1.    Does having an FHA loan disqualify him for a deed in lieu?
2.    Can he do anything to speed up the foreclosure proceedings so that the lender can offer a DIL?

The poster is no doubt stuck in a bad situation. On one hand, his house has been devastated by Hurricane Ike and may not sell in the market for a fair price. On the other hand, he cannot get rid of the property through a DIL as the lender would not approve of it.

A deed in lieu in this situation can be quite helpful for the poster. It will enable him to sign over the property to the lender. The lender can then sell off the property and recover the outstanding balance on the mortgage. Though it will affect his credit in a negative way, yet it will at least help him get rid of this property and move on with life.

FHA guidelines regarding DIL

There is no FHA rule or guideline that disqualifies a borrower for a deed in lieu of foreclosure. FHA lenders do accept deed in lieu requests if the borrower has exhausted all his loss mitigation options. FHA does not also have its own criteria to determine if a borrower qualifies for a deed in lieu. It is completely at the lender’s discretion if he would allow the borrower to deed over the house to him. The lender assesses the borrower’s extent of hardship, financial situation, etc. in order to check the borrower’s eligibility for the DIL. Thus, FHA does not have any rule that prohibits deed in lieu on FHA loans. In fact in 2006, when Hurricanes Katrina, Rita and Wilma wrecked havoc in many of the states, HUD extended special DIL authority to lenders to help borrowers affected by the hurricanes in major disaster areas. This may not apply to the poster’s situation. But it certainly goes on to prove that a DIL is possible on FHA loans.

DIL is the last option for the poster

In this situation, the poster hardly has any option, which can help him avoid foreclosure on the property. A loan modification can help in reducing the monthly mortgage payments. But since he is out of state, modifying the loan will be of little help to him. A short sale is not an option as no buyer would like to purchase a property in an area destroyed by hurricane. Thus, a DIL seems to be a last resort for the poster.

DIL and foreclosure proceedings

It is also not necessary for the lender to start the foreclosure proceedings before approving a deed in lieu. After all, DIL is an option to avoid foreclosure. If a borrower is behind on his payments and fears a possible foreclosure on his property, he can request a DIL. He does not have to wait for the lender to start foreclosure proceedings before negotiating the DIL of foreclosure.

How to convince the lender to accept a DIL

The poster needs to talk to the loss mitigation department of the mortgage company and do constant negotiations with them to convince them to allow a DIL. He should first list the property on the market to see if it sells. If it does not, in the next few months, there is a possibility that the lender would accept the DIL request, because often lenders want to see a property listed for at least a certain number of months before agreeing to do a DIL.

To know more on this topic, you can refer to the following discussion:
http://www.mortgagefit.com/problems/dil-fha.html .

As per a new report of the consumer advocacy group, mortgage servicers make more money if they foreclose the property. So, who are the mortgage servicers? They are the companies who collect the monthly dues from the borrowers and distribute it amongst the investors. It has been noted that the homeowners, lenders and investors generally lose money on a foreclosure whereas mortgage servicers do not.

What do homeowners think of foreclosure?
As homeowners, we think that a foreclosure would not be a good option for the lenders and investors. Both of them would lose money if they foreclose the property. It is believed that if a lender forecloses the property, he will have to settle for 20-30 cents on a dollar.

What do mortgage servicers think of forceclosure?
The loan servicers have different priorities and thus, do not think of foreclosures in the same way as the borrowers. Servicers do make profit when a property is foreclosed unlike loan modification wherein the servicers may face a loss. Also, the incentives offered to servicers in order to help avoid foreclosure are much less compared to the profits they make by foreclosing a property. This is one of the reasons which resulted in the $75 billion program to limit foreclosures by the Obama Government. The money would be given to servicers who would modify home loans.

Are there any steps taken to encourage modification?
As per a new report published by the National Consumer Law Center (NCLC), some steps have been suggested to encourage modification. Some of them are as follows:

• To fund loan mediation programs.
• To mandate loan modification before foreclosure.
• To provide principal reductions on existing loans though HAMP.
• To regulate loan originations.
• To report loan modifications in a transparent and uniform manner.
• To limit fees charged to borrowers.

On 9th October, 2009, in the Southern District of New York, such a ruling was given by the federal bankruptcy court. As per nytimes.com, a lender called PHH Mortgage could not prove that it holds the mortgage for a borrower’s property. As a result, the judge simply wiped out $461,263 mortgage debt on the borrower’s property. Yes, you’re correct in thinking - the mortgage debt disappeared due to a court order.

Why can’t the lenders confirm the mortgage? Well, the notes have gone missing as a lot of mortgage securitizations occurred during the housing boom. Banks loans were sold off to the investors but the notes were never properly recorded during the boom.

However, do you think it’s fair to erase the borrower’s debt completely? I don’t think so. It has to be accepted that the borrower owed to money to a lender. The court should rather come up with an alternative plan wherein the borrowers will have to make payments for a certain period of time to the court.  Meanwhile, the lender will get some more time to prove the ownership of the mortgage. If the lender can’t prove it after a certain period of time given by the court, the judge may erase the debt. This will help the court remain fair to both - the borrower and the lender. What do you say?

The poster received a verbal agreement from the second lender for a trial modification plan. He paid the first trial payment on time as per the agreement. But the next month when he pulled his credit report, he found the loan account has been charged off. On contacting the lender, the poster learned that the former had again reinstated the loan. The second lender then asked him to make the next trial payment by Oct. 27, 2009, else he would again charge off the debt.

Following are the questions the poster asked the community:

1.    Does he have any ground against the second mortgage company that charged off the loan even after approving a trial loan modification?

2.    If the lender charges off the debt after Oct. 27, 2009, can the poster still negotiate with the mortgage company for loan modification?

3.    In case the second lender forecloses on the property, will the first cancel negotiations for the modification?

Trial modification plan & mortgage charge-off

It seems the second mortgage company erroneously reported the debt to the bureaus as charged off. It could also be possible that they charged off the debt as they thought they could not recover the balance on the loan. Though the poster paid his first trial payment in good faith, he has no ground against the second lender as there is no written agreement for the loan modification. The second lender is not legally bound to offer modification as the verbal agreement is not legally valid. So, the lender reserves the right to charge off the debt to whoever they want.

Negotiations for modification after charge-off

When the lenders think they will not be able to recover the outstanding amount of the mortgage, they often charge off the debt and report it as their loss to the IRS. Once they charge off the debt, they will no longer collect the payments; rather the lenders sell off or assign the debt to a collection agency. Thus, the poster will not be able to negotiate with the second mortgage holder regarding the loan modification. He will have to talk with the collection agency (CA). The CA can either modify his debt or do a settlement with him. Through settlement, the poster can convince them to accept a short payoff to clear the debt.

Chances of foreclosure by second lender

In case the second lender decides to foreclose on the property, there will be no need for a modification on the first mortgage and the first lender will definitely cancel negotiations for modifying the loan. However, if the property is underwater, it is unlikely that the second lender will foreclose. They hold a second lien on the property and whatever money they get from the foreclosure auction will first be used to satisfy the first mortgage. Whatever remains in excess from the sale proceeds will be used to pay off the second loan.

To know more on this issue, you can refer to the following page:
http://www.mortgagefit.com/second/loanmodification-chargeoff.html

As a first step to your retirement planning, you should start investing in the retirement plans offered by your employer. You can also start investing in IRAs. Estate planning is an important aspect which you should decide upon before you retire. Apart from this, allocation of assets in bonds, stocks and cash will also help you in getting a secured retirement income.

Here’s a checklist which can help you prepare yourself for this important financial goal in a better way:

• Accumulating emergency funds: It is essential to build up enough emergency savings which will help you in dealing with sudden monetary crisis after your retirement. Investing in insurance is also a good way to save yourself from unforeseen circumstances. You may even consider working part-time in your early retirement years in order to increase your savings.

• Social security income: You will have to apply for social security income 3 months before the date from which you want to collect the benefits. You can apply for the benefits as early as 61 years and 9 months of age. You may even collect your deceased spouse’s social security benefits at the age of 60. If you’re disabled, then you would be able to receive the benefits at the age of 50.

• Beneficiary designation: Make it a point to update beneficiary designations on your financial paperwork and retirement account. Consult a lawyer who can help you review your powers of attorney, will, trust, as well as beneficiary designations. This will help you know whether or not you and your beneficiaries are appropriately protected.

• Balance your asset allocation: Balancing your asset allocation in stocks, bonds, and cash in a better way would help you increase your retirement income and thus safeguard your future. You may even consult a financial advisor in this regard.

• Healthcare: Research and review your healthcare options once you retire as it won’t be covered by your employer any longer. Make sure that you’ve long term health insurance coverage for yourself.  Remember that your Medicare application process, timelines, and premiums may vary depending upon your age and social security income. You may have to pay higher premiums if you apply late.

• Debt free retirement: Make sure that you pay off your car before your retirement. Also, reduce your mortgage debt as much as possible before you retire. Paying off your credit cards with higher interest rates earlier would also help you in lead a better life after retirement.

Her husband asked a few queries, which are as follows:

(1) Can the second mortgage company send the debt to a collection agency 2 years after the property was foreclosed?
(2) Is he or his wife still liable for the second mortgage debt?
(3) Can the collection agency file lawsuit and garnish her wages to recover the debt?
(4) Can they come after his salary as they are now married even though the debt was incurred when she was still single?

It’s not surprising that a borrower’s debt has been sent to collections. Lenders often do that for accounting and other reasons, whenever they feel like they’ll not be able to collect the debt from the borrower. But what surprised our poster is the fact that the lender charged off the debt to the collection agency almost 2 years after they sent his wife a 1099-A form!

1099-A form and cancellation of debt

When someone receives a 1099-A form, it does not necessarily imply his/her debt has been cancelled. Lenders send a 1099-A form whenever they foreclose on a property abandoned by the borrower. It is often confused with a 1099-C form, which is sent to the borrower for cancellation of debt. Based on the information provided in the 1099-C form, the IRS levies taxes on the cancelled debt as they consider it the borrower’s income.

Collection after foreclosure on property

The lender can send the debt to collections even after 24 months have passed since they foreclosed on the property. The Statute of Limitation (SOL), as applicable in the state of Georgia for written contracts is 6 years from the date of last payment. Thus, the lenders can surely come after the wife till the debt account is past 6 years. The poster’s wife is definitely liable for the amount of the second mortgage, but the poster himself is not. He did not sign on the mortgage promissory note which is why he does not have any liability towards the loan in any way. This, I believe, answers the third and the fourth questions as well.

Collection agency can garnish wages

The collection agency can sue his wife, obtain judgment against her and garnish her wages if she fails to pay off the debt she is still responsible for. Though, they cannot come after the husband’s salary or assets for this debt, since he neither borrowed nor co-signed on this loan for his wife. Moreover, the debt was incurred prior to his marriage. So, he cannot be held responsible for it.

Settlement with a collection agency

It is most likely that the collection agency would be ready to do a settlement with the wife and agree on a short payoff. The original lender would never have charged off this debt to the collection agency, had they considered this debt recoverable. They sent it to collections only because they had little hope of recovering this debt. Thus, the wife should now start negotiating with the collection agency and try to settle the debt for an amount less than what is actually owed on it.

To know more on this issue, you can refer to the following page:
http://www.mortgagefit.com/second/collections-deficiency.html

How do lenders scam seniors looking for reverse mortgage?

Some of the reverse mortgage lenders market their products as retirement income. Though the cross-selling has been banned by the Congress in 2008, yet the lenders have been selling annuities along with reverse home loans. Some of the brokers are even seeking higher fees which have led to long-term annuities. In my opinion, this is inappropriate for the seniors as it would tie up their retirement savings for years to come.

It is true that reverse mortgage plays an important role in order to help seniors get mortgage. But it’s important that there should be transparency so that consumers are protected. The government should not only enforce the rules regarding transparency but also ensure that the rules are being followed by the lenders.

How can this subprime fiasco be avoided?

In recent times, the popularity of reverse mortgage has grown by a large extent. As a result, a number of loan professionals are trying to persuade the senior citizens to go for reverse home loans. NCLC has thus suggested about increasing borrower counseling and deciding upon a standard for lenders and brokers.

As per a new rule in the industry, principal limit for Home Equity Conversion Mortgage has been lowered by 10% since October 1st, 2009.This rule has been introduced to tackle the estimated deficit of $798 million from depressed home prices. The new rule will probably help lenders to recover their dues easily and reduce the chances of another subprime disaster.

It is expected that this year, the number of reverse home loan applications would be at an all-time high. If we do not take consumer protection and transparency seriously, there are chances that we would face another sub-prime fiasco soon.

As you pay off the mortgage in full, your lender would give back the original mortgage and note to you. Along with it, you would receive a document called “Satisfaction of Mortgage”. It is a legal document which should be filed at your county recorder’s office.  This will help the title companies to verify that you own your place free-and-clear. Thus, they would issue a clear title when you’re planning to sell off the property. If you do not have a clear title, it would become difficult for you to sell off the property in the future.

There are some lenders who would record the “Satisfaction of Mortgage” on your behalf at the county recorder’s office. However, there are some who would want you to do it yourself. Thus, you’ll have to ensure that the document is recorded at the county recorder’s office. In some states, the homeowner needs to contact the registrar of deeds and get it recorded. This will make sure that you no longer have a mortgage lien against your property.

BTW, Congratulations! You’re a proud owner of a mortgage-free property

It’s our pleasure to inform you that Mr. George M. Akerly, a moderator and community mentor has set new records through his valuable participation in our forums. So far, George has made more than 6000 posts and earned mentor dollars worth $775 as an active forum participant. We appreciate his efforts in helping people with his valuable opinions on mortgage and finance related issues.

We’re glad to present here an interview with Mr. George M. Akerly who has shared his experiences and views on the mortgage industry and our community as well. Here goes the interview:

Sam: Tell us about your work and experience in the mortgage industry.

George: I have worked in banking and related industries all of my adult life. I began as a teller at a Savings & Loan, in their Management Trainee plan. I worked my way up the ladder in that organization to Assistant Treasurer/Branch Manager, and ran the Installment Loan Department for about 3 years there.

I next worked as a Consumer Loan Officer at a local bank, moved to another bank where I became an Assistant Vice President, then a credit union as Lending Manager. From there, I moved into underwriting as a Contract Underwriter for one of the major mortgage insurance companies, then briefly underwrote for a now-failed mortgage lender.

For the past 2 and 1/2 years or so, I’ve been a mortgage loan originator. I’ve done all sorts of loans, from personal loans, credit cards to auto loans, home equity and mortgage loans. My vast experience has been very valuable to me in my interaction with consumers. I love having the opportunity to work with the public.

Sam: When do you think the mortgage market will recover?

George: I guess I’d say I don’t ever expect to see the excesses of the last decade repeated, a lot of which led to the incredible growth of the market to begin with. I’ve been advised that we have yet to see the majority of the foreclosed properties offered for sale, and that it will be mid-2010 before that happens. We hope that from that point onwards, there will be a gradual decline in those homes, which should have a positive effect on the overall market.

Sam: Will it be wise for a beginner to get into mortgage lending business now?

George: There will always be homes for sale and people needing mortgages. Is it the best career choice right now? Not in my mind, no. Can someone get in during this period of difficulty and make a nice living for years to come? Sure, but it’s going to take a lot of work and a lot of being in the right place at the right time.

Sam: Home prices show an upturn in the 2nd quarter, 2009. Do you think it’s a turning point?

George: Not necessarily. As I noted in #2, with more foreclosed properties yet to be marketed to the public, we’ll still see a lot of depressed values. And, of course, that depends on location – look at the mess in Arizona (which I’ve only heard about). It’s going to take quite a long time, I think, for that market to begin a comeback.

Sam: Do you think the Energy Efficiency in Housing Act of 2009 can help in dealing with the housing crisis?

George: I don’t know much about the Act, but I don’t think it’s going to result in a burgeoning in the market.

Sam: How’s your experience participating in MortgageFit Community?

George: I enjoy myself on many different levels. I have a passion for helping people, and find that I’m able to do so in many ways on different levels. I’ve forged quasi-relationships with a couple of the other “expert” posters, and we can share a laugh on occasion when we see a strange posting. I’ve been taken the wrong way on some occasions because my style is to be a bit sarcastic at times, though never intended to be harmful. I tend to poke fun at some of the silly things I see, and as you know, I somehow encountered a good bit of animosity in one of the forums this summer.

Sam: What would you change in MortgageFit had you been the Admin?

George: That’s not easy to answer. I lack enough computer experience to do something like that, but if available, I guess I’d most like to see the harassing types, the advertisers and the spammers and scammers more easily barred from the site. I know that’s probably one of the biggest challenges you must face as an Administrator.

Sam: What’s your experience about earning dollars from MortgageFit forum by sharing opinions?

George: I, like most others who join, was pleasantly surprised to see that there was an opportunity to reap a monetary benefit from our postings. It’s definitely been a pleasure to be able to “cash in” every so often. I can’t say it’s given me “walking around money” but it’s come in handy, for sure.

Sam: Do you have any blog or site which you want to share with us, so that other members can collect valuable knowledge from there?

George: I do not have one. Whenever I want to know something that I haven’t been exposed to before, or if I wish to learn the whereabouts of someone or some entity, or even gain knowledge of a new word or phrase, I use Google. I Google almost everything, and that has led me to numerous sites of all types. For those who read any of my posts, of course, I am constantly citing www.hud.gov and www.irs.com, among others. There’s so much information out there for the taking – all one has to do is to have an inquisitive mind and a keyboard to type in the name and “voila!”

On behalf of all members in MortgageFit Community, I thank George for sharing his opinions with us. We look forward to having a long association with George and wish him good luck in all his endeavors.

• Improve your credit score: Most of the insurance companies are using the information from your credit report to price your insurance policy. If you did not have a good credit score while applying for a homeowners insurance, make sure you take some steps to improve your credit score. You can negotiate your premiums with the insurance company as your credit score improves.

• Raise your deductibles for homeowners insurance: So, what are your homeowners deductibles like? Just note that most of the companies offer deductibles that range from $250 to $30,000. If you can raise your deductibles by $500 to $1,000, you may save up to 25% on your premiums. You can check out with your insurance agent about the different types of deductibles offered and accordingly chose one.

• Merge homeowners insurance with other insurance policies: It’s a good option to consolidate your homeowners insurance policy with your other insurances. This will help you in getting the benefits of the multi-policy holder discounts. There are some companies which offer discounts of 5% to 15% if you buy homeowners insurance and auto insurance coverage together from them.

• Upgrade your home: You must be surprised to know that insurance companies offer discounts for upgrades on your home. Some of those upgrades include placing a new roof, installing a new home alarm system or deadbolts on your doors.

• Keep your insurance coverage up to date: Before your homeowners policy is due, make sure that you go through your insurance policy and read through the details. You can also call up your insurance agent and check out if any changes have taken place meanwhile which may have raised your payments.

• Shopping for homeowners insurance: Shopping for your homeowners insurance is a good option as it would help you know what the insurance companies are charging these days. However, just remember that you can receive better discounts if you’ve been with your current insurer for several years. Some companies may offer you discount of 10% if you’ve been with them for 6 years or more and 5% discount if you’ve been with them for 3-5 years.