Big Foot. Even if you really did see it no one believes you.
See http://www.lendingsanity.com/index.php?option=com_mojo&Itemid=89&p=25 .
F.D.I.C. Chairperson, Sheila Bair, stated in her press release the following:
“The F.D.I.C. will look to write down mortgages for IndyMac Bank customers to whatever levels the borrower can afford. “Borrowers would have their debt-to-income ratios reduced to no more than 38%, which in most cases will require writing off principal and/or reducing interest rates below their current level.”

There are too many factors when getting a mortgage modified to promise anything. Your debt, the home value, the servicer, and the note holder all play a part in the outcome. Anyone who tells you or guarantees you a principal reduction happens in most cases is misinformed or lying (Even Sheila Bair). The fact is the note holder invested in your mortgage to make money. He will make the best deal possible to keep his income maximized or his losses at a minimum.

Do You Think it’s Your Fault Your Mortgage is No Longer Affordable?
I hear all the time from borrowers that they should have known better. They knew the house was more than they could afford when the bought it and now it’s their fault they are in trouble. IT’S NOT YOUR FAULT! Every time you turned on the radio or watched TV you were hearing lender ads. Ads like “you can buy a million dollar home for less than your car payment” and “real estate is your best investment for your future” induced millions of people to buy a home. Realtors would tell you that property values won’t go down because everyone has to have a place to live and it’s a safe investment. With the barrage of hype and commercials it’s no wonder that borrowers over-bought. Even mortgage industry experts got stuck with investment properties they can no longer afford. There was no way for an average borrower to predict what has happened. The lending industry should have known better, but were blinded by greed. Get angry and do something about it, but make sure you evaluate all your options, don’t just try for a loan modification. If you’re unsure call Mortgage Rescue Options and discuss your situation. (Shameless promotion) If you’re in southern California, come see us. Before you spend one dollar, make sure you have your questions answered.

How Did All This Happen?
It’s a long story but a good place to start is http://www.lendingsanity.com/ , but brokers are a small piece of this puzzle. While it’s true that there were a lot of bad brokers you have to start at the top. In 2000 the stock market flat lined with the fall of the .com’s. Basic economic principals state that money gravitates to the highest rate of return. Wall Street started shifting investment from stocks to securities. The securities that had the highest rate of return were mortgage backed securities. The demand from investors for these securities forced Wall Street to keep lowering the bar on loans they would buy. They made a deal with the largest lenders to deliver loans in bulk called “pools”. These pools were then split up, insured (Securitized) and sold. There were only so many A borrowers to go around and before you knew it, if you had a job at McDonalds, you could buy a million dollar house on a “no doc” loan. Contrary to the Presidents comments about how this entire problem was caused by “unscrupulous brokers” the reality is, it was caused by Wall Street’s greed and the lenders and brokers were all too happy to sell anything consumers would buy without regard to the borrowers ability to repay the loan. In 2007 Wall Street stopped buying sub-prime loans. Lenders had millions of dollars in loans they couldn’t sell causing them to go bankrupt, and with the media fueling the demise, in less than a year the industry crashed. Look at http://ml-implode.com/ for the latest toll. The unfortunate part of this is it took investors of mortgage backed securities with them. See http://hf-implode.com/ for a list of just the hedge funds. Wall Street designed loan programs of two, three, and 5 years that had to be refinanced after that period or the borrowers would loose their house. With sub-prime gone and no way to refinance, property value plummeted, the securities plummeted and foreclosures went to an all time high. Lenders had no choice but to modify loans.

What is the Difference Between a Loan Audit / Loan Reformation and a Loan Modification?
To put it simply a Loan Audit / Loan Reformation is based on facts that happened during your purchase or refinance that can be used as leverage against you lender to get you a better loan. A loan modification is based solely on the borrower’s ability to repay the loan based on their current financial situation. From my standpoint when you ask a lender to modify a loan based on financials and hardship you play by the lender’s rules. Your modification is based on what you can afford and lender specific guidelines. If you are declined you have no recourse but a short sale or a foreclosure. Personally I believe you should always negotiate from a position of strength. With the Audit we find all the bad things the realtor / Broker / lender did when your loan was originated. A realtor and a broker have a fiduciary responsibility to the borrower because they are the borrower’s agent. See http://mortgagewhistleblower.blogspot.com/2008/06/mortgage-broker-fiduciary-duty.html for more information on this. A lender has a fiduciary responsibility not to put a borrower into a loan they can’t pay back. For a report on Lender Underwriting Practices please read http://www.fdic.gov/bank/analytical/report/2002sept/uw0209.pdf . The reality of the mortgage industry was that most of the companies involved were in it for the money and ignored their responsible to the borrowers. If you were a victim of these unscrupulous companies our auditors will find proof we can use against your lender to get you a better mortgage. (For the record “unscrupulous” was used by President Obama in his speech to the country on the practices of mortgage companies. Personally I never say “unscrupulous”)

Who Makes the Decision About Fixing My Loan?
That question is a bit complicated. You send your payment to a mortgage servicer. They are for all basic purposes a bill collector. Even if the company who funded your loan is the same company who services your loan, it doesn’t matter. The servicing department is a completely different entity. Most of the loans that were funded were sold off to an investor. This investor is the entity that owns your loan. We refer to this entity as the “note holder”. To complicate things even more your loan was likely sold off with several other “like” loans and pooled. The pool was sold to Wall Street and sliced up into securities. Each of these slices owns a piece of the note. In these cases the modification is controlled by the contract between the company selling the pool and the investor buying the pool. If the contract states no modifications then you might be denied. With the state of mortgages, most note holders will modify loans. Unfortunately, you still have to start with the servicer, and they are very busy. Even if you know who owns your note, the servicer has to initiate the negotiations, and there is now way to get around them. (I know because we have tried). Your best bet is to start with a company (like Mortgage Rescue Options – hint, hint) who can make sure your loan is submitted correctly. This makes the process easier for the servicer and should speed up the process.

Why Does it Take So Long to Get My Case Settled?
Before I can answer that you have to understand what a mortgage really is. Your loan was funded by a lender but do you know what happened next. See “Who Makes the Decision About Fixing My Loan?” before reading on. I heard from one source that Country Wide had 15 Million people apply for a loan modification. The servicers are strained to their limits to handle the volume. Some servicers are running multiple shifts to try and keep up. On top of that they still have to find and negotiate with the note holder who is likely just as buried. Again your best bet to speed the process is to submit an accurate and complete package.

I Can Afford My House and My Interest Rate is Pretty Good. Should I Apply for a Modification?
Odd as it may seem the banks are only interested in helping customers who are costing them money. If you are paying your bills on time there is little chance they will help you. (They help their worst clients but not their best clients) Your best bet is to go through the audit program. If we can find things wrong with your loan we may be able to “strongly” negotiate with your lender to get you a better deal. DO NOT stop making your mortgage payments because someone told you that you must be 60 days late to apply for a modification. When the servicer sees your financials it will be obvious to them why you’re late and it will likely be declined. (BTW before looking at a modification call Mortgage Rescue Options and see if you can refinance. There is so much hype about mods most people don’t realize rates are really great right now.)

The Better Business Bureau
When I was a child growing up in California I regarded the BBB as some advocate for the consumer. I do believe the intent for creation of the BBB was pure but the reality of who they are and what they do is not what people think. First of all the BBB is not a government agency. They are listed as a non profit but the owner of the local franchise does make a lot of money. The truth is I can’t make comments about the BBB without sounding like I’m attacking the BBB so read the articles. http://jan.freedomblogging.com/2009/04/27/firms-can-buy-higher-better-business-bureau-rating/12723/ http://www.ripoffreport.com/Better-Business-Bureau-BBB-CBBB/Better-Business-Bure/Better-Business-Bureau-or-Buye-EQ4FB.htm
Did you read it? If not don’t read on. The reality of the BBB is it has lost its way. The BBB is a non profit organization that makes a lot of money on memberships. The BBB of the southland started in Colton CA (Find that on the map) and took over other offices of the BBB for profit. Over the last 20 years they have become a major player in the whole BBB scheme and dominate Southern California. If you are a member of the BBB you can “resolve” disputes and keep a good rating. If you are not a member of the BBB, or the BBB doesn’t approve of your business, you get a low rating. Let’s put this into perspective. Check out T-Mobile. The last time I checked they had over 85,000 complaints. Look at their rating. Why are they still in business? Now find a Mod Shop. Automatic “F” rating. If the BBB doesn’t like a business type they will give it an “F” rating without any complaints. To further complicate things even if ALL our customers wrote the BBB raving about out services, one complaint will result in an “F” and all the ravings will be ignored. In short, even if the BBB suspects you are a type of company they don’t like they will give you an “F” rating. One last note: Do you have one of those neighbors who call the police if your kids play on there lawn? Imagine that person as a customer. No matter what you do for some people they will never be happy. That person will file complaints and even if you respond and the complaint is proven completely false, it still shows as a complaint. The BBB has no obligation to remove it. (How much money has the BBB cost businesses because of these practices and their rating system?)

Why Do You Change My Financials When You Submit a Package?
First of all let me make it clear that Tustin Law Center and Mortgage Rescue Options don’t just change financials, we don’t commit fraud. What we do is look at your financials and change things to better reflect your financial position. (Wow that sounded just like a politician). For example, if you send us financials and show that you make $10,000 per month but only spend $5,000 on the worksheet, it means you have $5,000 let over in disposable income. Why can’t you afford your mortgage? We then look at the bank records and see you have no money left over at the end of the month. So you don’t have $5,000 left over, you spend everything you make. The form the lender’s send out is generic and we add items to better reflect your true expenses.

If you did my Audit why do you still need my financials?
At the end of the Audit you will be asked for your financials. I have to show the lender that you can afford at least something for your house. Most of the time there is a reason that you have trouble with the mortgage payments. If the reason is the broker/lender put you into a loan they knew you couldn’t afford, the financials will show this. Under $ 226.34 ‘Prohibited Acts or Practices In Connection With Credit Secured by a Consumer's Dwelling’ in the ‘Truth in Lending Act’ there is a statement that I believe constitutes the intent of this act. “Repayment ability”. ‘A creditor extending mortgage credit subject to $ 226.32 shall not engage in a pattern or practice of extending credit subject to $ 226.32 to a consumer based on the consumer's collateral without regard to the consumer's repayment ability, including the consumer's current and expected income, current obligations, and employment’. There is a presumption that a creditor has violated this paragraph (a)(4) if the creditor engages in a pattern or practice of making loans subject to $ 226.32 without verifying and documenting consumers “repayment ability.” In short, they can’t make the loan without verifying you can afford the loan. Unfortunately this act has little teeth. Lenders have been sued countless times over the years and know how to defend against it. However they can’t get around the “predatory lending laws” in your state. If the broker committed fraud on your loan and the lender “rubber stamped” it to meet quotes we can aggressively negotiate a settlement with your lender. But, you still have to have the ability to make the agreed to payment.

Letter to Lenders:
Below is a copy of a letter I wrote and sent to several lenders / servicers. It outlines our basic philosophy and tries to suggest a solution for every borrower’s mortgage problems. I’m not sure how much impact it had but I will keep trying.

Mortgage Rescue Options was started with one goal in mind; to keep the borrowers in their homes. It is our basic philosophy that there is always a way to find a solution that can benefit both the borrower and the note holder. This introduction letter is an attempt to cover some of the types of borrowers we run into and explain possible scenarios to mediate a beneficial outcome.

Classifications of most borrowers who join our program at Mortgage Rescue Options:

“I’m upside down on my mortgage and I want a principal reduction.”
On the surface a servicer will likely decline any changes. However if you look closer at the circumstances of the borrower it may be better to work with the borrower rather than dismiss them. In many cases the borrower looks at the existing mortgage as a bad investment. In California most borrowers owe more on the house than it’s worth. If a borrower walks away from a mortgage he may save hundreds of thousands of dollars in payments over the course of the loan. The dent to his credit may be minor compared to his savings. His attitude may be to rent for a couple of years and then buy a new house. The difference he will pay in interest on the new home, because of the foreclosure, is small compared to what he will save by walking away. In a lot of cases there are specific circumstances explaining why the borrower is willing to walk away. In all these cases, it means the note holder will lose their investment. One possible solution is to drop the payments to market value and if the borrower continues to make all the payments on time for five years, forgive the principal to market value. This ensures that if the borrower defaults in the next five years and property values increase, the investor retains a greater percentage of value. The investor will further benefit by receiving timely payments while the borrower is in the home.

“My mortgage is an adjustable rate and I need to fix it before it adjusts.”
This should be a simple fix. With interest rates down, a servicer adjusts the interest rate to something the borrower can afford. However, it’s never that simple. If the borrower was qualified for the existing loan through a stated income loan (most were) he may not qualify for a loan modification. If the loan is part of a pool where the true note holder is “Wall Street” then the servicer, by virtue of contract, may not be able to modify the loan. It seems like foreclosing on the house is the last thing a servicer wants to do, yet I have seen a lot of houses sold that could have been saved. If the borrower can not qualify for a loan modification, one solution is to sell the note at a discount to a Mortgage Rescue Options approved private lender. The price will be somewhere between the REO price and market value. Mortgage Rescue Options will then work with the borrower to refinance them out of the private loan into a conventional or FHA loan within 12 months. The investor will take a loss, but it’s less of a loss than a foreclosure.

“My mortgage has adjusted and now I cannot afford my house.”
This is a similar scenario to the above mentioned. The only exception is that once a borrower has an NOD filed the servicer may request a large payment before putting the house in for any modification. This seems counter productive. Mortgage Rescue Options looks at all the circumstances of why the borrower got into this position and tries to come up with solutions to keep the borrower in there home.

“I lost my job and now I can not afford my mortgage payments.”
This seems to be the “Death Card” for borrowers. How can you modify the loan if the borrower does not have a job? We look at each individual’s circumstances. For instance, if the borrower worked within the mortgage industry and he is now out of a job, he will not qualify for any type of loan modification. Approximately 60,000 people in California lost their jobs when the mortgage industry collapsed. Most of those people won’t find a job that pays anything close to what they were making. Some people just lost their jobs because of the economy. From Mortgage Rescue Option’s point of view, it makes more sense to postpone mortgage payments to allow the borrower to get back on their feet. Optionally, put the borrower through credit counseling, or even refer them to a bankruptcy attorney. The last thing the note holder wants is the house back. We feel that working with these individuals, allowing them to get back on their feet and then put them into a payment they can afford, is a much more productive option.

“I refinanced to take out cash and pay bills, but the broker put me into a mortgage he knew I could not afford.”
This seems to happen mostly with people on a fixed income or the elderly. The broker lies on the stated income loan, tells the borrower the payment will be low, and then puts the borrower into an adjustable that will explode in two to three years. I have noticed one basic rule working with borrowers; they do not read the loan documents before they sign. Mortgage Rescue Options looks at the loan and the borrower’s financial situation. We then try and come up with a solution to keep the borrower in the house. My hope is that the servicer and note holder will look at why the borrower got into this situation and work with us to find a long term resolution.

“I am relocating to another area for job reasons and I can not sell my house.”
The normal course of action in these cases is to short sell the property or foreclose. From Mortgage Rescue Option’s point of view this is counter productive. Every time a lender short sells a property or another REO comes up for sale it diminishes value in the area. It makes more sense to forgive principal and let the current borrower rent the property out until value comes back or wholesale the property to a private investor who will keep it for rental or investment purposes. Until the current trend changes, property values will continue to be pushed down. This should be of great concern to note holders.

“My broker lied to me and put me into an adjustable instead of a fixed rate loan.”
This happens more often than most people realize. As stated above, borrowers don’t read before signing documents. Even if they did, most people don’t understand APR, much less YSP or Neg Am. In some cases the borrowers thought they signed a 1.5% 30 year fixed loan. Mortgage Rescue Options looks at all the circumstances of why the borrower got into this situation. We then attempt to provide solutions to the servicer and note holder that make sense for both.

“I can not speak English and had no idea what my payments were until I saw the first payment.”
I have been working with borrowers for about a year now trying to keep them in their homes. I have yet to see one set of loan documents in any language other than English. There are specific laws on the books in California that protect non-English speaking borrowers. The servicers and note holders have to realize that many of these people were taken advantage of. Again, our goal is to work with the servicers and note holders to resolve the problems and keep the borrowers in their homes.

“I have refinanced several times since I bought the house and have taken cash out to pay the mortgage.”
Mortgage Rescue Options does have procedures in place to keep these people from entering the system, however they do slip through. There is no upside to the note holder taking the house back but, it seems unlikely that any scenario will keep the borrower in the house, unless the note holder forgives principal. A solution may be the same as the borrower who is willing to walk away; drop the payments to market value and if the borrower continues to make all the payments on time for five years, forgive the principal to market value. This ensures that if the borrower defaults in the next five years and property values increase, the investor retains a greater percentage of the value. The investor will benefit by receiving timely payments while the borrower is in the home. Also, as a requirement of the modification, place the borrower into a credit counseling program.

I know that the forgoing is somewhat simplified and that every borrower does not fit into a specific scenario. This information is intended to explain what Mortgage Rescue Options does and show that we are capable of thinking outside the box. We do believe that every problem loan has a solution, and we look forward to working with servicers and note holders to minimize their losses and build their trust.