What Distressed Homeowners Must Know Before They Jump On "Project Lifeline" Offers
Distressed homeowners are hopeful that the latest government and mortgage industry initiative to reduce the number of foreclosures will help them avoid certain financial ruin. But two leading industry experts and critics of "Project Lifeline" say homeowners should be warned to look before they leap.
"Desperate homeowners could make their bad situation even worse if they bite on Project Lifeline," says investigative journalist Benjamin Dover. "These people are already scared, confused and in way over their heads...and they're extremely susceptible for making bad choices on top of the already poor decisions that got them into this mess in the first place."
The nation's most vocal critic of the subprime mortgage industry, Dover is the creator of NowWhatDoYouDo.com, an eye-opening website that educates frantic homeowners facing hopeless situations.
"Read their offer carefully!" pleads Dover. "There are no guarantees that the mortgage companies will make deals that will actually benefit consumers for the long haul. All they're really offering is to delay the inevitable financial implosion instead of fixing the core problem now."
Delaying the inevitable?
Dover says Project Lifeline's wordplay translates into delaying the inevitable foreclosure: "The first part of their offer is the potential for a workout in which the borrower pays extra each month to catch-up on the late payments over time. And then what? The other half of the offer teases the possibility of modifying the rate or term of the loan. What Americans and our presidential candidates need to wake up and realize is, that in many cases, it's not about the rate."
"They could give them a zero percent interest rate and it wouldn't fix the real problem. Many of these homeowners dealt with 'Lending Predators' who simply loaned them far more money than they actually qualified for," says Dover. "Our Washington braintrust needs to start listening to (FDIC chairwoman) Sheila Bair and get serious about restructuring these loans in the only way that will fix the problem, which means taking their lumps and begin forgiving debt."
Ms. Bair testified before the U.S. House of Representatives Financial Services Committee on December 6, 2007, and gave distressed homeowners a glimpse of their bailed-out futures: "I have long advocated a systematic and streamlined approach to loan modification that puts borrowers into long-term, sustainable mortgages. In today's market, (mortgage) servicers should carefully consider whether some writedowns of part of the principal balance to the value of the home or forgiveness of arrearages of principal and interest are better options than foreclosure or even short sales in appropriate circumstances."
Remember who's paying the credit counselors!
Dover warns desperate debtors against opening up to their mortgage company's financial counselors: "Since credit counselors are usually compensated by the creditors, why would a debtor want to spill their guts to someone representing a potential (legal) adversary?"
"The credit counseling community has been confusing consumers with their 'we're a non-profit organization' pitch for years, so my warning is simple: Remember that the credit counselors' end game is to do what's in the best interest of their employers-the mortgage (or credit card) companies-and not necessarily in the best interest of the homeowner/debtor."
Dover is not alone when it comes to warning desperate homeowners who are about to call their mortgage companies looking for help. Pat Thomas of CreditXP.com is an expert on credit reporting industry practices and shares Dover's "conflict of interest" concerns, as well as the negative impact it will have on consumers' credit scores.
"When borrowers call the hotlines, they'll be dealing with debt collectors helping them with their budgets. About a month later, lenders will send homeowners a letter offering a forbearance plan...not good! This only benefits the lender. Here's why: If the consumer agrees to a forbearance plan, the lender will tack everything that's past due on a repayment plan added to the end the loan."
Thomas says consumers who agreed to this strategy could pay an even bigger price, in the form of lowered credit scores: "What lenders fail to tell consumers entering into these forbearance plans is that they'll end up having a 'rolling 30 day late' on their credit reports every month until the catch-up balance and any late fees and penalties are repaid," she says. "Good luck refinancing with all of those '30 day lates' showing up on your credit report! By the way: These negative marks will decrease your credit score an average of 60-90 points."
Signing away your legal remedies?
Dover also warns homeowners that there's an excellent chance their rights were violated during the creation of their mortgage nightmare: "I suspect these restructure agreements will quietly waive homeowners' rights to pursue legal claims against everyone in the mortgage food chain. Brokers, originators, appraisers, title companies and loan servicers are hoping that hundreds of billions of dollars in potential legal liabilities will disappear once under-informed and desperate debtors take the bait to restructure and sign-away their rights."
He also predicts an unsettling trend will be revealed in the months ahead: "As this mess continues to unravel, we're going to see a systematic pattern of Predatory Lending practices, and homeowners will not want to give up their rights for legal recourse," says Dover. "Borrowers' rights are protected by two potent but under-utilized federal laws: The Fair Housing and Truth-in-Lending Acts. It's good news for drowning homeowners, but bad news for anyone remotely involved in the mortgage lending process since the last days of the 20th century."
"Desperate homeowners could make their bad situation even worse if they bite on Project Lifeline," says investigative journalist Benjamin Dover. "These people are already scared, confused and in way over their heads...and they're extremely susceptible for making bad choices on top of the already poor decisions that got them into this mess in the first place."
The nation's most vocal critic of the subprime mortgage industry, Dover is the creator of NowWhatDoYouDo.com, an eye-opening website that educates frantic homeowners facing hopeless situations.
"Read their offer carefully!" pleads Dover. "There are no guarantees that the mortgage companies will make deals that will actually benefit consumers for the long haul. All they're really offering is to delay the inevitable financial implosion instead of fixing the core problem now."
Delaying the inevitable?
Dover says Project Lifeline's wordplay translates into delaying the inevitable foreclosure: "The first part of their offer is the potential for a workout in which the borrower pays extra each month to catch-up on the late payments over time. And then what? The other half of the offer teases the possibility of modifying the rate or term of the loan. What Americans and our presidential candidates need to wake up and realize is, that in many cases, it's not about the rate."
"They could give them a zero percent interest rate and it wouldn't fix the real problem. Many of these homeowners dealt with 'Lending Predators' who simply loaned them far more money than they actually qualified for," says Dover. "Our Washington braintrust needs to start listening to (FDIC chairwoman) Sheila Bair and get serious about restructuring these loans in the only way that will fix the problem, which means taking their lumps and begin forgiving debt."
Ms. Bair testified before the U.S. House of Representatives Financial Services Committee on December 6, 2007, and gave distressed homeowners a glimpse of their bailed-out futures: "I have long advocated a systematic and streamlined approach to loan modification that puts borrowers into long-term, sustainable mortgages. In today's market, (mortgage) servicers should carefully consider whether some writedowns of part of the principal balance to the value of the home or forgiveness of arrearages of principal and interest are better options than foreclosure or even short sales in appropriate circumstances."
Remember who's paying the credit counselors!
Dover warns desperate debtors against opening up to their mortgage company's financial counselors: "Since credit counselors are usually compensated by the creditors, why would a debtor want to spill their guts to someone representing a potential (legal) adversary?"
"The credit counseling community has been confusing consumers with their 'we're a non-profit organization' pitch for years, so my warning is simple: Remember that the credit counselors' end game is to do what's in the best interest of their employers-the mortgage (or credit card) companies-and not necessarily in the best interest of the homeowner/debtor."
Dover is not alone when it comes to warning desperate homeowners who are about to call their mortgage companies looking for help. Pat Thomas of CreditXP.com is an expert on credit reporting industry practices and shares Dover's "conflict of interest" concerns, as well as the negative impact it will have on consumers' credit scores.
"When borrowers call the hotlines, they'll be dealing with debt collectors helping them with their budgets. About a month later, lenders will send homeowners a letter offering a forbearance plan...not good! This only benefits the lender. Here's why: If the consumer agrees to a forbearance plan, the lender will tack everything that's past due on a repayment plan added to the end the loan."
Thomas says consumers who agreed to this strategy could pay an even bigger price, in the form of lowered credit scores: "What lenders fail to tell consumers entering into these forbearance plans is that they'll end up having a 'rolling 30 day late' on their credit reports every month until the catch-up balance and any late fees and penalties are repaid," she says. "Good luck refinancing with all of those '30 day lates' showing up on your credit report! By the way: These negative marks will decrease your credit score an average of 60-90 points."
Signing away your legal remedies?
Dover also warns homeowners that there's an excellent chance their rights were violated during the creation of their mortgage nightmare: "I suspect these restructure agreements will quietly waive homeowners' rights to pursue legal claims against everyone in the mortgage food chain. Brokers, originators, appraisers, title companies and loan servicers are hoping that hundreds of billions of dollars in potential legal liabilities will disappear once under-informed and desperate debtors take the bait to restructure and sign-away their rights."
He also predicts an unsettling trend will be revealed in the months ahead: "As this mess continues to unravel, we're going to see a systematic pattern of Predatory Lending practices, and homeowners will not want to give up their rights for legal recourse," says Dover. "Borrowers' rights are protected by two potent but under-utilized federal laws: The Fair Housing and Truth-in-Lending Acts. It's good news for drowning homeowners, but bad news for anyone remotely involved in the mortgage lending process since the last days of the 20th century."
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