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Prosecutors across the country in 18 states filed 189 legal actions this week against companies bilking consumers out of thousands of dollars in loan modification scams.  Desperate homeowners trying to save their homes relied upon loan modification companies to renegotiate their mortgages.  With fees as high as $3500-$4000, the companies had a dismal rate of success in actually renegotiating the mortgages.  Some even advised homeowners to stop paying their mortgages, costing the owner's additional late fees.

The lawsuits seek millions of dollars in civil penalties, restitution for victims and a permanent injunction to keep the companies and the defendants from offering mortgage-relief services.  In addition, the FTC is working on creating regulations that would ban loan modification companies from collecting up-front fees.

In the meantime, officials urged borrowers having trouble making mortgage payments to avoid foreclosure counselors that demand upfront fees. Homeowners should never redirect mortgage payments to consultants who promise to pass the money on to lenders, the officials said.

They said lenders are often more willing to work directly with borrowers than with foreclosure consultants, so borrowers should contact lenders themselves.  HUD can also provide referrals to approved counselors, many of whom offer free services.

Any homeowner who has called their lender to try to refinance their home under Obama's HOPE plan can tell you that so far, this plan has been a bust.  In fact, in its first five months, HOPE for Homeowners helped one family stay in its home.  Realizing that his plan has been essentially useless,  President Obama signed into law a bill that attempts to correct the program's problems. The president said the program had many provisions that discouraged servicers from using it. "This bill removes those hurdles," Obama said.

According to the good people over at CNN.com, the original bill, which took effect Oct. 1, was intended to help defaulting homeowners by having banks voluntarily reduce mortgage balances to 90% of a home's current market value. The loan would then be refinanced into a mortgage insured by the Federal Housing Administration (FHA).

The idea was that the lenders take "haircuts" and the government would then bail them out of any future losses by insuring the new loan.

As a result, most of the big lenders didn't offer the program, which was strictly voluntary though heavily encouraged by the Bush and Obama administrations. "The lender basically short-sells the mortgage into the plan, and there's no more chance for upside," said Tom Kelly, a spokesman for JP Morgan Chase (JPM, Fortune 500).

The new version of HOPE sweetens the FHA-refinance option - for lenders. It only requires servicers to reduce balances to 93% of market values instead of 90%. It also pays servicers $1,000 for every Hope-refinanced loan.

For example, borrowers who owed $220,000 on a house valued at $200,000 would need their mortgage balances reduced to $180,000 to qualify for an original HOPE for Homeowners refi. That's a $40,000 writeoff. Under the new plan, lenders would have to forgive $34,000.

But the biggest change is that it authorizes FHA's parent agency, the Department of Housing and Urban Development (HUD), to share future home-price appreciation with investors, up to the appraised value of the property when the existing loan was first issued.

The original bill gave HUD the right to share potential profits 50/50 with homeowners, but now some of HUD's share would go to the original investors.

Also certain to increase servicer utilization of HOPE for Homeowners is a change in Treasury Department policy announced late last month. Treasury will require any servicer that signs up to participate in the Making Home Affordable program, the administration's mortgage modification plan, to evaluate borrower eligibility for Hope for Homeowners as well.

If borrowers don't fit into the Making Home Affordable program but are viable for HOPE, the servicers must offer them this option.

Industry insiders say they hope the changes will spur more lenders to use the plan.

"It's very important that it becomes a better program," said Faith Schwartz, director of Hope Now, a coalition of lenders, servicers, mortgage investors and community advocates. "We need the FHA to provide another outlet for refinancing these problem loans."

The final bill removed a provision that would have authorized bankruptcy court judges to lower mortgage balances to reflect current market values. Supporters of this "cramdown" believed it would pressure lenders into making more affordable modifications for at-risk borrowers. But the Senate removed that from their version of the bill and the House followed suit.

NEW YORK (CNNMoney.com) -- Home prices are cheap. Affordability is at a record high. And the market is littered with distressed properties looking for a buyer.

But there is one big obstacle for many first-time house hunters looking to take advantage of the market: cash for down payments. The typical first-time buyer has only saved enough to cover 4% of the purchase price, according to the National Association of Realtors.

As part of the stimulus package, Congress created a refundable first-time homebuyers tax credit in hopes of helping on-the-fence buyers to take the home-purchase plunge. But buyers couldn't collect the $8,000 credit until tax time, rather than at closing time - when it's needed.

Now the U.S. Department of Housing and Urban Development is planning to change that. The agency is working on a plan that will allow Federal Housing Authority-approved lenders to provide buyers with the tax credit cash up front.

"We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment," said Shaun Donovan, HUD secretary, in a speech last Tuesday before the National Association of Realtors.

Donovan did not reveal many details, but the plan could be modeled after programs in Colorado, Missouri, New Jersey, Pennsylvania, Tennessee and Washington. To quickly infuse cash into their housing markets, these states created "bridge loans" that allow buyers to borrow against the $8,000 credit and then repay it with their tax refunds.

The first state to launch such a plan was Missouri, which rolled out its Missouri Housing Development Commission Tax Credit Advance Loan program on January 14 - a month before Congress approved the stimulus package. Since then, Missouri has approved applications by more than 300 borrowers and closed on 128 of them.

Lamar Cherry and his wife, Chrishanna, used the program to augment their down payment when they bought their home in Kansas City.

The couple purchased a four-bedroom, three-bath split-level home for $150,000, putting about 6% down. Much of that $9,000 came from the loan program, which they tapped so they wouldn't have to drain their reserves.

"We had money saved up that we were going to use for the down payment," said Cherry. "Now we can use some of that to buy some things we need for the house."

At closing, the Cherrys, like all buyers in the program, signed for their first mortgage, plus a second mortgage issued by the state. The second note is good for 6% of the price of the home, up to $6,750; there is a $350 set-up fee, but no interest is charged if the debt is repaid by June 2010.

In Missouri, borrowers can only access $6,750 of the $8,000 credit for down payments. "We wanted them to have a cushion below that $8,000 in case other tax liabilities show up," said Greg Spurgeon, the single-family homeownership administrator for the Missouri Housing Development Commission.

If borrowers don't pay off the note, it becomes a 10-year fixed-rate mortgage with an interest rate one-half percentage point above that of their first mortgages. For example, borrowers paying 6% on their first mortgages would be charged 6.5% on the second.

So far, Spurgeon said, a significant proportion of participating homebuyers have repaid their loans. He expects most of the others to do the same before the deadline.

Cherry has claimed the federal tax credit on his 2008 taxes, but he hasn't gotten his refund yet. He definitely intends to repay the loan before the 2010 deadline because, he said, not doing so would add about $75 a month to his house payments.

How to apply:

Step 1: Visit the Web site

Everything you need to get started is located here MakingHomeAffordable.gov

Step 2: Take the quiz

Click on "Find out if you are eligible" and then select the "Home Affordable Modification" option. (The "Refinancing" option is just for those who are current on their loans.) Take the five-question quiz. Based on your answers the site will tell you if you likely qualify for a modification under the Obama plan.

If you do - meaning you bought your house before Jan. 1, 2009, and owe less than $729,750; it is your primary residence; you are delinquent on your payments; and your payment is more than 31% of your monthly gross income - the site will present an eight-item checklist of paperwork you'll need to submit to your lenders.

Step 3: Compile the paperwork

The site recommends that you have: household-income documentation, such as pay stubs; tax returns; savings account records; mortgage statements; second mortgage info, such as home-equity loans statements; credit card bills; and information on other debt, including student and car loans.

You will also be asked to write a letter describing why you need assistance. Your reasons could include medical expenses, job or income loss, or even divorce.

A well-done hardship letter can make a difference in whether a loan wins modification, according to foreclosure-prevention counselors. These letters can point out factors that led to the delinquency but that may not be evident from your other paperwork.

"Don't say, 'I never could have afforded it in the first place,'" advised Tom Kelly, a spokesman for Chase Mortgage. "That isn't the ideal answer."

Instead, explain that illness prevented you from working for a time, that you've recovered and are back at work and paying bills again. Or a temporary job loss cause the problem, etc. Without that context, lenders may think you were just careless - or worse.

Step 4: Call your lender or servicer

Once your information packet is complete, call your lender or servicer - the company you write your monthly mortgage check to. To see if your lender is participating in this plan - or to get the phone number - click on "Contact Your Mortgage Servicer" on the Making Home Affordable site. After you've talked to one of their modification specialists, you'll be instructed to fill out an application and submit your documents.

There should be no need for face-to-face meetings with servicers, according to Jumana Bauwens, a spokeswoman for Bank of America. She said borrowers will be able to do everything over the phone and through the mail.

Step 5: Wait

During this phase, the lender will decide the approach it wants to take to reducing your debt: lowering your interest rate, extending the life of your loan, or reducing your debt balance.

The lender's first step will be to get your payment down to 38% of your monthly gross income. Once the debt is reduced that far, the government will pay the lender to lower it to 31% of income.

At that point, the loan will be rewritten, you will get the new paperwork to sign and the new payment will go into effect on your next bill.

This process has been taking several weeks to a month, so be patient. Although the banks expect it will get quicker as their personnel become more familiar with the modification plan.

"The 31% is now an industry standard and that's much more easily calculated," said Chase's Kelly.

One thing to remember: These are trial modifications that only become permanent once you make on-time payments for three consecutive months.

Some borrowers may prefer going through a foreclosure-prevention counselor rather than dealing directly with lenders. The counselors can answer questions about what specific documents are needed, make sure that applications are complete and take the time to explain the proposed deals.

In addition, the counselors offer advice on getting spending under control. "Budget counseling is critical, but the banks have told us they're not set up to do that," said Mark Seifert, director of Cleveland-based East Side Organizing Project (ESOP), a community advocacy group that does extensive foreclosure counseling.

Ofelia Navarro, executive director of the Spanish Coalition for Housing in Chicago, said her organization filed 300 packages for modification under the new plan on April 9. She is still waiting to hear back on those applications, but she believes the new program will eventually make the process go faster and smoother.

"I understand that the servicers did not get the final regulations until [a couple of weeks ago]," she said. "Now, they're ready to move forward."

As part of the stimulus plan, the Obama administration has incorporated several new tax credits for homeowners.  See if you might be eligible for one of the credits below:

1.  Weatherization Assistance Program 
State and local governments are handling billions more dollars going into the federal Weatherization Assistance Program. The program allows as much as $6,500 to be spent sealing up a house for income-eligible homeowners. The income thresholds were raised under the new legislation to 200% above the federal poverty line. That corresponds to an income of $44,100 for a family four or $29,140 for a family of two.

Jason Hartke of the U.S. Green Building Council said upgrades from this program often start with sealing up a leaky house. "They go for the low-hanging fruit first: weatherstripping, insulation, new windows. Those are big energy savers that often pay for themselves."

For questions about your eligibility for the Weather Assistance Program, call the program hotline at 800-363-3732.

2.  Green Tax Credits
If you don't qualify for government-issue weatherization, Washington is subsidizing energy saving through tax credits--as much as $1,500 per house, and even more in some cases. "They want you to go green. The bigger the project, the better the incentive," says This Old House general contractor Tom Silva.

The federal Energy Star Web site offers a valuable handhold for understanding the sometimes complicated details of the tax-credit program. Energy Star, a collaboration between the Department of Energy and the Environmental Protection Agency, evaluates the efficiency of a variety of home products, including dishwashers and insulation.

The ones that pass muster receive an Energy Star rating. For more information, look for the chart on the Energy Star website that lists which home improvements are covered under the tax credit, and be sure to see the links to qualifying products. In the meantime, here's our summary of the main categories for savings.

3.  Insulation
This is the place to start, says Karen Schneider, a spokeswoman for Energy Star. Along with sealing up leaks, insulation should be the first upgrade a homeowner considers. "Sometimes people buy highly rated energy-efficient windows and they complain about drafts. But it's not the window; it's the insulation. Especially if you live in an old house," says Schneider. "Insulation deteriorates over time. If your house is 50 years old and hasn't had anything done, you can bet you need insulation."Insulation requirements vary by region but must meet 2009 standards set by the International Energy Conservation Code. The insulation must have a five-year life span or two-year warranty. Insulated siding does not qualify. Labor is not included, and the tax credit is capped at $1,500.

4.  Roofing
This one is easy. Any metal or asphalt roofing product with an Energy Star rating qualifies for the tax credit. The roofing material must be expected to last five years or have a two-year warranty. The IRS will give you back 30% of what you spend on this in 2009 or 2010. The giveback is capped at $1,500 and does not include the cost of labor.

5.  Windows and Doors
The tax credit will pay 30% of costs, minus labor, for qualified window upgrades in 2009 and 2010. The credit is capped at $1,500. But you must install the best.

Only the most efficient windows, doors, and skylights on the market will qualify, and it's been quite a shake-up to the industry, says Jim Benney, the executive director of the National Fenestration Rating Council, which rates and labels windows and doors for efficiency. "The industry was surprised by the bill," says Benney. "The public needs to make sure they are getting products that actually meet these requirements."

Windows and doors must have a so-called U-factor below .30 and a Solar Heat Gain Coefficient (SHGC) less than .30 to meet the requirements for a tax credit. The U-factor measures the rate at which heat leaks from a window--the lower, the better. The SHGC measures how well the window blocks heat caused by sunlight.

Benney said the standard product lines of most manufacturers, even many with an Energy Star rating, don't meet this stringent standard. But there are qualified products out there. Andersen Windows is highlighting a few dozen on its Web site.

For even more choices, the NFRC has compiled an extensive list of qualifying windows, which you can download here. You should also check the U-factor and SHGC on the NFRC label on Energy Star--qualified windows and doors you're considering buying.

6.  HVAC
When it comes to biomass stoves, nonsolar water heaters, and eligible heating, ventilation, and air-conditioning units, the government will allow homeowners to include the cost of installation as well as the price of the products to reach the $1,500 tax credit in 2009 or 2010.Energy Star's Karen Schneider says that manufacturers of certain types of gas water heaters don't have an eligible product on the market yet but will soon. "Congress wrote this law to drive the market toward greater energy efficiency. The purpose is to give people an incentive when they are going to buy something to buy the most efficient version of it," Schneider says.

7.  High-tech Green
Advanced technology in renewable energy takes home improvement to another level. These systems often don't pay for themselves quickly. To create incentives for interested homeowners, the federal government is sweetening the deal. The tax credit will cover 30 percent of the cost, including installation, with no upper limit. In most cases, the window for the tax credit has been extended to 2016.

Eligible systems include solar water heaters, solar panels, geothermal heat pumps, and wind energy systems. Tom Silva's seizing the opportunity and putting in solar panels and a solar water heater this year. He said the tax credit is an offer his family couldn't refuse.

"My wife read about it and said, 'We've been talking about doing [solar upgrades] long enough. Let's just do it.' People worry about the money you have to put out up front, but you're getting big-ticket items like solar panels for a third less and you will save money on your energy bill forever," Silva says--not to mention the boost it gives to the value of the house.

 

With talk of multi-billion dollar stimulus plans ruling the news, it's no surprise a new round of stimulus scams are afoot. Scam artists are already using luring headlines to reel in unsuspecting consumers. You've possibly seen the ads - they feature photos of President Obama and Vice President Biden and claim anyone who applies can get free money. They claim the stimulus package provides for easy-to-get grants for virtually anyone who registers. They offer compelling testimonials describing people who used grant money to pay off their mortgages or fix their homes. The Federal Trade Commission is warning people the promise of stimulus money in return for a fee or financial information is always a scam.

There's more than one way to perpetrate a stimulus scam and the FTC offers this advice to protect yourself:

• Free is free. Some scam artists ask you to send a small processing fee, supposedly to get a much larger check in return. That's money you'll never see again. Even if they tell you that you'll only need to pay $1.99 for membership, don't do it. Scammers often bury fine print on their sites and can charge you hefty fees if you don't cancel your membership.
• Beware if someone asks for your bank account number so they can "deposit" your check. They can use the information to clean out your account or open new ones using your identifying information.
• Some stimulus scams encourage you to click on links, open attached forms or call phony toll-free numbers ---- which can install harmful spyware software, on your computer.
• If you get a message offering you money from the stimulus program in exchange for your personal information, ignore it or delete it. Don't trust a rebate company claiming to have stimulus payments for you.
• Remember, the Internal Revenue Service doesn't send stimulus e-mails like this asking for personal information. If you get an unexpected e-mail claiming to be from the IRS and asking you to call a number or e-mail back personal information, forward it to phishing@irs.gov, then delete it without clicking on any links or opening any attachments.
• The government doesn't charge people to apply for a grant or to get a list of grants. If you want to apply for a government grant, check out the free list at www.Grants.gov .

 For more information, visit www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt125.shtm .

Homeowner Affordability and Stability Plan

Last Wednesday, the Obama administration announced the details to the $75 Billion Homeowner Affordability and Stability Plan initially announced by President Obama on Feb. 18. The plan is now in effect and homeowners can begin to apply. The President claims this will help as many as 9 million homeowners make their mortgage payments more manageable. 

This plan is not part of the recently passed American Recovery and Reinvestment Stimulus Act and does not require Congressional approval. President Obama implemented this program through his executive powers and it will be funded by the Housing and Economic Recovery Act passed last summer. According to a White House document, the plan will not use any money from the Emergency Economic Stabilization Act/TARP.

The plan that was announced last month has two main components - a loan refinancing and a loan modification program. Eligibility and guidelines are outlined below.

Loan Refinancing:

Government Summary:	Many homeowners pay their mortgages on time but are not able to refinance to take advantage of today's lower mortgage rates perhaps due to a decrease in the value of their home. A Home Affordable Refinance will help borrowers whose loans are held by Fannie Mae or Freddie Mac refinance into a more affordable mortgage.
Who is Eligible?	The Obama administration has launched a new website, www.financialstability.gov, to help homeowners find out if they are eligible. To find out if you are eligible for the loan refinancing portion, click here. This site will run you through the eligibility and tell you step by step what information to collect and how to apply.
In short, there are 4 basic eligibility questions you need to be able to answer 'yes' to: Is your home your primary residence? Do you have a Fannie Mae or Freddie Mac loan? Are you current on your mortgage payments? Current meaning you haven't been more than 30 days late on your payments in the last 12 months Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?

Loan Modification

Government Summary:	Many homeowners are struggling to make their monthly mortgage payments either because their interest rate has increased or they have less income. A Home Affordable Modification will provide them with mortgage payments they can afford.
Who is Eligible?	The same site offers a similar eligibility self-assessment test for this program as well. For the loan modification eligibility test, click here.
In short, there are 4 basic eligibility questions you need to be able to answer 'yes' to: Is your home your primary residence? Is the amount you owe on your first mortgage equal to or less than $729,750? Are you having trouble paying your mortgage? For example, have you had a significant increase in your mortgage payment OR reduction in your income since you got your current loan OR have you suffered a hardship that has increased your expenses (like medical bills)? Did you get your current mortgage before January 1, 2009?

The site also provides a new "Homeowner's HOPE™ Hotline, for urgent help with this program. The number is (800) 995-HOPE(4673).

Visit: http://www.financialstability.gov/.

IRS Updates First Time Buyer Form

Last week, the IRS updated information on their web site to include a revised Form 5405; the form used to calculate the first time home buyer credit available. Click here to access the information.