As of July 1, 2009, Indiana now allows homeowners to contest the foreclosure process. They may ask for a “settlement conference” with a lender representative to work out foreclosure alternatives. The diligent homeowner will make sure he asks for this conference, as soon as the foreclosure is filed. At that hearing, the homeowner can present his gross monthly income for the household, asking the lender to consider 31 to 38% of this figure as an appropriate payment to keep the home.
Unfortunately, the state law does not require the lender to use gross monthly income for fixing the appropriate payment, even though he is encouraged to look at the documents which establish that income. Sadly, the lender can refuse this common sense solution, and demand the homeowner surrender the home. Of course, this is not good for anybody including the town with vacant homes and unpaid real estate taxes, and the neighbors who see their property values go down because of too many homes vacant and unmaintained.
Of course, for most homeowners the desired result at a settlement conference is a change in the mortgage payment, allowing the homeowner to keep his home. The federal “Make Home Affordable” plan has been active since March of 2009, and is referred to in this post as “MHA”. MHA specifies that regardless of Indiana law mentioned above, the homeowner can insist that household gross monthly income is the only criteria relevant to setting a new mortgage payment. This right under MHA applies in 75% of the foreclosures filed in the country today.
But lenders are slow to admit that MHA applies in any particular foreclosure. My experience has been that lenders must be forced to admit that MHA applies. Even when they admit that it applies, they are not willing to admit that gross household income determines the mortgage payment, right down to the penny. In short, it is simply an issue of power and control. Lenders are not used to consumers and their lawyers knowing what their rights are. Lenders are very reluctant to give in to consumer demands, even if the law requires them to do so.
What a happy surprise I had last week. At a scheduled settlement conference, a large regional mortgage lender admitted that gross income would indicate that an adjustment in the loan terms was best for both lender and homeowner. Indeed, the lender even offered to reamortize the loan to 30 years at 5%, without any demand for back payments. They also offered to start at the new payment two months from now, with no payment until then! I was shocked, especially since this loan was one of the 25% not covered by the MHA guidelines. NOW THAT IS WHAT I CALL A SMART LENDER! And all is well that ends well.
In other cases, lenders are still unwilling to admit they are covered by MHA, even though I know they are. The foreclosure process drags on, with unfruitful settlement conferences and lender demands for judgment. Just today, I talked to a lender lawyer who admits that MHA is becoming the standard, but his lender clients are taking their time in understanding what is required of them. Let’s hope for the future: less time in foreclosure, less legal fees, more results outside of the courts. The foreclosure mess needs to end immediately. We need to move forward with financial recovery, as homeowners and as a country.