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Ahead of the Curve

Register • Oct 10, 2013 at 1:24 PM

The Reed’s Story

When the Reed’s first came into our office in early August, 2013, they were five payments behind on their $64,000 mortgage. Their situation had deteriorated to the point where their bank had even started to reject payments, a sure sign foreclosure was imminent. Their problems began in 2011 when their incomes through self-employment had taken an adverse turn. That led to a modification of their loan, but unfortunately, given their continued spotty employment, payment issues continued. Even though their $550 monthly mortgage payment, $170 of which represented the monthly cost of taxes and insurance, was reasonable, it was slightly above their means given their current situation.

The goal for the Reed’s became immediately clear when they told us about employment opportunities (and increased income) to occur within a few months – buy them time on their mortgage payments to bridge the gap between the present and the time when their income increased. With that clear goal in mind, we immediately contacted the Reeds’ bank and pointed out its apparent violation of various Fannie Mae servicing regulations. Fannie Mae and Freddie Mac are government entities which buy or guarantee mortgages, thereby allowing more people to own homes. When Fannie owns a loan, which was the case with the Reeds loan, the bank is actually a loan servicer, rather than the lender. As a servicer, a bank is required to abide by Fannie’s regulations, the overriding goal of which is to keep people in their homes.

Unfortunately, the cold hard reality of life for American homeowners is that there is a huge disconnect between the lofty principles set forth in Fannie’s and Freddie’s servicing regulations and the practices employed by the Banks in servicing loans. Because a bank’s compensation for servicing a loan actually increases as the loan balance goes up, it is profitable for banks to put and keep homeowners in default of payment. Fortunately we were able to turn the Reed’s situation around quickly. After calling their bank out on its violations of the Fannie Mae rules, a foreclosure quickly became forbearance. What this means is that the bank offered the Reeds the option of paying only their real estate taxes and insurance, totaling $170 monthly, for a period of six months, until they get back on their financial feet. Thus the goal was achieved for the Reeds because they were ahead of the curve in dealing with their mortgage issues. Don’t wait to take action if you have problems with your mortgage!

Note from the author: If you have questions or comments- regarding this or any Foreclosure Story article, please visit www.mcgookeylaw.com or visit us on Facebook.

Kate Eyster and Lauren McGookey contributed to this article.

Copyright 2013 Daniel L. McGookey

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