Debt settlement plans, chapter 7 bankruptcies and loan modifications continue to implode as unemployment rates rise and home equity decreases.  Borrowers are modifying their second mortgages in high volumes as well.  Second mortgage lenders are typically quick to renegotiate terms, because bankruptcy and foreclosures yield huge losses.

A sudden, drastic drop in income last year had Bob and Roxanne Curry fearing they would become another foreclosure statistic.  He works at a brokerage firm and she runs a child care business out of their Queen Creek home. In mid-2008, her weekly income fell from $1,000 to $300 as fewer parents could afford day care.“I was robbing Peter to pay Paul to make ends meet,” Bob Curry said. “I started charging up credit cards and taking money from my 401(k), and then, in November, there was finally no more money to rob Peter from. That’s when we started to get behind on our mortgage.”  

The couple’s loan servicer wasn’t interested in working with them until they were at least two months behind on the home loan. Bob Curry then compiled a 39-page document requesting a loan modification, with advice from Jeff Underwood, vice president for the Central Chapter of the Arizona Association of Mortgage Brokers. Underwood is also with AmeriFirst Financial in Mesa.  “It took two months from the time that we first faxed in the paperwork for it to finally come to a close,” Curry said. “We did all that we could do. We didn’t get into a home we couldn’t afford.”  The couple was able to get their mortgage interest rate cut from 7.45% to 5%, and all late fees and charges were moved to the end of the loan.“Basically we saved about $700 a month,” Curry said. “The mortgage loan is fixed for five years, and so hopefully when that time comes we’ll be able to do what we need to do.”

The Currys are part of a growing trend of distressed homeowners reaching deals with their lenders to get back on track with their mortgage payments and remain in their homes. “We’re seeing more (mortgage) modifications and we’re also seeing for the first time … balance write-downs as part of a modification to avoid any sort of foreclosure,” said Andrew Loubert, vice chairman of the Arizona Foreclosure Prevention Task Force. “What didn’t work six months ago is working today. We are seeing the lenders more proactive in their understanding that the market has substantially dropped and as a result they need to be more flexible with how they handle balances and things like that.”

In April, 270,000 modified mortgages and repayment plans were completed nationally, according to Hope Now, a private sector alliance of mortgage servicers, nonprofit counselors and investors. It was the largest number in any month since Hope Now began compiling data in July 2007. It has not yet released any 2009 figures for Arizona.  In the Valley, President Barack Obama’s Homeowner Affordability and Stability Plan prompted some increase in mortgage loan modifications, Underwood said. “I do think that banks have opened up a little bit to the reality that if we don’t work with these folks, it’s most likely going to go to a foreclosure process and that’s not what the housing market obviously needs,” he said.

Serious “bottle necks” are being reported where properties are significantly delinquent, meaning loan payments are over 90 days past due. Potentially, this could make the foreclosure inventory explode, according to the data. About 6.3% of mortgage loans were seriously delinquent during the fourth quarter, compared with 3.62% during the same period a year earlier. The administration aims to help up to 9 million homeowners either refinance mortgages or attain a loan modification that keeps them out of foreclosure. 

The states that took the biggest losses continue to be California, Florida and Nevada, but Louisiana, New York and Georgia have also seen sharp increases in delinquencies, indicating that the recession is spreading, the group said.  On a related note, the House voted for legislation that enables bankruptcy judges to modify and restructure the home loans of distressed borrowers seeking mortgage relief for their owner-occupied property. The See the complete article > Obama Team Announces Loan Modification and Housing Relief Plan

In a recent article, real estate marketing guru, Jason Cardiff shared some helpful home refinancing tips that I had never seen published before.  Cardiff suggests taking out a note-pad and writing down the three most important goals the homeowner is seeking from the mortgage refinance loan. 

o    Reduced Home Loan Payment

o    Increased Cash Flow from Savings

o    Money for Consolidating Credit Card Debt

o    Refinance ARM into a Fixed Rate Loan

Rarely do homeowners list things like, stretching the length of the loan term or increase your mortgage debt with an increased mortgage balance, but often that’s exactly what some of these borrowers end up accomplishing. Remember to hold true to whatever goals you listed on paper.  Make sure the lender and is aware of your home refinancing goals and hold them accountable for delivering the loan terms that were quoted in the loan disclosures and “good faith estimate.”

Use mortgage refinancing as an opportunity to save money by locking in lower interest rates that are fixed for the duration of the loan term.  In most cases you should increase your cash flow simply by reducing the monthly mortgage payments.  If you have the option to consolidate credit card debt or adjustable rate credit lines into your mortgage without the “cash-out” feature raising the interest rate, take it.   Heed the advice from Jason Cardiff Tips and compare loan offers from various lenders because rates and lending costs vary significantly. 

If a lending company denies your loan application, consider a loan modification.  Foreclosure prevention services have turned into a billion dollar business. You can either contact from your existing lender directly or attempt to negotiate a loan workout yourself or locate a loan modification company that will negotiate with the lender on your behalf.  Read the complete article > Tips for Mortgage Refinancing.

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