Plan C

In the world of loan modifications I have broken the process down into two groups.  Plan A and Plan B.  Plan A is technically not a loan modification but rather a new FHA loan where the principal loan amount is lowered by getting the current lender to accept a lower pay off or "write down" of the loan amount.  The new interest rate is a fixed 30 year fully amortized mortgage.  This program works for borrowers who are current on payments and simply don't want to be saddled with lost equity now current debt.

Plan B takes on the mortgage holder with an audit of the current mortgage documents looking for violations of RESPA and incomplete procedures in completing mortgage documents.  Further review of these modifications actually seem to relay more on borrowers being behind in payments, at least 3-4 months and appealing on hardship terms.  Which part of the modification that gets the best results-RESPA violations or hardship will not be know for several months.

Part of the plan B process is to audit borrower's mortgage documents looking for 4 required documents.

1          original mortgage application

2          original Hud One disclosures

3          original mortgage documents

4          original mortgage note/deed

It has been determined by most state attorney generals including Nevada's, if the original note does not exist; the mortgage servicer can not foreclose on the property and may not be able to collect monthly payments.  This of course is earth shattering news as it seems to now be apparent that 10-20% of all loans originated in the past 3-5 years may have had most if not all of these documents copied into electronic form and stored electronically and no original paper work is available.

A third program has emerged as a very viable option for modifying loans.  While this program uses parts of Plan B it also involves a new school of thought but both use the legal process to accomplish the final goal of modifying loans.

So what happens?  Well, upon discovery of the missing documents mortgage servicers may have incredible incentives to modify borrower's loans or face the possibility that borrowers may refuse to make payments at all.  And as the economy and housing crisis hits homeowners facing lay offs and cut backs in jobs and family incomes.   Everyone is looking for ways to trim back on monthly expenses and the house payment is the largest.

Plan C looks at these mortgage audits but takes immediate legal action asking for the loan modification.

The most radical practitioners of Plan C involve taking a firm stand that all mortgages are fraudulent.  The perpetration of the fraud is evidenced by the fact that housing values have plunged by 30-50%.  The basis of Plan C says mortgage lenders and appraisers were in a conspiracy to raise prices to levels that lenders caused frenzy in the market place and pressured borrowers to accept highly risky loans that they can no longer afford.  Whether you believe the story or not, these attorneys are filing dozens of lawsuits daily on behalf of borrowers.  At some point lenders are going to have to face borrowers in court.  Generally when big business faces ma and pa kettle in court it doesn't play out well.

Rather than face the court battle, mortgage servicers are just modifying the borrower's loans.

The bottom line is they are getting results but its not like you hear on the news where mortgage servicers' are voluntarily modifying loans.  It takes big pressure to modify both the principle loan amount as well payment. 

And if you don't modify the principal loan amount this problem is just going to continue to reappear in future years and decades as other problems facing Americans just trying to get by.

The good news of plan C is that it does not require the borrower to be behind in payments or have to show hardship.  It doesn't take months to get an answer.  And it seems to have a single one cost position that is more affordable than most Plan B programs.

Is Plan C the end all fix for everyone?  No, it is just another arrow in the arsenal of tools needed to attack inflexible mortgage lenders who are trying to skirt the housing crisis and maximize future profits at the expense of homeowners who are feeling pain from the current economic turndown.

November 18th's announcement by secretary Paulson of the treasury that the mortgage industry is self regulating and they are turning their focus to the short term credit crisis, was a green light for the mortgage industry to return to business as usual making huge profits at the expense of troubled homeowners.

***Plan C appears to be risky for two reasons.  1- if enough law suits are initiated it my be worth the cost and risk of mortgage holders and serivcers to go to court.  At that time the cost of the loan modification is going to be much greater than the simple $2,500 most attorneys are charging.  2- the state of Nevada has added teeth to mortgage laws stating that anyone involved in loan modifications must be a licensed mortgage officer or post a rather large bond.  The mortgage regulatory divison is now watching loan modifications very closly.