Michigan’s Moratorium Mandated Modification Meeting – An Example

What happens at these meetings with a lender representative that Michigan's new 90 day foreclosure moratorium laws require?

- DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN

I just had my first experience with Michigan's new 90 day foreclosure moratorium laws and the meeting with a lender representative the laws mandate. It was pretty interesting.

A homeowner was referred to me to assist her with her meeting. Seems she's been trying to get her FHA loan modified for over 6 months and has been getting the standard run-around. During this time she hasn't made any payments and the lender was threatening foreclosure.

I had her send me over her budget and mortgage papers before the September 17^th meeting, so I could be prepared to assist her. I also carefully reviewed HUD's new guidelines for FHA loan modifications.

To be eligible for the this meeting, my client first had to meet with a housing counselor approved with the Michigan State Housing Development Authority (MSHDA) or the United States Department of Housing and Urban Development (HUD). As she'd already done this, I reviewed the paperwork they had given her, along with their budget suggestions. It was a joke. Their best advice was to work more hours or get a second job - easy advice to give, but not practical with unemployment as high as it is. The counseling session was required, but seemed to be a waste of my client's time.

Interestingly, Michigan's new 90 day foreclosure moratorium laws allow a homeowner to request that the housing counselor accompany them to their meeting with the lender's representative. Based on the materials and suggestions they gave my client, I do not recommend this!

My client's lender had selected a law firm in Southfield to be their representative. The firm states on their website that they have over 30 years of experience representing mortgage servicers and they're a FNMA retained attorney for the state of Michigan.

I was expecting we'd meet with a seasoned attorney from the firm with an ego problem. Instead, we met with what appeared to be a junior attorney (who I'll call "Sam", but that's not his real name) who was very nice and easy to deal with.

The session began with "Sam" printing out a modification analysis the lender had already done. The bad news was that according to the analysis, my client didn't qualify for a loan modification. I'm not going to get into all the different variables and the math here, but the bottom-line was that her debt-to-income ratios were too high.

At least according to their analysis. There were several flaws in their analysis though. They didn't have my client's income or debts correct, in fact they were way off. We started to go over these errors with "Sam", but he said he wasn't authorized to change anything. He was nice enough though, to phone his contact at the lender and get her to agree to go on speaker phone. Let's call her "Sarah". "Sarah" was pretty nice, but talked a lot, so it was difficult at first to get her to listen. She seemed intent on just talking over us and telling us it was too bad they couldn't do anything for my client. When I pressed her to explain how they came up with their numbers, she impressively rattled off a bunch of figures and calculations.

Right at this point an average homeowner would probably have given up and thrown in the towel - exactly what the lenders want. I can't imagine a housing counselor being of any use at this point either.

I stood my ground though and kept asking questions. I also got "Sam" to print off HUD's modification guidelines off the web (even though I had them with me) and asked "Sarah" to locate a copy also.

The first mistake they had made was in regard to my client's income. Once I got "Sarah" to stop trying to talk over and intimidate us, I was able to show her where her mistake was. Seems they calculated and input my client's take-home pay instead of the required gross pay. This was a mistake of almost 50%. "Sarah" tried to get around this by stating the guidelines allowed them to bump up the take-home pay by 125%. When I asked her to show me where this was allowed, she had "Sam" pull out guidelines she had earlier sent him. Indeed, what was written there supported her statement. Unfortunately for "Sarah", the guidelines she referenced to support her position were not HUD's latest guidelines. For someone that talked as much as she did, she didn't have much to say when I pointed this out.

From there I dove into the mistakes they had made on my client's debts and expenses. "Sarah" and I had an interesting discussion on the difference between a "debt" and an "expense". Around this time, "Sarah" started asking us to hold while she went and checked with her manager on my questions.

In the end, my client was tentatively approved for a loan modification that would drop her payment by around 16% which equals just over $300/month. All she has to do to qualify is send in updated paystubs and prove her car is paid off. Of course she was hoping for even a lower payment (doesn't everyone?), but what she got is the maximum allowed under HUD's modification guidelines.

After we settled on everything, "Sam" surprised me by telling my client that she was smart to bring the right attorney to represent her, as every other homeowner he'd represented lenders against had brought an attorney that'd done nothing for their client, if they brought an attorney at all.

It was his turn to be surprised when I told him I wasn't an attorney, but was a multi-certified mortgage lender. He then gave me perhaps the best compliment you can get from an attorney, telling me I should be one.

He also asked for my card and said he'd like to refer me to his own homeowner clients.

So, keep me in mind if a family member or close friend is scheduled for one of these mandated modification meetings with a representative of their lender. I do charge an upfront consulting fee for my time, but if this case is an example of what they can expect to go up against, can they afford not to have a mortgage expert on their side?

In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries.  He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications.  For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com.  He also publishes his own blog:  http://drewsmortgagenews.blogspot.com.