Why the Loan Modification Program Is Not Working

If you are wondering why the Loan Modification Program is not working here is the answer:

1. Underwriting: using underwriting guidelines that are obsolete, e.g.

When calculating COMMISSION income you should not use the same method that was used before the economic collapse (taking the two-year average, or the year to date average). In this type of economy you should use the average of the last 3 months and allow for another 10% decline in commission income from that, until we are certain the economy is improving.

When modifying a loan, many do not qualify because when their income is calculated on a year to date income, their debt to income will look lower than it actually is. Even though their commission income is decreased the average income will show higher than the actual current income. This is how:

If you were making $3,000 salary plus $4,000 commission per month the first 3 months of the year your pay-stub would show $21,000 which is the equivalent of an average income of $7000 per month. But, in April if the company lost clients due to the economic conditions, and your commission has now dropped to $2500 instead of the $4000 you were used to earn, your pay-stub at the end of June (6 months) will show 6 x $3,000 + 3 x$4,000 + 3 x $2,500= $37,500 for the six months, which makes it $37,500 / 6 = $6,250 average monthly when in reality your actual income now is $3,000 + $2,500= $5,500

Those lost clientele will not come back when the economy is in bad shape, things will get better only if the economy gets better.

How does this effect a loan modification?

For the Government to approve a loan modification your housing to income ratio has to be over 31%. Housing ratio is the total of your monthly mortgage payment(s) plus your property tax, plus home insurance, plus home owners association (if any), plus Mello Roos (if any) over your monthly income.

e.g.

Mortgage payment $1,670.00

Property tax $165.00

Home insurance $45.00

Mello Roos $55.00

Total $1,935.00

If we take this housing and divide by the old way of calculating income $1,935/$6,250= 30.96% your housing ratio will be 30.96% which is less than the required 31%. This means you can't qualify for the Loan Modification. But we know your income is not the same as it was 3 months ago, now it is $5,500 instead of $6,250. In this case, if they use your actual current income the result would be: $1,935/$5,500= 35.20% which is higher than the 31% required for qualifying for the loan. So your loan should be modified and your mortgage payment has to come down to $1,450 from 1,670$ per month.

2. Attitude of Employees: Although there are a few employees who treat the borrower with respect and understanding, many of these lender employees have no clue that their job is to help these borrowers and that by helping these borrowers they are actually helping their banks, their employers. They treat these borrowers with an attitude, forgetting that many of those borrowers were and are much smarter, educated and more successful in some instances than they will ever be, it is just that they became victims of circumstances beyond their control, circumstances in most cases created by the very financial institutions they are working for. Most of these employees have no clue or are lost in the number of programs there are and have no idea of how to match the borrower with the right program.

3. No Common Sense: In many instances, most banks and their employees have lost their ability of identifying a make sense loan and the potential of loss of everything both for borrower and themselves. For example: a borrower who has been an excellent client of the bank and has a proven history of making his payments on time for years in the past, but has fallen victim to the current economic conditions and has had a reduction in his income; if he is willing to keep the home, and make a payment, as much as he can, per month to avoid foreclosure or a short sale; It is the banks best interest that it facilitates the situation and allows the borrower to remain in that house. The alternative is for the house to be sold in a dead market at a much lower price that does not even cover the balance of the loan.

In these situations, everyone is a loser. The home owner for losing his home, the bank for

collecting less than it is owed, the neighborhood because of flooding the market with more

available properties for sale for the limited amount of buyers, causing even further

deterioration of the home values.

4. Government: I don't think I even need to tell you about the government. Our government officials are worried more about their chairs than the country, have become more hateful than constructive, more partisan than negotiators, more complainers than creators, more dependents than providers. Our competition is winning not because they are better; they are winning because they are using what they have learned from us: educating their people, building their infrastructure, caring for the weak, rewarding success, running a country; things we have forgotten.

5. Know-it-all Leaders: Our leaders, regardless of what they say about listening to their constituents, feeling their (constituents) pain, understanding their situation, open to their suggestions, they all seem to be know-it-all persons. When our leaders start listening to the guy in the street who is really hurting, who knows what's causing his pain, who knows what would help him, then we'll have the real solutions that work because they are coming from the real source and not from some emotionless, heartless statistic that could be translated according to your party's ideological benefits.

6. Time: The time it takes for a bank to process a loan modification is so long that sometimes the frustration kills the applicant, it makes you feel like a football being tossed from this department to the other to another, repeating the same information to one person to another and another as if your information keeps changing while holding for the other person. Some people would rather give up than continue with the process. It is a shame.

The situation is very serious. I am an optimist by nature but with the ways things are now with this government, congress and upcoming elections, things are looking pretty bleak. Whether you are making your payments on time or not you are losing, if not your house you are losing its value.

Self Preservation, Patriotism or Protectionism? What the Government Can't Tell You, I Will

There is a good reason why Government officials cannot tell you to do certain things; in this instance, and probably this is the only instance where, these officials are right in doing so.

In this Global economy where every country depends on another country to trade with, to buy from, to sell to, people and governments must learn to walk a very fine line for their survival.

The Government cannot force us to buy American preaching Patriotism. Every country and its people love their country and are patriotic enough without the government pushing them to be one.That fine line gets much finer and delicate when it comes to governments and their officials. Every word, every physical expression, every move, which is measured, analyzed, scrutinized, politicized may result in peace treaties, or cause wars to erupt.

When a temporary savings of 5 cents is costing hundreds of dollars in the end, people should avoid shooting themselves in the foot and must think for themselves and decide which serves their best interest in the long run.

The Government cannot demand or force us to buy American nor impose tariffs and fees for imports to discourage us from buying cheaper imported goods; that will be seen as Protectionism. And if we adopt that philosophy or mentality, all countries we export to will do the same to our products.

The people however, can take matters into their own hands and buy American without making public announcements for the purposes of Self Preservation.

Take a moment and think of this, every penny you are saving by buying a product made outside of the US is costing you an extra dollar and a job. Here is why and how:

Although I congratulate all emerging countries for the advances they are making in their countries; I can't help but notice it has tremendous and very dangerous effects on our country's future. By just comparing per capita income of 3 sample countries we will see where things are heading.

The same product manufactured in the US will cost $47,400 (U.S. Annual Capita Income)/$3,339 (India's Annual Capita Income) = 14.195 times what it would cost in India and $47,400 (U.S. Annual Capita Income) /$7,518 (China's Annual Capita Income) =6.305 times what it would cost in China in labor. Source: China http://bit.ly/jKOafJ $7,518 India $3,339 U.S. $47,400

When we add all other developed countries which are doing the same thing, buying from outside their country, we are creating a volume which is adding up to an additional 25 million jobs needed and created per year in China alone. Where, at the same time, and in the same period, we cannot even create the million jobs needed a year, just to keep up with our population growth. This new middle class surge is in the emerging markets such as: China, India by the millions is causing a huge demand on everything from food, clothing, shelter, wood, copper, oil and everything every middle and upper class people need and use.

The leaders of these emerging countries deserve a lot of credit for achieving the success they have and still are achieving. Especially interesting is their mentality of buying all natural resource mines they can possibly put their hands on around the world; by taking this kind of an approach they are securing the pricing and production control, which most developed capitalist countries didn't even think of doing until recently.

This high demand in all commodities, supplies, housing, and manufacturing has made prices here in the US unaffordable for us. Building a 1300 sq.ft. house that used to cost $50,000-$60,000 10 years ago is now costing $150,000-$200,000 because the cost of materials have doubled, tripled, and in some cases quadrupled. U.S. labor costs, were already more expensive than labor in almost any other country. So the few cents we are saving on a toy or a sofa made in outside the US is costing us our American Dream and The Jobs that used to make it possible to achieve those dreams.

Self Preservation is not a shame, it is not forbidden; it is a must to save our country, the next generations and their future in this country. We cannot expect companies to hire in the U.S. and provide us jobs and job security, when we are buying Chinese, Indian, Korean, or any other country but American to save a penny. They, the companies, manufacturers, service industries will have to hire in those countries to make the goods we are looking for, to buy them for cheap in here, the United States. Buying others' products, because we are saving few pennies here and there, is like winning the battle but losing the war. Winning the battle, because we could save few dollars a month, but, losing the war, because we are losing the jobs and the income to afford those products to be able to buy them in the first place. We are losing the American Dream.

It is us who can do something about this situation, not the government, not the companies we keep blaming.

The Government cannot tell you to Buy American, I can.