An important thing to keep in mind when considering a short sale to avoid foreclosure- your lender is not technically obligated to sell your house in such a manner. For them, it is a pure cost-benefits calculation. When they allow a real estate short sale, they have to swallow the discrepancy between the amount you owe on your mortgage and the money your house brings in when it sells. They don’t like doing this unless the alternative is even less profitable.

You may even have a potential buyer who has put down all the paperwork to make an offer, and they still won’t cave. On the plus side, this can go two ways- the bank may say you have to go into forclosure, but they may also try to convince you to stay in your house and refinance your mortgage.

You may even be able to settle it with a loan modification.

If that doesn’t work, though, and your bank is willing, a short sale may be completed. In order to comfort potential buyers, you may want to think about moving out of your house while going through the shortsale process- this will make it seem less likely that you may decide to simply refinance. And be sure to get official approval from your bank. “Bank Approved Short Sale” is much more likely to get takers than one that doesn’t yet have expresss permission. a

The Treasury Department unveiled sweeping rules this week to help financially troubled homeowners who need to sell but can’t get a price high enough to pay off their mortgages. Homeowners will even get $1,500 to help cover their moving costs.

The plan is designed to help homeowners who don’t have the income or debt levels to qualify for a loan modification under the Obama administration’s $75 billion Making Home Affordable program. The plan establishes timelines, a standard process and documents, and cash incentives for participation.

Short sales, as these deals are known, reduce the damage to the borrowers’ credit record and save the lenders the cost of foreclosure. Short sales also help neighboring property values because the sales price is usually higher than what the house would fetch in a foreclosure auction.

About one in 10 home sales this year was a short sale, or an estimated 500,000 sales, according to the National Association of Realtors. In areas like Las Vegas, southern Florida and California, the ratio is far higher.

Eraly in this recession, people were worried about literal bank failures a lá the Great Depression. Mortgages were in trouble, interest rates were going haywire, and people were pulling their money out of banks fast.

The Federal Deposit Insurance Corporation protects the deposits of consumers in the event that a bank fails, and has been doing so for decades. In this day and age, there is no reason to fear that a bank will lose your money. The organization has recently said that banks and other lenders should try to give certain qualified borrowers a ‘temporary respite’ from their monthly mortgage payments. This is known as a forebearance, and can last up to six months, especially if the mortgage holders are trying to work out a loan modification.

The agency has released a plan to lower loan payments to lower levels for borrowers to have defaulted, but only those who can prove that they only defaulted because of job loss or involuntary salary reductions. The FDIC chairwoman has released statements saying that they’re making these announcements, not just to save money and mitigate losses, but because it’s the right thing to do. They’re trying to keep families in their houses and keep the economy going strong.

Banks in today’s market are made to deal with higher demand for mortgages and mortgage/loan services, including but not limited to refinancing and loan modifications, than ever before. The backlog at lending and banking companies is starting to effect everyone’s ability to access loss mitigation services.

In areas where unemployment is booming, mortgage delinquencies and foreclosures are also on the rise, and even those who manage to successfully secure loan modifications could be in trouble again in home balues continue to fall, or incomes continue to drop.

Lenders are doing their best to expand their loss mitigation services as requests skyrocket, but officials in the industry have commented that the delays are greatly hindering everyone’s efforts to revive the housing market. Loan modification programs are suffering, and short sales are taking way longer than they should. Banks were not prepared for this.

Senators have written to the Secretary of Housing and Urban Development, Shaun Donovan to help formulate a new strategy to help and coerce lenders to help homeowners quicker and more often. Even HUD-approved counselors are having a hard time getting homeowners access to loss mitigation departments.

It takes a very savvy counselor or professional to get banks’ attention and expedite the process. California loan modifications especially are on the rocks.

The Obama administration has begun to enact a seventy-five billion dollar program to try to stabilize the housing market by reducing the total number of foreclosures through a number of incentives. Unfortunately, the plan has been met with a lot of resistance from banks and other lenders, and is currently experiencing backlogs and delays as various parties involve try to adjust to obeying its stipulations.

Back in early March, the details of the plan were made public. The goal was to stop close to five million foreclosures by more or less obligating banks to make loan modifications for homeowners, reducing monthly payments to being more affordable without actually losing gross revenue for the financial institution.

Californians especially are complaining that applications for mortgage modifications are taking longer than they should, more than a month. California loan modification are backlogged at financial institutions, leaving borrowers hanging on whether or not they will be able to set up smaller payments and stay in their homes.

At the same time, demands for mortgage refinancing are becoming more common as well, futher jamming the proceedings. And as jobs continue to be lost in this country, bankrs only expect more applications for second loans, more defaults, and generally more mess.

The State Bar of California received the resignation of a few attorneys and is currently filing charges against another this month in a continuation of its new, harsher policies towards alleged loan modification fraud.

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The Bar’s supervising counsel in the trail, Suzan J. Anderson, commented recently that southern California seems to be something of a mecca of loan modification scams. Recently, a lawyer from Dana Point, California resigned with various charges against him related to his affiliation with a loan modification group. Another attorney may have his status with the bar changed to ‘involuntarily inactive’, a process that expedites punishment before formal charges are made. It is alleged that he abandoned all of his clients while prematurely and suddenly closing his office without returning fees, and he has admitted to misconduct.

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A third lawyer has had an application for involuntary inactive status filed against him as well, due to an affiliation with Home Relief Services and his misrepresentation of the size and ability of his services to unsuspecting clients. Apparently, he also collected illegal, advance fees and didn’t perform the necessary services to even attempt to get a loan modification for his clients. There will be a hearing on the involuntarily inactive application in four days.

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All in all, more than four hundred complaints about California loan modification specialists are being investigated by the California State Bar in the coming months, hopefully giving homeowners in search of a loan mod some peace of mind.

Most people are generally familiar with fixed-rate mortgages and ARMs, but there are a lot more types of home loans to choose from, and knowing all the variants can definitely help in loan modification negotiations.

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Low-documentation Loan: this type of mortgage can be handy for those whose income is difficult to accurately track with paperwork- often self-employed people, professionals who work on commission, or those who rely on tips for a large amount of their income. Lenders in these types of loans don’t generally ask for proof of income or assets. Ratios such as debt-to-income and housing-to-income are not considered. Unfortunately, this can lead to much higher interest rates, because these types of loans are thought to have higher risk of default. Your credit must be very good to take advantage of this type of loan.
Pre-Payment Penalty Loans:  this can be a part of any type of loan, and you must check to see if your mortgage has such a provision. It generally results in lower initial payments, in exchange for promises of a lump sum if the homeowner refinances by a certain date.This can end up being a hindrance, however, in the case of a short sale.
Reverse Mortgage: This allows borrowers over the age of 62 to transfer a part of their equity into income. These are becoming wildly popular as the baby boomers enter retirement. This allows seniors to pay for a variety to expenses, secured by the home, only to be repaid upon selling the house or death.
Various types of loans have advantages and disadvantages- it may be cost effective to hire a loss mitigation specialist to help you if you’re thinking of refinancing or asking for a loan modification.

What exactly is loss mitigation, and what does it mean for Californians?  It’s the effortful goal of trying to stop foreclosure on a home, usually headed by a representative of the loan holder, or an impartial third party working in the best interests of the mortgage holder. (Third party loss mitigation consultants tend to be more impartial and reliable from the home-owner’s perspective, because they can deal with the lenders without personal stakes involved.)

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Loss mitigation was first created as a collaboration between the mortgage industry and the federal government to try to help homeowners avoid foreclosure and catch up on delinquent payments. The basic idea of loss mitigation is to mitigate the possible loss from the bank and the homeowner’s standpoint, to try to reach an agreement whereby an alternative to foreclosure can be found.

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Loss mitigation counselors generally first attempt to garner a loan modification plan or repayment plan that is doable for both the bank and the homeowner. And though the goal is to keep the mortgage holder in his or her home, if there is just no way to make up the payments, the loss mitigation consultant will then try to ‘mitigate’ those  losses, helping the homeowner get as much out of a short sale, deed-in-lieu, or a foreclosure as possible

The fundamental concept of a loan modification is to extend the term of amortization on the loan. What is amortization? It’s originally a French word meaning to kill or to retire, easily recognizable from the ‘mort’ that is so recognizable in other words.  The basic idea is that an amortization spreads out the debt over time, allowing you to retire it piece by piece.

The basic idea of finance is to allow you to pay back your lender over time with interest, so that you get the money you need to fund your home, project, or investment, and they get paid, essentially, for extending you the loan in the first place. So, to figure out how much you need to pay for this service, you calculate how much you’d have to pay per month to pay back the balance plus interest compounded monthly,  over a certain amount of time.
Loans vary. Some assets require longer amortizations than others. Cars, for example, generally take about five years, and house loan are maybe thirty. The longest amortizations that are readily available are forty-year loans, and even those are rare and only for large, expensive assets.
So, when people get in trouble on their payments, the fundamental technique is to extend the amortization on the note. Lengthening the time reduces the monthly payment, always. This is called a loan modification, or a loan mod, and with proper negotiation and professional help, they are not to difficult to obtain.
Another thing to do when you’re in trouble is to get a lower interest rate, which is another form of a loan modification. But that’s rare, because this move is risky, and generally lenders are reluctant to give you a lower interest rate.

Besides the two main categories of mortgages that have already been mentioned –fixed rate and adjustable rate- there are many variations.
Thirty-Year Fixed-Rate Mortgage: This used to be the only kind of mortgage available to homeowners. Thirty years of a fixed interest: always the same payment, every month, for thirty years. It’s still the most common type of home loan, and very safe.
Fifteen-Year Fixed-Rate Mortgage: This variation allows you to fully own your own home in about half the ‘usual’ time it takes to accomplish this. This means you can own your home before your kids finish college, or before you start retirement.  Since the loan is only half as long as the thirty-year one, you end up maying much less interest, as it has less time to accumulate. But since it’s shorter, payments are much larger every month. But at least they are predictable, which is not so with a variable-interest loan.  Getting qualified for this type of loan, however, is much more difficult: you have to prove you can keep up with the high monthly payments.
Fixed-Rate Balloon Mortgage: This is a more rare, very specific form of the fixed-rate mortgage that has the usual low(ish), fixed payments similar to a thirty-year fixed-rate mortgage, but after several years, usually around five or seven- the mortgage finished with one lump payment, called the balloon. This finishes off the remaining principle, or allows the mortgagor to decide to refinance the balloon sum to another fixed-rate loan. The balloon is advantageous because it offers lower and steadier payments than usual loans with a short term (and therefore less interest.) This is a great option for those hoping to sell their house before the balloon payment is due.