Learn How Mortgage Refinance and Loan Modificatons Can Help Prevent Foreclosure
By Lorraine WatkinsMortgage Credit Problems Columnist
Home Loan Giving You Trouble? Take Stock of your Situation
There are many reasons people are in dire straits with their mortgages. These reasons range from adjustable mortgages whose rates have adjusted upward to excessive debt and reduced income. The best solution for your mortgage problem depends to some extent on its cause. For example, if you are near or in default because of a rate adjustment, the solution might be to refinance with a better rate or a different type of loan. If you are in trouble because your hours of paid employment have been cut back and you are not making enough to cover your note, a mortgage modification or forbearance may help. However, if your job has been eliminated and you foresee a long period of unemployment or a permanent significant reduction in your income, neither of these may be a viable option.
Use a Mortgage Calculator to Analyze the Possibilities
One way you can quickly figure out whether refinancing your mortgage makes sense it to use a home affordability calculator. Input your monthly income and expenses to see how much of a loan you can afford. If you think you can make your payments if your loan is refinanced or modified, start the process immediately. You may not be able to refinance with a conventional lender once you are in default, so time is of the essence. The Making Home Affordable defines "affordable" as monthly housing costs including your taxes and insurance that don't exceed 31% of your monthly gross income.
Get Mortgage Professional Help
If you are behind on your mortgage payments, do not wait for your home to go into foreclosure. Call your current servicer to discuss your situation and get the paperwork started for modification if you qualify. If you can be helped with a refinance to a lower rate or better terms, fill out our form to have up to four lenders contact you about a refinance. The sooner you take action, the more time you gain to consider your options.
What is HAMP and Can It Help if You Have Bad Credit?
The federal government wants to help you stay in your home. The Home Affordable Modification Program (HAMP) rewards lenders for modifying loans and preventing foreclosures. As of August 2009 this program has met with measured success. The participating lenders have modified approximately 230,000 mortgages since March when the program began. The goal is to modify loans for three to four million homeowners before the program's scheduled end December 1, 2012.
Why is HAMP Lagging, and What Are Expectations Going Forward?
While lenders and servicers are compensated for modifying mortgages, the program is voluntary. According to recent report by several Federal Reserve economists, banks make a better return on investment with some foreclosures than on certain modifications. And lenders have been sued by stockholders for making decisions not determined to be in the best interest of their investors. So when a modification will generate a better income stream than a foreclosure, it's more likely to be granted. Otherwise, foreclosure takes place.
In any case, the Obama administration is putting pressure on lenders to do better and has extracted promises of 500,000 new modifications by November 1, 2009. The new and additional "incentive" to lenders is that unless they step up the modifications, bankruptcy judges may be empowered to order principal and interest reductions on loans, a power they do not currently have.
How HAMP Can Help You Save Your Home
To be among the 500,000 people whose loans are expected to be modified in the next three months, you need to apply with your loan servicer and it's up to the company to decide how much help you get. If you qualify, HAMP lenders may:
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Reduce your interest temporarily to as low as two percent
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Extend the term of your loan (for example, from 30 to 40 years)
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Provide a forbearance on some of the principal (to no less than the current value of the property
HAMP Qualification Criteria
To qualify for a HAMP modified loan you must:
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Have originated your first mortgage on this property prior to January 1, 2009
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Live in your home (your home may be up to a four unit building)
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Have an unpaid principal balance that is not more than $729,750 for a single family home or not more than $1,403,400 for a four unit dwelling
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Have a mortgage payment (including taxes and insurance), that exceeds 31 percent of your income
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Be able to document the financial hardship that has caused you to default
What to Expect
Keep in mind that if after making all these concessions your payment cannot be brought down to 31% of your income, you will not get a modification. The lender will likely foreclose. In addition, if you are more than 60 days behind on your payments or in default, the lender will do an analysis to determine if your loan will generate more cash flow in the long run with a modification than in the short run with a foreclosure. If it appears that giving you a modification is merely delaying an inevitable and expensive foreclosure, you won't get a modification. If you do get a HAMP loan, it will be conditional for three months. If you are able to make the modified payments for the trial period, then the loan terms will become permanent.
What if You Do not Qualify for HAMP
If the amount you owe on your home exceeds the HAMP guidelines, or you need help refinancing an income property, our lenders are there for you. Get expert help by filling out our form.
Sources:
http://www.makinghomeaffordable.gov
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