If you have a bad credit mortgage, chances are you have a high interest rate. Your housing expense may very well exceed 31% of your gross monthly income. And if you live in a neighborhood dominated by bad credit mortgage financing, chances are there are lots of foreclosures and your property may very well be worth less than the value of the liens against it. Well, to paraphrase a popular commercial, there's a HAMP for that.
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The new HAMP FHA refi is different from the other modification programs in significant ways. Here they are:
1. You have to be current on your mortgage to be eligible -- unlike regular HAMP, where it's not required but seems to help if you're a month or two behind.
2. There is no trial modification period.
3. There is principal reduction. Your current lender must be willing to reduce the principal balance on your loan at least 10% (more if needed) to get your balance down to 97.75% or less than your appraised value (an appraisal is required for this program).
4. You must qualify for a new FHA mortgage.
5. Your current loan can't be an FHA mortgage (FHA is enjoined from offering principal reductions as part of its loss mitigation).
6. You don't have to demonstrate a hardship to be eligible.
7. Your new mortgage is at today's market interest rates -- no 2% government-subsidized interest rate.
8. The program is voluntary. Your current lender will notify you if it's participating and willing to reduce your balance to get your loan off its books.
That's the rub, from what I can see. Because if you are current on your mortgage and paying a high interest rate (like most borrowers with bad credit home loans), why would your lender willingly forgo principal and cut you loose? And if you are a bad risk and behind on your mortgage, you don't qualify. So I don't see how this plan will help the three to four million borrowers FHA claims it will.