Can I get a “Loan Mod”…

In light of the current economic situation with the financial meltdown, mortgage crisis, credit crunch, etc., many people are trying to find answers and figure out what all this means to them. As a debt analyst I talk with consumers and business owners everyday who have fallen victim to the crisis. If we know what’s happening and take appropriate action we can be better equipped to ride out these tough economic times…

One of the first things that people tell me when I talk to them about their mortgage “situation” is the only thing the lender is offering is a repayment plan or they don’t qualify for a modification. When I ask the homeowner who they talked to they usually tell me that they aren’t sure or it was someone in customer service. The most important thing is to talk to the right department; the “Loss Mitigation” department. These are the folks that take on and process cases with potential outcomes that included loan modification, partial claim, short sale, special forbearance, etc.

In a vast majority of cases the loan is in a mortgage backed security (MBS) and not actually held by your loan servicer so unless you are already delinquent by a few months, the knee jerk reaction from the servicer will most likely be negative. This may change with our Government’s “Homeowner Affordability and Stability Plan”. You’ll have to gauge the responsiveness of your servicer and balance that with your personal circumstances. So prior to contacting the lender write down your goals, budget, and backup plan.

Make sure to take copious notes and avoid “making a case” with the person you are talking to. They have heard every story in the book and in most instances they are directed to retain calls in customer service or collections. Once you’ve reached loss mitigation, order a “loss mit pack”. You will need to give some information regarding your situation, hardship, and possibly what you are looking to accomplish. My advice would be to be honest, but vague. Understand that to process loss mitigation cases costs money and if the outcome is a modification or amendment to the current loan contract this will be an additional cost for the servicer as well as the investor. They will want to make sure that their money is well spent.

There are some strategies that can be employed in submitting a case and negotiating a workout plan with the servicer/investor. Affordability is a key factor and time can be your friend. The entire process can take several months. During this time you’ll need to set aside funds. It is also helpful to have someone that can reassure you during the process. I hope this helps.

Bankruptcy is not an option…

I recently spoke with a gentleman in the northeast who told me that his wife was acquiring and running up credit cards for the past 6-7 years without his knowledge. She was also embezzling from their business; probably in part to make payments on these accounts so he wouldn't find out about them. When she left him a few months back everything came to light. Her parting gift to him was credit card debt in the six figures, books that were cooked, and divorce papers.

Bankruptcy was not an option by virtue of a contested divorce. Even without the break up, the prospect of bankruptcy isn’t very attractive. Because of the changes in the bankruptcy laws a few years back, many people make too much to qualify for Chapter 7 (liquidation) and Chapter 13 is no more than a court structured repayment plan. Less intrusive and more cost-effective alternatives are appealing for both debtors and creditors.

In this case debt settlement was chosen. Trying to make minimum payments until the divorce is final, with the hope that somehow “she” would receive her fair share of the debt, didn’t make any sense. His credit score wasn’t an issue either. Another factor is that the banks have shown an increasing willingness to settle; preferring to receive a smaller lump sum in the short term as oppose to a long term payment plan or uncertain terms.

What’s your take?

Debt Denial...

Waiting for something to break? Living in hope? Or just in denial about your circumstances? Sometimes it’s difficult to determine what motivates those on the brink of disaster. These folks haven’t necessarily been affected by the slowdown or at least as much. But they are carrying an inordinately large debt load and in many cases they are using cash advances to keep up minimum payments on other cards. Another factor is that they probably haven’t seen their rates get “jacked” or the minimums get raised.

I talked with a lady out west who is recently divorced. She got the house; with little to no equity because of a "refi" done several years back (he got the cash). She also got all the credit cards and bills that came along with them. She says she was managing to make ends meet for her and her two daughters up until 5 months ago when her ex-husband decided to stop sending her child support. That along with the sluggish economy and slow down in her business caused her to start using her credit cards to pay for necessities and to juggle payments for her mortgage and unsecured obligations. She's just about at the end of her rope, but probably doesn’t know it.

In light of what’s going on in the economy the “bad” debt has to go and savings is prudent and necessary. Pecking away at credit card debt by making minimum payments is not going to cut it. The truth is that within a short period of time you will see those minimum forcibly increased. So if you can’t make double or triple payments of those cards now along with setting some savings aside and maintaining everything else in the household, you need to consider something a bit more proactive.

What is your situation? What does your household budget look like? Are you setting aside a nest egg to cover your monthlies, just in case? Is “bad debt” interest eating your lunch? What are you doing about it? Shoot me an email and let me know what you have done or are thinking of doing to position yourself for the months and years to come. Be yourself, be anonymous, be your dog and let me know how ruff it has been for you.

Embrace Your Debt...

Jacked, squeezed, or pinched? That's what people are telling me is happening to them. These folks aren't necessarily struggling; at least they weren't before their rates got "jacked". I talked to a union pipe fitter out east who told me that he's feeling the squeeze because his rate got jacked from around 9% to over 30%. And he had never been late on a payment. When he called the credit card issuer they agreed that he was a preferred customer and promptly reduced his interest rate to around 20%. He's feeling the pinch because he's not getting as many hours at his job and the household income is down. Now he's struggling just to make minimum payments.

I'm talking to folks everyday who are telling me that they are getting "jacked" for no reason, other than these companies are losing (and have lost) billions with the mortgage market and now the credit card meltdown and they have to pull in cash from anywhere they can. Credit card accounts are a prime target. I heard a statistic that approximately 95% of consumers holding active cards can expect their cost of carry their card(s) to go up through higher interest rates, annual fees, and indirectly through lower credit scores. It's putting a lot of people in a bind that weren't in a bind before.

What does this mean to me and you? It means that if you are carrying balances on cards, personal loans, or lines of credit with unreasonably high interest rates or finance charges you need to take action to reduce and eliminate these balances as soon as you can. While there are no “cookie cutter” answers as to the best ways to reduce the bad debt, the consensus is to use your current income to make extra payments to get these paid off. Know your cards, balances, rates, etc. and strategically pay them down. If you cannot reasonably expect to accomplish this on your own you might what to consider outside help.

Have you been jacked, squeezed, or pinched? How are you coping? Tell us about your experience, what you are going through, how it’s affecting your business/personal life, and what you are doing to address your situation. We might be able use your story, anonymously of course, to help our readers with their personal “credit crisis”.