Debt Relief IQ is a unique consumer debt relief portal that automates the way in which consumers manage their credit debt problems and is working with lenders nationwide to improve the way in which they administer programs that help consumers. While private investors continue to exploit short-sales and REO sales to purchase homes at the expense of severely distressed homeowners at thirty to fifty percent below the retail market price, the promises made by the Obama administration and agencies like FDIC in early 2010 have yielded little headway in reducing principal home loan balances for homeowners that are severely upside down on their mortgages.
To date, much discussion has been dedicated to the potential positive effects of reducing loan balances in mitigating foreclosures, with most help delivered in the form of gimmicks. One of these “so-called” FDIC programs in early 2010, would have a small reach and apply only to loans acquired from a failed bank seized by the FDIC, less than 1 percent of mortgages currently outstanding.
During the fourth quarter of 2009, the average borrower owed more than $70,000 of the value of their home, according to First American Core Logic. In 2010 and early 2011, those numbers continued to increase as the number of REO inventories climb.
Whether homeowners have equity in their home is a key predictor of whether they will default on their mortgage or re-default on a loan modification,” said Julia Gordon, policy director of the Center for Responsible Lending. “That’s why any serious plan to prevent foreclosures has to include principal reduction for those who owe more than their home is worth.”
Of course, reducing loan balances to reflect depressed market prices will provide a financial incentive to homeowners to protect their home by paying the mortgage; the point is, however, that the large lenders and investors have determined that it is not financially viable to reduce loan balances on any scale: Lenders and investors have been slow to cut the principal balance owed by distressed borrowers, arguing that it would encourage homeowners to become delinquent even if they have the income to pay the mortgage. Instead, the industry has focused on providing debt relief by attempting to grant loan modifications. That is a virtual dead-end as well, however, as only one in seven homeowners that qualify, actual receive a loan modification.
I recently spoke to a colleague at one of the Mega-Servicers who shared with me that out of the last 20,000 Home Affordable Modification Program (HAMP) packages sent to homeowners that only 400 of those packages resulted in a completed loan modification. Our firm’s analysis of the work-flow processes of the Servicers clearly demonstrates “large service and technology gaps” that explains why only a very small percentage of homeowners have actually benefited from loan modifications.
In fact, the Amherst Securities Group recently released figures showing that 80% of all nonperforming private-label mortgages have not been modified after 12 months and as of Sept. 30, 2010, that the Fannie Mae servicers had completed only 321,800 modifications including 158,800 restructurings that meet Home Affordable Modification Program (HAMP) specifications out of nearly two million note holders believed to be eligible for loan work-outs. Fannie has 60,500 borrowers in HAMP trials, which represents only 6% of its seriously delinquent loans.
We should mention that some lenders and investors did dip their preverbal tows in the principal loan reduction game; according to the Office of the Comptroller of the Currency, during the third quarter of 2009, 13 percent of loan modifications included a reduction in the borrower’s principal. Although that was up from about 10 percent during the second quarter, 2010 yielded even less loan balance reduction activity. But realize that’s one in seven received loan modifications and one out of those received a principal balance reduction.
Some of the riskier loans such as “option” ARMs, also called “pick-a-pay” mortgages, that allow borrowers to choose how much to pay each month, have received a higher percentage of principal loan reductions and are concentrated in places where home prices soared and then plunged drastically, leaving many homeowners underwater by up to fifty percent (50%) in some cases. Wells Fargo Bank, which acquired many of these risky loans as part of its 2008 purchase of Wachovia, says it forgave $2.6 billion in borrowers’ principal balances for these types of mortgages in 2009 with that number tailing off in 2010.
Although it is widely accepted that that lenders have failed to implement loan modifications that will perform well and keep homeowners in their homes, when the lender makes make contact with the distressed borrower, in addition to examining the work-out options for the mortgage, they must also address the homeowners “total debt” situation in order to create a real attempt to financial rehabilitate the homeowner so that a realistic plan is in effect for solvency.
It is specifically this lack of comprehensive planning by the consumer that led to the over-leverage by the consumer, borrowing against personal credit debt in order to take on more consumer debt in the form of mortgages. It is critical that the consumer can clearly afford the monthly payments for not only the mortgage but all of their credit debt. Debt Relief IQ takes the consumer through a comprehensive budget analysis that is certainly necessary in making an educated decision to a complex problem. Although it is sometimes difficult to deliver that type of brutally tough message, consumers need real answers to real problems.
In many cases, the budget analysis will yield a bleak picture. For those consumers that simply cannot cover their expenses, looking into all options including Bankruptcy is critical. Of course, some consumers will gravitate towards Bankruptcy Avoidance programs such as debt settlement, the process whereby a consumer hires a firm to settle their credit debt, generally works because it is financially beneficial for the creditors to negotiate with third party firms that maintain a relationship with the consumer and can shepherd a settlement with the creditor as long as the consumer stays in the Program. Credit card debt, personal lines of credit, business debt will be attacked in the debt settlement program.
Debt Relief IQ.com is a unique approach to settling unsecured credit debt puts the control in the hands of the consumer by providing a turn-key technology program that guides the consumer to settle their consumer debt with an easy to use step-by-step process with zero upfront fees. In many cases, an unsecured debt settlement approach is required in order to qualify loan modifications as to meet debt-to-income ratio requirements. If a consumer can reduce their monthly unsecured credit debt payments by enrolling in a program that saves the consumer money, that cash can be used to pay the mortgage.
Unsettled, credit debt that end up as judgments or wage garnishments obviously jeopardize the note holder’s ability to sustain payments even after a loan modification is achieved. In other words, all of the time and resources dedicated by the Lender to execute a successful loan modification can be instantly unwound if the Servicer ignores the competing forms of consumer debt, especially credit debt.
For those consumers that would information on other Debt Settlement programs contact by Debt Relief IQ at www.debtreliefIQ.com or call 888-431-9131.
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About the Author
Richard Kaye holds a BA from the University of California at Los Angeles and has spent 20 years in the financial services sector, first serving as a registered securities principal. He later expanded his services to include investment banking where he guided company clients with financing, public market listings and institutional sponsorship. Subsequently, Richard co-founded Mortgage Solutions, a full service mortgage lender and recently developed valuable consumer direct loss mitigation platforms instrumental in saving homes and rehabilitating consumers, including Debt Relief IQ, a consumer friendly debt relief portal that guides consumers to debt settlement resolution utilizing proprietary technology. He is currently the Founder/CEO of Red Rock Servicing, a national asset management servicer that deploys a proprietary ‘single system of record’ technology to manage distressed mortgage assets.
For more information visit: http://www.debtreliefiq.com or email to rkaye@redrockservicing.com
Tags: center for responsible lending, core logic, credit, depressed market, distressed homeowners, financial incentive, loan balances, loan modification, principal reduction, private investors, reo sales