Loan Modification: Helping Homeowner or Bank Working Homeowner Over?

If you are in a situation where a loan modification may be helpful, be careful. Simply because the loan modification results in a lower monthly payment doesn’t necessarily mean it’s helping you in the long run.

I had the opportunity to review a loan modification sent out by “XYZ Lender”. The cover letter said in essence, ‘In our efforts to try to help you, please review the loan modification enclosed. If you agree, all you need to do is sign it, send in the requested supporting documents and a good faith check in the amount of the new monthly payment and you are done.’

On the surface - the modification looked good. They had lowered the interest rate substantially, which in turn reduced the monthly payment. They kept the term the same, so it looked good.

There was a substantial monthly cost saving to the homeowner. All is good right?!

Hm...? Not really. Lender’s are in the business to make money and they are very good at manipulating numbers.

What they neglected to point out is, they had completely dismissed the years of payments that had already been made, which added up to about $15,000 - about half of the $35,000 original balance. They also used the loan modification to reset the new principal balance at $28 dollars below the original amount loaned.

There is the argument that, since interest is paid first, there really was very little paid towards the principal balance. But since this loan is a no documentation, stated, adjustable rate loan, that had been turned over to MERS - there is a good chance their right to foreclose could be successfully challenged.

More importantly, this loan is in a small, second position. There’s a larger first position loan, on the home that is currently under negotiations. Due to the market value of the home, if the first position loan actually forecloses, the second position will either get nothing or a small token amount from the first lien holder to just go away.

The bottom line is, when calculating the $15,000 already paid into the cost of the loan, the effective interest rate got pushed right back up beyond what the original interest rate is.

Another issue to take into consideration is their motivation for voluntarily submitting a loan modification. It was never requested by the borrower. There were a couple of line items in the modification contract that served to underscore “XYZ Lender’s” legal standing with regard to this particular loan.

I sincerely believe their primary motivation is to have the homeowner “voluntarily” acknowledge via a contractual agreement, “XYZ Lender’s” right to negotiate, collect and otherwise manage this debt.

At my suggestion, the loan modification was “modified”. The homeowner reviewed the terms of the contract with an attorney, and made prudent adjustments.

The contract was re-typed using the format provided, making changes in verbiage and terms. Verbiage was altered to allow for future challenges to the legality of the original loan and the "Lender's" right to collect and/or foreclose.

The principal balance was adjusted to reflect what had been paid, and interest was changed to reflect low market rates, which in turn reduced the monthly payment even further.

This revised loan modification was signed and enclosed along with the requested supporting documents, and returned to the lender in their prepaid mailing package.

Oh, the good faith check was adjusted based on the revised numbers. There was also a small statement printed on the check that said, “In cashing this check “XYZ Lender” accepts the terms of the loan modification dated “xx/xx/2011”.

Finally, a copy of the check laid across the revised loan modification, showing some of the changes was made.

There was no real expectation that there would be any response from the “Lender”. But the thought behind this entire process was, it didn’t hurt to try.

The package was mailed within the deadline imposed by the “Lender”. And then we waited.

A week passed and nothing happened. But, on the 8th day, the homeowner's bank showed the check was cashed.

Does this mean the contract was accepted? Does the cashing of the check provide the homeowner a legally binding contract? Not necessarily. But, maybe. If nothing else, it could tip the scales in the direction of the homeowner. We’ll have to wait and see.

In the meantime, the homeowner is going to begin making monthly payments based on the amount “agreed” upon in the revised loan modification. Time will tell...

Alternative to Foreclosure

Here’s a new twist for those who are in jeopardy of losing their homes to foreclosure.  There’s an investment group who is offering to buy the lien of homes that are in distress.

As of this writing, if you have a loan with any of the following lenders, you should go visit this site:  http://www.Cut-Your-Mortgage-Now.com.

Bank of America
Wells Fargo
Chase
Citibank
BB&T
Aurora
Suntrust Bank
IndyMac (OneWest)
Regions
GMAC
Fannie Mae
Freddie Mac

Once you get to this site, you can watch a brief introductory video, and then there’s two doors to choose from.  

The first door is for those who want to stay in their home, and the second door is for those who must sell.

You’ll have to submit your contact information when choosing a door, but then you’ll have access to more information about their program and will receive a call from a representative who will explain their program to you.

What it boils down to is, they compile a list of 30 or so loans of homes in jeopardy of foreclosure.  If the homeowner is agreeable, they will negotiate the purchase of the loan directly from the lender.

Depending on what has been discussed and agreed upon prior to their buying the loan, how far in arrears the loan is and the economic status of the homeowner will determine how the loan is handled thereafter.

But, because these are investors buying the debt, they have a better understanding of what is going on, and are better able to work with the homeowner.

The end result is the foreclosure doesn’t take place, and if the home is sold, there is no deficiency judgement against the borrower.

If you visit the site above, and submit your contact information, they do not sell your information to anybody, and they will remove you from their system if you request it.

Oh, and there’s no fee to speak with them.  The only time a fee may become relevant is if you want to stay in your home.  I think they require that fee to be paid up front, to cover the cost of the attorney’s review of your mortgage documents, adding the loan to the group and then negotiating the purchase of the loan.

But that is something you would want to clarify with them directly.

Hey, it seems pretty clear cut, and provides just another alternative to letting the lender foreclosure on you.

Lender's Professionalism a Myth

I continue to be amazed at how many people still believe that the large number of foreclosures are caused by irresponsible homeowners, who have chosen to walk away from their homes - their investment.

But then, define irresponsibility.  If an individual makes a poor investment, is he morally obliged to continue to support that investment regardless of how the investment performs?  

The prospective homeowner enters into a contract that is designed by the lender and is acceptable to the lender.  The lender who has superior knowledge and resources, knowingly enters into a contract that is certainly skewed towards the lender.

Most loan agreements state the that the borrower agrees to make monthly payments until the loan is paid off in full, and if the borrower fails to do so the lender can take possession of the home in order to satisfy the debt.

If the investment is no longer a viable investment to the homeowner, why would the homeowner be expected to uphold that agreement?  He has a choice.  Up hold the agreement or let the lender take the collateral and sell it.

Let’s not forget the sophistication and resources that the lenders have at their disposal.  Undoubtedly far superior to that of the homeowner.  With lender’s knowledge of the market and their superior ability to check out the potential borrower, they agreed to make the loan with near certainty they will profit.  

And then there’s the bigger picture...

Before wall Street got into the mix, most lenders would vet the prospective borrow to ascertain their credit worthiness.  Often requiring a good amount as a down payment, along with verification of employment, income etc.

With the securitization of mortgages and a readily waiting if not feverishly hungary, market to buy these bundled and securitized loans, lenders no longer had to worry about collecting the monthly payment over a number of years.

They simply created the loan, and sold it to Wall Street at a profit - sometimes retaining the management of that loan, for a nominal fee.  They got their investment back almost immediately, enabling them to reinvest.

That created a need to create more loans to sell.  If you have ready and willing buyers clamoring to buy the loans you create there;s a huge incentive to create more loans.  The more the merrier.  What better way to create more loans, than to reduce the requirements necessary to qualify for those loans.  The lender risk to the lender is practically non-existent, since the loans were sold almost immediately after their inception.  They really didn’t care if the loans performed or not.  They got their money back days or hours after the closing.  

Wall Street really didn’t care either, because they had invested in a bundle of mortgages, and if a few of those mortgages defaulted, it wasn’t going to impact the overall value of the whole.

No documentation, no verification, adjustable rate, zero down etc loans, were created to attract new buyers.  Creating the opportunity to write more loans, that could be bundled and sold to Wall Street.

And it became almost irresponsible to leave equity in your home.  With all that money sitting there ready to be pulled out and reinvested.  If I recall, the public was inundated with marketing exhorting the benefits of pulling that equity out to reinvest, buy a new car, new furniture, take a trip etc.

Of course, a side effect of this is, with more buyers there was higher demand.  Higher demand drove market values of homes up, which benefitted not only the lenders but homeowners, local governments and everybody in the “food chain.”

These increased market values were unsustainable, as any sophisticated economic model would have shown.  Hm,...?  And who had access to those sophisticated economic models?  The very people with a huge incentive to drive those market values up.

Another aspect of this mess that tends to be overlooked, is many homeowner’s income changed or were lost altogether, making it difficult if not impossible to continue making payments on their home loan.

And, lenders were not willing to negotiate with borrowers and still are not.  Their perspective was and often still is, “Hey you signed the loan documents - it sucks to be you.”

Had lenders simply reduced the interest rate, they could have maintained the principal, added the arrearage to the backend of the loan and the loan would have been restored to a performing asset, and the homeowner would not have been foreclosed on.

However, financially, it made more sense to foreclose.  Often the lender would be reimbursed up to 80% of the loan, if not more.  Now if they took the home back, all they had to do is sell it for at least 20% of the loan amount, plus some costs and they were golden.

Even when home values were reduced, it wasn’t going to be too hard to sell a $100,000 home for less than $50,000

Also remember, many of the lenders had received all their money back plus a profit, when they sold the loan to Wall Street.  Now they were getting paid to manage the loan, and often they made more profit by completing the foreclosure process.

Oh, did you know that some of the lenders used the bailout money to actually buy foreclosed homes and resell them at a profit.   

Yes, we all know there were some homeowners who took advantage of the market and walked away from homes even when they could afford to pay the mortgage.  

They were the minority.  The folks that were wielding the power and recklessly manipulating the market to their benefit were the lenders.

A great example of this is the robo signing and the creations of MERS.  The use of MERS totally side stepped the entire chain of title, creating murky ownership and defrauding local communities of transfer taxes.  And robo signing - talk about identity theft!

This whole mess is riddled with fraud perpetrated by the vary lender’s that our politicians and tax money bailed out.

The idea that lenders are professionals who above reproach is a myth perpetuated by the lending industry itself, and they have our “leaders,” our political representatives in their back pocket because of their financial clout, and ability to contribute heavily to election campaigns.

Save Your Home from Foreclosure

More and more people have found themselves upside-down and sideways with regard to their home these days, than ever before.  I know we are.

We’re paying on a mortgage that is about $80,000 thousand dollars more than the current market value of our home, at an interest rate of about 7%.

We’d like to refinance to take advantage of the lower interest rates, but we can’t because we owe too much.  If we try to sell, we can’t - unless we do a short sale.

In the meantime, I lost my job, and it appears I’m unemployable.  We’re not even arguing the high mortgage.  But the interest rate?!  If we could get that down, it would be a big help to us.

Should we keep paying this high mortgage?  Or, should we walk away?  If we decide to walk away we could live here “rent” free for about a year or more and save up about $20 to $30 thousand as a down payment for a new home, with a lower interest rate.

Are those our only choices?  No!

First thing to do is call your current lender.  See if they are willing to work with you.  If they actually own the loan, and are servicing it too, there’s a chance they may work with you.

Now if they’re strictly a servicer, you’re probably wasting your time.  Servicers generally make more money if they initiate foreclosure proceedings and even more if they successfully foreclose.  They have no incentive to work with you.

Another thing you can do is read through your closing documents.  Look for MERS or Mortgage Electronic Registration System, Inc.  If you find their name in your documents there’s a very good chance that they can’t prove their right to foreclose.

If you can’t find your closing documents you can go to the following site and type in the property address.  

https://mers-servicerid.org/sis/

If you find MERS in your loan documents, find yourself an attorney, who is familiar with MERS or connect with a group litigation law firm.  

By looking into a Group Litigation firm, you can save yourself a chunk of change, but you’ll have to do some research and some comparison shopping.

Each group has a different price structure and slightly different goals.  Some will ask for a flat fee, while others will want a flat fee plus 30-35% of any cash settlement.  

Some will sue for damages others will sue to have the loan restructured to reflect the current market value, at a more favorable interest rate.

That’s assuming you’re still in your home.  If you have already had to leave and the bank has resold the property, then you be looking at a cash award of some sort.

We looked into one attorney to represent us, that looked promising.  He wanted a flat fee up front and 33% of the amount he saved us!  Well, if he succeeded in getting us a loan based on 80% of current market value, that would have been great.

80% x 150,000 = $120,000

But, with our mortgage currently at $220,000, that’s would have been $33,000 we would have owed him.

He was going to be kind enough to create a lien against our home, charge us 7%, with a five year balloon.

Wait a minute.  Our house is worth $150,000.  We’d have a new first lien of $120,000 plus a second at $33,000 for a total debt of $153,000.  In five years we would have had to refinance or sell our home to pay off the attorney’s lien.  Upside-down again!

So, be careful what you negotiate with these guys. 

The other thing to consider is, you may be able to stop making your monthly payments while the attorneys are suing your lender.  Most judges will not allow foreclosure proceedings to continue while the lender who is attempting to foreclose is being sued by you.

However, there’s no guarantee of that, so be prepared to get legal assistance if you decide to stop making payments.

In the meantime, the Attorney General’s in many states have either initiated lawsuits or are reviewing the potential for lawsuits against MERS challenging their right to foreclose.  You may wish to contact your State’s Attorney general, and see what they suggest, if you can’t afford to get involved in your own suit.

Good luck.  And don’t give up without a fight.  These lenders and MERS have been actively practicing fraud, creating  lot of victims.  It’s time to fightback and let them know the consumers are not going to role over and play dead!

PS:  Here are a couple other useful sites:

http://www.fanniemae.com/loanlookup/

www.freddiemac.com/mymortgage

http://www.making-homes-affordable.com

Don't Worry About Your Credit Score

One of the first things you’ll hear from a debt collector is how your debt will affect your credit rating.  Which is kinda stupid, because, if you’re in collections it’s already tanked your credit score.

As I’m sure you already know, your credit score is used by various financial institutions to evaluate your credit worthiness.  Lenders, banks and insurance companies are the primary users, but other agencies including potential employers may want to take a look at your credit history, too. 

Anywhere you try to purchase anything with credit is going to run a credit check and discover your score is probably going to be below their acceptable levels.

So, your credit score does have value, though I believe the financial institutions like to use your credit score as leverage against consumers.  You know, “If you cross us, we’ll mess with your credit score!”  That can have far reaching consequences.

But, where there’s a will, there’s a way...

If for some reason you feel compelled to get your credit score restored, after you have resolved your delinquency issues - whether by paying a settlement, filing bankruptcy or whatever, you can begin restoring your credit score almost immediately.

There are plenty of businesses that will extend credit to you, if they want to sell their product.  You may have to pay a higher down payment and a higher interest rate, but if you stay current and pay off that bill, that’ll be your first step towards getting back on track.

If you need to have your credit score restored quicker - that’s possible too, if you’re willing to pay.  You see there are credit restoration businesses out there who will “rent” you bank accounts and lines of credit.  You can’t use the money in those accounts, but the account will come up under your name and become part of the credit scoring mechanism.

The amount of time and the size of the accounts you “rent” will determine the price you pay to "rent" those accounts.  The credit repair agency will help you determine what you need based on your description of your goals, and from there you can decide if it’s worth the expense.

Then again, you may wish to avoid using credit in your name.  You can set up an LLC or other corporate entity and partner with somebody, to help establish credit with that LLC.  Or, you can use one of the credit repair services, for this.  The LLC then, would have the credit, and you control how that credit is used within the LLC.

Personally, I think this might be the best way to go, especially if you’re an entrepreneur.  That way if you get in trouble again, you can avoid dragging your name and family through the mud.  

Check with the appropriate professional - lawyer or accountant, because setting up a basic LLC that  simply passes through to you may not be sufficient  So, you’d have to set up a legit company and “run it” as such.  You know, have corporate meetings once per year, etc.

Oh, and if you do pay your debtor collectors anything because they have offered to place a positive note in your credit record, make sure you have their assurance in writing - signed, dated and on their corporate letter head.  They have very selective memories when it comes to them promising you anything, especially after they have collected some money from you.

If it was me, I’d record the telephone message where the agreement was made, and I’d make sure I had it in writing before any payment was made.  Even if I have to draft the letter - something like, “Per our discussion with Mr. Debt Collector, on August 12, 2008, it has been agreed...”  “The agreed upon payment will be made upon written verification of our agreement.”  Then send that letter certified mail, return receipt - and wait for your response.

Avoiding buying anything on credit may be what's best for you now anyway.  If credit is what got you in trouble, perhaps learning to live with as little credit as possible might be the best path for you to take.  Especially, if you have been paying attention to the fees and interest lender's are attaching to credit use.  Geez - it's ridiculous!

Getting back to your credit score, the point is, don’t let these lenders and creditors threaten you by holding your credit score over your head in an effort to try to compel you to pay.  It’s not the end of the world and you can repair your credit quicker than they’d like you to believe.

Debt Collections and the FDCPA

If you’re upside down and sideways financially, like so many people in our country, then undoubtedly you have received calls from debt collectors.

I’ll admit there are numerous debt collectors who are very professional and reasonably compassionate, but most are not.

They have one job and that job is to squeeze money out of you.  Most get paid on commission, which is tied to what they get you to pay, and they are given quotas to meet.  So, they are incentivized to do whatever they can to intimidate, coerce, and threaten you into giving up some cash.

Of course, they assume you have money to pay and are purposely withholding cash.  That’s what burns me.  The debt collectors I have spoken to always get around to, “What are you prepared to pay now?” 

I’m like, “If I had money to pay, I wouldn’t be behind in the first place!”

If you do have some ability to pay, and are willing to work something out, DO NOT pay anything on the spot over the phone. DO NOT pay anything at all, until you have received in writing, on their company letter head, verification of the terms you and the debt collector agreed to.

If you make a payment or even a series of payments without first getting an agreement in writing, as to how those payments will be applied, and how those payments will affect the your debt, you may as well have simply thrown that cash out your front door.

These debt collectors are notorious for losing payments or forgetting what they agreed to.  It is your responsibility to be able to provide proof of payment and proof of the agreement under which you paid.

I can't tell you how many people I have spoken to who made a payment over the phone or sent a check in, only to discover that money was never applied to their debt.  And when they have tried to check on it, gee, nobody knows anything about any payment.  You talked to who...? 

If you can't prove it, the payment or payments never happened.  And what are you going to do?  Hire an attorney?  They know you can't afford that.

This may sound harsh, but don't ever believe that a debt collector has any compassion for you or your situation.  Regardless if it was a medical situation, a job loss or whatever, they simply do not care.  You are, by default, simply a liar.  

Even if they sound as though they want to be your friend and work with you, don't fall for it!  What they are doing is "building trust," so that you'll drop your guard and they can manipulate you easier.

Don't forget, they have your credit report and any other public information that’s readily available sitting on the screen in front of them.  They can see whether that outstanding debt originated with a medical bill.  

One guy said, “Look you have a card with nothing on it, that has a credit limit sufficient to pay off this debt.”

My response was, “That doesn’t make sense - to pay off one debt by creating another!”

He persisted by saying that I would be getting rid of bad debt and creating good debt.  Which, technically he was right.  But, the problem was, I had no income and no ability to pay good debt or bad debt, so it was a mute point.  


I could have paid off the bad debt and created good debt.  But, in no time at all, that good debt would have become bad debt, and then I would have had two negatives on my credit report instead of one.

In their determination to get some type of payment out of you, they’ll often forget there are rules they must adhere to which are spelled out in the Fair Debt Collection Practices Act (FDCPA).  

If you are having financial difficulties, you must read the Fair Debt Collection Practices Act.  You should also visit the Federal Trade Commission site, where they have a nice "Frequently Asked Questions page.  Read these and take notes.  I can't stress this enough.  Read it!!!


You should also visit your State's website regarding debt collections.  You can Google that by typing in "debt collections state of ???" and then input whatever state you live in.

Keep in mind, they’re only allowed to call you once per day - so if you answer their call the first time, they should not call you again.

If you want to stop them in their tracks, when you answer, just let them know you’re recording the call and they will end the call.  That in itself should give you a heads up to their practices.  They will be recording the conversation, but they don’t want you to - hm...?  What do they want to hide?

Here's an interesting side note...  Debt collectors very often use aliases, because they don't want you to have anyway of tracking them down.  They'll often use actor's names.  But again I ask, why do they have to hide their identity if they're behaving in an honorable manner?

I record them anyway, without notifying them.  I checked with my State, and discovered I legally am permitted to record the call provided at least one party to the conversation agrees to the recording.  Since I am a "party to the conversation," and agree to the recording, I fall within what is legally allowed in my State.  

But, even if I legally could not, I would record them anyway.  The recording may not be able to be used in a court of law, but you can certainly use it to accurately remember and recreate the conversation on paper, which can be used in a court of law. 

Trust me, you’re going to want to have excellent records regarding your conversations - time, date, and content.  It could put money in your pocket.  I collected nearly $8,000, because debt collector's illegal actions!

If you know your rights, they cannot threaten you.  If they start getting belligerent and threatening, disengage.  Even if you do not know the law, you certainly do not have to listen to somebody being argumentative or putting you down.

The downturn in our economy caught a lot of people off guard, and caused a tremendous number of folks to lose their jobs.  Let these debt collectors walk in your shoes, before they start name calling - which, by the way, is against the law.

If they’re calling you on your cell, that can get really old, really fast.  So, here’s a little trick.  When they call, whether you answer or not, their number will be saved by your cell.  Add that number to your Contacts List and assign a “no ring” tone to the number.

Now when they call, on my cell all I receive is a beep letting me know I missed a call.  

Oh, and one other thing...  When assigning a name to the caller in my contact list, I always put two “z’s” in front of their name.  That way the number falls to the end of my contact list, and I never see it when looking up my real contacts.

But wait, there's more...

Laws regarding debt collection spell out fines that must be paid if a debt collector violates these laws. Remember I mentioned earlier, I collected nearly $8,000 from Debt Collectors.  Here's how...

By keeping good records, you can actually sue the debt collectors for violating the FDCPA.  There are attorney's who will sue these lenders on your behalf, at no cost to you.  You have to split the settlement fee the collector pays with the attorney, but it's pretty cool when the debt collector pays you!

All you have to do is keep good records - preferably recordings, and make these recordings available to the law office. They'll do all the rest.  Assuming the debt collector violated the law, you'll get a check from your attorney for a few hundred to a couple of grand in a few weeks.

It pays to know Know Your Rights!  Literally!

Lender's Created the Real Estate Bubble!

Give me a Break!  Lender’s Created this Mess, not the Consumer!

Lender’s created the real estate bubble by making loans available to just about anybody who wanted one. 

What’s this I hear?  Homeowners who are losing their homes are responsible for the depreciation for their neighbor’s homes!

Say what?!

Let’s step back a bit and take a look at how those home values got there in the first place.

We all know the basics of supply and demand - the higher the demand, the higher the value based on the amount of supply.  If supply and demand are reasonably equal, then values remain reasonable.  

But what happens if there’s low demand or an over supply?  Values drop, right?

And the opposite occurs when demand is high and supply is low.  The more people who want something, the higher the value because the product will go to the person who is willing to pay the most.

Ten years ago property values were being driven up, simply due to multiple offers coming in.  There for awhile, if you wanted to buy a home, often you had to submit an offer that was higher than the asking price.

To follow your father’s advice, and write an offer that was 10% below the asking price was simply a waste of a Realtor’s time - and she was willing to tell you that, point blank.  “In this market, 10% below - really...?”

Now take a look at real estate from a lender’s point of view.  First of all, a lender’s job is to make money selling “money.”  Right?

They make money by collecting fees, collecting interest on loans they make and by selling those loans to investors.

The more often they can do this, the more money they make.  But they have to have borrowers to “sell” their money to.  So, they marketed aggressively for borrowers.

Anybody remember those no down payment, low interest ads or how about no doc loans?  Or those loans offering up to 110-120% of the market value of the home?!  Do you think these loans were based on sound, financial principals?

If I loan you $50 bucks with a simple interest of 10%, and you pay me $55 bucks in a month, then I’ve done OK.  But, if I loan you $50 bucks with the same simple interest, and you pay me back in a week, I have done much better.  

Because now I can loan that same $50 at 10% simple interest, to your buddy the next week, and again the following week and one more time the week after that, within that same month long period, collecting $5 per week for a total of 4 weeks, and $20!

Instead of making $5.00 or 10% over the course of the month, I have made a whopping $20.00 or 40%.  The same amount of money loaned, the same interest rate and the same time frame, but a 40% return because I was able to loan that money 4 times instead of once. That’s a much better return on investment.

This is why the banks bundle loans a form of securitization and sell them to investors.  Of course, they’re making money when they loan the money to borrowers, but they’re also able to take their money back and re-loan it, collecting another round of “fees.”

Obviously, it’s more complicated than that; the point is the more often they were able to loan their money or “turned” their money, the more they made.  To facilitate this process they needed a constant source of investors, to buy these loans and replenish their investment funds.

If you have guaranteed investors lined up to buy the loans, then it becomes a no brainer.  Simply fill the funnel.  Who cares if the borrowers are qualified, if you’re just going to sell the loans at a profit to investors anyway?

To insure a constant source of borrowers, they simply created new and easier loans, dropped their requirements and stopped doing their due diligence.  By doing that they enticed more borrowers into the market, which in turn created demand and drove home values up - along with other consumables.

Driving prices up, helped the banks too, as well as the entire economy and it became a self-perpetuating, cash generating machine.  As home values went up, so did the amounts of the loans.  The increased home values also fueled home equity loans, refinances, etc - all designed to "pull" money out of the home's appreciating value.

As home values increased, so did the size of the loans and the fees collected.

And, of course, the larger mortgages, caused the banks to collect more interest.  This in turn made the loans more valuable to the investors buying the bundled loans.  As long as the economy was cooking along, the momentum of this cash producing machine continued to build. 

There’s just no way lenders, with all their resources and sophisticated economic models didn’t see how they could essentially, manipulate the market by making money or loans available to every potential buyer out there, regardless of their ability to repay.

As for the consumers - they took advantage of the opportunity that was made available to them by the lenders.  I mean, let’s get real here.  If the lender’s would have done their due diligence, they would have discovered that a lot of the borrowers requesting loans, didn’t have the ability to repay those loans.

The point I’m trying to make is these lenders were not innocent bystanders who got taken advantage of by greedy consumers.  These lenders actively pursued, marketed to and approved loans to consumers who truly did not qualify.  

Not only that, but through their marketing they convinced consumers that leveraging their credit capability was away to move themselves and their family up the economic food chain.  And that not leveraging ones credit was foolish.

Through their business practices, lenders themselves, knowingly facilitated the artificial appreciation of real estate.

The consumer on the other hand, may have known it was too good to be true, but I doubt really understood the potential fallout of the situation.

The lenders were the parents and the borrowers were their kids.  The kids may have gotten into trouble, but who failed to educate their children properly?  The parents!

You are a Loser in the Eyes of Debt Collectors!

You know, I have heard some people argue that folks who stop paying their mortgage are losers, who are driving the value of their neighbor’s homes down.

That’s a pretty narrow view of the situation.  

Now, I know there have been abuses out there, and I know there are people who have walked away from homes they could afford to hang onto, but there are plenty of people who have been caught by the downturn and don’t have much choice but to walk.

But let’s take a look at the chain of responsibility.

Who began making loans available to anybody who had a pulse?

Who encouraged their representatives to sell as many loans as possible and collect fees?

Who used their huge marketing dollars to encourage people to take their equity and buy new furniture, new cloths, new cars?

Who stopped doing their due diligence, despite having the resources and where-with-all to do so?

The answers to all those questions are “the lenders!”

It used to be said that lenders would only lend to people who didn’t need the money.  Somewhere along the line that old adage was thrown out the window, along with sound banking practices.

And why?

Because, Wall Street got involved.  There were big time investment firms that began snapping up these mortgages as quickly as the banks could write them.

Often the lender who wrote the loan had sold the loan for a profit before the first mortgage payment was made.  So, why bother with the expense of doing due diligence to make sure the borrower was credit worthy?  It wasn’t going to be their problem to collect?

They wrote the loan, collected upfront fees from the borrower, and immediately bundled and sold the loan to investors tripping over each other to buy them - making money on the backend, as well.

The lenders then took that money, and rolled it into new loans.  The more often they could “turn” the money, the more they made.  So, speed was important.

As long as property was appreciating, they simply did not care who borrowed the money, because the increasing values of property reduced the risk of the loan.

But, in truth, they didn’t really care about the risk, because they knew they would have that loan sold to an investment group before the ink dried.

They were more concerned with lining up more borrowers.  If you recall, you’ll remember TV ads, billboards, radio ads, newspaper ads all encouraging people to take advantage of zero down, no doc loans, or refinances.  Or what about those zero interest rate credit cards?!  All those creative ways to side step lender requirements - like the 80/20 loans.  These were used to get around the requirement to have 20% down, to avoid private mortgage insurance.  Or the home equity loans, where they’d loan up to 110% of the value of your home?!

The point being, lenders were using their substantial resources to encourage consumers to leverage their credit to the max.

With all their resources and in house economists, you can’t tell me they didn’t understand the risks involved.  Obviously, as long as property values increased, all was good.  But they must have had long term projections that foresaw the impact of a downturn in property values.  They had to have seen a slow down coming, yet continued forward, business as usual.

They may not have foreseen the extent of the downturn, but they had to have seen a slow down coming.  You know, they all had high paid economists using the most advanced technology to predict the economy.  They knew the risk, and were willing to take that risk in order to make more money.

What about the argument that the consumer signed the contract and knew what he was signing.  Well, yes and no.  

Have you been to a closing in the last 10-15 years?  It was all about speed of processing.  The sooner everything was signed the sooner everybody got paid.

The closing agent often ran through the docs stating, “And this page says..., sign here.”  If a consumer actually wanted to take the time to read each document, the closing would have taken forever, and there would be a lot of finger taping and sighing.  Not to mention those “looks that could kill.”

Besides, have who read some of the closing docs and mortgage papers?  That stuff is not written to be understood.

Should the consumer have read and fully understood what they were signing, absolutely.  In the practical world, it just didn’t happen.  Rarely did a consumer read the closing documents, let alone hire an attorney to review them.

Herd ‘em in, herd ‘em out..

So when a debt collector starts throwing the “loser” stone, they need to remember that the lender was a fully engaged participant.  Additionally, of the participants, the lender was the more sophisticated, knowledgeable, more capable participant who actively solicited consumers to use the credit available to them.  These same lenders most often waived their opportunity to do their due diligence of the potential borrower and by doing so fully accepted the risk they were taking in agreeing to loan funds to these individuals.

Oh, and one other thing about the consumer signing a contract...  In that contract is usually a provision that says if the borrower does not make the payments as outlined, that the lender can seize the property.  The lender agreed to those terms, as well.  

Obviously, the lenders was OK with the terms since they wrote them.  So, what’s the fuss if the home buyer walks.  The fuss is, the lender doesn’t want the house back either, because there is no equity.  Five-ten years ago, the bank didn’t care, because they would simply sell the house and get their money out.

If an individual walks away from a bad investment, I don’t think that makes him a loser.

So You’ve Stopped Making Your Monthly Payments, Now What?

After considerable anguish you have concluded there’s just no way to continue paying your bills.  Squeeze as you may, the money just isn’t there.  So, now what?

The first thing that is going to happen is, you’ll begin receiving notices in the mail that you have missed a payment and to please bring your account current.

These letters will will become more and more frequent as the amount of time between your last payment and the current date becomes further apart.

On the second month, you’re going to start receiving phone calls.  You really should answer these.  Because depending on your situation, the lender may have an option that will work for you.  Also, most of the folks working in the collection departments of the original creditor are fairly professional.

Though, often this job is farmed out to third parties.  You can expect to get calls from call centers in India - so be prepared.  And you’ll receive calls from folks with chips on their shoulder who assume you are a devious person purposely trying to skip out on your debt.  


There's no way to have a constructive conversation with either.  The folks calling from out of the country stick to their script. If you try to speak logically to them, they simply repeat the script.  The guys with a chip on their shoulder - well, their coming for blood.  They're going to say whatever they can to minimize your self worth and make you feel like dirt.


You need to be recording these calls!  Though there’s not much you can do about callers who have attitude, you do need to arm yourself. 

First thing you’ll want to do is check with your state laws regarding recording conversations.  You need to know what the law is, to be informed.  But, you’re going to want to seriously consider recording any conversation you have with your lender and/or debt collector.  If for no other reason than to create a written document of the conversation.

If you don’t want to talk to the debt collector, tell them you’re recording the conversation and they will disengage almost immediately.  That, in itself, ought to raise a red flag for you.  

Why would they be so adamant that you not record the call, when they are?  What do they have to hide?!

If it were me, I’d record the call, and not tell them...  But, that’s just me.  You can pick-up an inexpensive recorder at Radio Shack or check your local CraigsList.

One thing this will do - psychologically, it makes you more calm.  If you know you’re being recorded, you’re less likely to cop an attitude.  I'll get back to this in a moment.

You may want to turn the recording over to an attorney if the collector has violated the Fair Debt Collection Practices Act (FDCPA).  Even if the attorney can’t use the recording itself, he can recreate a written document of the conversation.

Keep good records - include dates, times, who you spoke with and what is said.  Even though most debt collectors use aliases, still write down their contact name.

The next thing you’ll want to do is get on the internet and look up FDCPA.  Read through that - and not just once.  Take notes!

Look up the Fair Credit Reporting Act, too.  This is dry reading, but you should know your rights.  

Be sure to look up the Federal Trade Commission (FTC), the Better Business Bureau and your State Attorney General.  If you need to file a complaint, these are some of the organizations you’ll be filing the complaint with. 

There are things debt collectors can and can’t do and say, and some debt collectors are notorious for abusing the FDCPA rules.  There are attorneys who do nothing but sue these guys - at no cost to you.  Keeping a good record will help an attorney make a case on your behalf.  You can Google "FDCPA violations" and you'll probably see one or two attorney's advertised in the right column.

I got a bank rep on tape calling me a dirt ball, as he hung up the phone.  I also was able to prove a debt collector called my work after they were specifically told not to and after they agreed not to call my work!  (I had them on tape).  That’s a clear violation of FDCPA rules.

If you do mail anything to a collector, like a Cease and Desist letter, send it certified, return receipt.  Don’t even consider mailing in a letter via normal mail - ‘cause it’ll be lost, and you won’t have any way to prove you mailed a letter to them.

That’s why recording conversations is important.  It’s your word against theirs, and debt collectors, for the most part, have very weak memories.  Try proving you sent a Cease and Desist letter to them, without a return receipt.

If you do agree to some sort of payment get it in writing, and do not send any payment until you have a clear understanding of the amount of the payment and how that payment will be applied.

The Internet is littered with complaints about unscrupulous debt collectors taking your money, and then losing it or applying it in a manner that was not agreed upon.  If it's not in writing, it just doesn't mean diddly...

Oh, and this is important...  As you get further along in the process and your debt gets sold to various collection agencies, you need to know that there is a “clock” running on the Statute of Limitations.  That time line will affect how long they can pursue you for collections.  If you make a payment of any amount, that payment re-sets the clock to zero - starting the timeline all over again.  They will work really hard to get you to make any payment, just to keep that clock ticking.


You know, if you get to feeling bad about the situation - especially because you have always been a responsible, bill paying consumer until the world as we knew it got turned upside down, just remember the entire system is designed to screw the consumer.


Let's say you have a $1,000 dollar VISA you're unable to pay, for whatever reason.  Did you know that one of the reasons those late fees and other fees are imposed, is to simply create value?  the lender will make some attempt to collect, but at some point it's no longer to their advantage to collect.


You see, as those fees add up, the value of that debt increases.  For example, once that original back due balance of $1,000 reaches $1,500 including those nasty fees, they'll sell that debt to a collector for a discounted price of $1,000!
They just got their money back!


Now, that collector owns a debt worth $1,500 that they only paid $1,000 for!  What a steal!  If they collect the full $1,500 they have made a whopping 50% on their investment!  They can generously negotiate that debt down, because they "feel bad" for you, and still make 25%.  


Now I know, there's more to it than that - but you get the gist.  There is nothing about this system that is designed to benefit the consumer.

While you're speaking to these debt collectors, remember there's a very good probability that they are earning a commission based on what they convince you to pay.  They have a vested interest in you paying something.  Not only that, but their continued employment may be tied to their "production."  A lot of these guys have quotas to meet.

They are extremely motivated to convince you to pay something, one way or another!  How this payment or their continued calling impacts you and your family is of absolutely no concern to them.