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For a copy of Mangled Mortgage:  Everything you need to know about foreclosures, short sales, and loan modifications, the only place to buy it is right here.

Send a message to info@mangledmortgage.com with BOOK in the subject line and I’ll send you a choice of payment options.

This site is designed as an informational place and those order forms are so cheesy looking.  Don’t get me wrong…I still want you to buy the book.  I just want to flirt with you before we get married, so to speak.

-Jon

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Tips for the hardship letter

The hardship letter needs to have a few basic elements.   The obvious ones are the loan number, names of the borrowers, and a description of the hardship.  You don’t have to be a literary genius to create your own hardship letter, but there are ways to improve the effectiveness of the letter.

Tip #1

Instead of simply stating the facts of the financial hardship situation, you want to evoke emotion in the reader.  Remember, the reader is the loss mitigator and that person’s job is to make sure the lenders and the investors backing the lenders limit their losses.  If they can feel some sympathy for your situation, you have a much better chance of getting the short sale or loan modification approved.

Tip #2

If the financial situation of the borrower is looking grim and they might be headed toward bankruptcy, mention that.  Any mention of the word “bankruptcy” will create a sense of urgency with the loss mitigator.  If bankruptcy is not a possibility, don’t waste your time trying to bluff.  It isn’t honest and you get into a gray area that includes a crime called  fraud.

Tip #3

Give specific examples of things that have been done to help remedy the hardship situation.  The lender needs to understand that you are experiencing a real hardship, and not just trying to game the system.  The short sale and loan modification processes are complex and thorough to be sure each situation is legitimate.

For more tips and information on the housing mess, check out my book Mangled Mortgage. Email info@mangledmortgage.com.

The hardship letter

In the case of short sales or loan modifications, a letter must be written to the lender describing the circumstances (hardship) causing the borrower’s inability to continue paying the mortgage loan according to the original terms.  A hardship letter should illustrate long-term or permanent circumstances that make the borrower unable to pay in order to be considered a legitimate hardship.

A legitimate hardship is when the borrower’s personal situation has experienced a change which prevents the borrower from making payments as originally agreed.  Some examples of common hardships:

  • Death of an income earner in the family
  • Divorce
  • Large loss of income (long-term or permanent)
  • Job relocation or job loss
  • Mortgage payment adjustment that makes the payments unmanageable
  • Health issues

The hardship must be a long-term situation.  If the owner simply had a bad month or still has money in savings and retirement accounts, the bank is less likely to approve a short sale.

As the housing crisis continues, lenders are becoming more flexible with some of their hardship requirements.  With the current stimulus bill, there may be a way for the lenders to minimize their losses in a short sale.  Hypothetically, that would encourage more homeowners to get out of their houses with relatively little damage to their credit.

For a copy of a sample hardship letter, email info@mangledmortgage.com.

Loan Modifications

Some experts, including the smartest people I know, believe the loan modification efforts are delaying the inevitable flood of foreclosures.  Without a major change in strategy on the part of the lenders, it is just a matter of time before the newly modified borrowers become delinquent with their payments.  Recent reports of the first major round of loan modifications are supporting this theory, since over half are delinquent.

Even if the loan terms are modified to be reasonable given the borrower’s current income, it still does not solve the negative equity problem.

The current relief structure provides free money for those who cannot or will not stay current with their mortgage payments.  The unintended consequence of the handouts is an incentive for borrowers to stop making payments.  This is a dangerous road to travel, and my fear is it will not be recognized as a big problem until it is too late.

Given the current loan modification policies, is there really an incentive to stay current with one’s mortgage?

It can be argued that the benefits of being a few payments delinquent far outweigh the benefits of staying current.  Yes, you read that correctly.

People who honor their commitments might feel a little bit of indigestion from that last statement, and I understand.  Look at the long term benefit of intentionally missing a few mortgage payments.  It could allow you to have your mortgage interest rate reduced or your loan balance reduced, or both.  The short term consequence of dings on your credit report might be worth it to some people.  The penalty for your misbehavior is simply not significant.

If I was considering walking away from my house or defaulting on my payments, I would certainly say I should do it as soon as I can.  That way, I can start the clock ticking on my “repaired credit” status so I can buy another house at today’s prices and today’s interest rates.

It may sound a little goofy, but you can see how this would make sense to the less-than-honorable borrowers in the world.  I meet people like this in my market every week.

I am not advocating this as a strategy.

I do not think this is even close to a good idea, but it is not difficult to see the logic.  As long as there are incentives to become delinquent with mortgage payments, this scenario has the potential to fester and grow.

To purchase a copy of Mangled Mortgage, send a message to info@mangledmortgage.com.

Short Sales

I recently saw a short sale listing being advertised and there was an exterior photo of the house.  Parked in the driveway was a BIG speedboat.  The seller had refinanced the mortgage several times, had no equity (spent on a boat, perhaps?), and needed to sell.

Many people are not even being subtle about abandoning their obligations these days because it is commonplace to do so.  As long as borrowers are allowed to shrug and walk away, there will continue to be major challenges in the housing industry.

There are also people with legitimate hardships.  Those people did not necessarily do anything wrong; they are victims of the situation.  Because of the irresponsible actions of others, these borrowers are feeling the financial pain.  It is a basic economic law:  As supply increases, demand decreases.

As the number of homes on the market increases, the demand for all the homes on the market decreases.  As the demand decreases, prices adjust downward.  With the glut of foreclosures on the market from the over-leveraged homeowners and the “shrug and walk away” people, those who made responsible financing decisions are at risk of suffering the consequences of too much inventory and decreasing home values.

For more information on foreclosures, short sales, and loan modifications, or to order a copy of Mangled Mortgage, send a message to info@mangledmortgage.com.