Tag Archive for 'HAMP'

Times are tough, and if you had bad credit when you got your mortgage, you might still have bad credit and be unable to refinance. However, if your mortgage is causing you some hardship and you are in danger of defaulting, contact your mortgage lender about a loan modification.

Check out Making Home Affordable

If your mortgage payment (including principal, interest, taxes, insurance, and HOA dues if applicable) exceeds 31% of your gross monthly income, you may qualify. The HAMP Web page gives a lot more details. You'll also need to know if your bad credit mortgage lender is participating in HAMP. You can find that out HERE.

Even if your lender is not a HAMP participant, or you don't meet the program guidelines, you may be able to score a loan mod anyway. Better for the lender to modify your mortgage than to see the income stream dry up.

Lender May Meet You HAFA Way

An alternative to a HAMP modification is the new HAFA (Home Affordable Foreclosure Alternative) short sale program, which rolls out in April. That provides a formalized and streamlined procedure and timeline for short sales and takes the uncertainty out of the process. Should you wish to sell your property, you'll know up front what price the lender is willing to accept and your buyer can have a lot more confidence that the deal will go through.

Finally, try an FHA or bad credit mortgage lender. You have nothing to lose by filling out the form on this site, and you may find a company willing to get you a better interest rate than you have now.

73-year old James Bruce found an unusual way to pay his mortgage when he got behind -- he robbed 3 banks at $600 a pop to come up with the cash. The guy probably had other alternatives -- he had run through his retirement and so he and his wife only had Social Security to live on and the earnings they could eke out from a small pottery business. He was too embarrassed to ask his lender for help (but apparently not too embarrassed to rob banks!). But Mr. Bruce had options -- he didn't have to rob banks to save his home.

When you can't make a mortgage payment, don't be embarrassed, and don't hide the truth. Mr. Bruce claimed that he had a plan for paying the money back that he stole. He could more easily have requested a forbearance from his bank. A forbearance allows you to skip one or more mortgage payments; the late payments are just added to your balance.

Mr. Bruce had his home for twenty years and never missed a payment. Odds are that he has substantial home equity. A reverse mortgage can pay off a small mortgage balance, relieving the homeowner of the payment, and maybe even put some cash back in the borrower's pocket.

Bad credit wasn't his mortgage problem -- so his lender would have been more likely to help. If he didn't have equity (maybe he borrowed against his home over the years) he might have mortgage insurance. In that case, he might have been granted a claim advance by his insurer -- bringing his mortgage current. That only works to cure a temporary problem, however. A permanent problem requires a permanent solution.

When the homeowner has experienced a significant reduction in income, a mortgage modification may be the best alternative. Mr. Bruce could have used a mortgage calculator to see if taking his remaining mortgage balance and getting a new loan with a 2% rate and a 40-year term would get him a payment of no more than 31% of his gross income. In fact, HAMP underwriters may be able to "gross up" the Social Security income (multiply it by 1.25% if it isn't subject to income tax) to make qualifying a little easier.

The biggest problem with Mr. Bruce's way out (aside from the fact that it was illegal, duh) is that it was only temporary. What was he going to do next month? Rob a train? Knock off a liquor store? Set up a meth lab? The bottom line is a permanent reduction in income can only be solved with a permanent reduction in payments.

You need a mortgage modification. You checked the questionnaire on www.makinghomeaffordable.com and discovered that you meet the criteria for a modification under the Home Affordable Modification Plan (HAMP). So you call your lender, get your modification packet, and return it. And then nothing happens. For months.
According to a New York Times story, you are not alone. Loan modification is a voluntary option available to mortgage loan servicers, and many of them are systematically putting off homeowners' requests for help. Even if you qualify underMaking Home Affordable, all that means is that you qualify to have the government pay your lender some incentives for helping you out. It doesn't mean the lender has to help you, and it doesn't mean the company has to do it in a timely manner either. And you may meet all qualifications for modification under the government's rules--but not your lender's. For example, if you have any assets, such as savings or retirement accounts, your lender may require that you deplete them before it will help you with your home loan. Or it may just stall, taking months to determine if it will help you and what form that help will take. According to the New York Times, as "they wait for an answer on whether they might qualify, homeowners are succumbing to foreclosure and bankruptcy proceedings and winding up in courts--at times in front of judges who are also frustrated."

And some bankruptcy judges are taking the matter up directly with bank executives--even requiring them to come to court and explain themselves to the homeowner. In Arizona, Ohio, and Pennsylvania, judges have taken up the borrowers' cause and called lenders on the carpet because of their foreclosure practices. The administration has threatened to change federal bankruptcy law to allow judges to modify mortgages in court if lenders don't become more proactive. Lenders respond that such a move will increase the cost of mortgage financing to everyone.

So how do you get your modification through? First, be sure that you have provided everything the lender asks for--hardship letter, financial documents, and probably a worksheet as well. Unfortunately, once your package is in their system, there may be little you can do to expedite the process. Keep track of when you sent in your forms and call for status updates frequently. And keep a log of when you call, who you speak to, and what you are told. Check your county records (many are available online) periodically to make sure your lender hasn't started foreclosure proceedings and neglected to tell you. You may end up in bankruptcy court or foreclosure and will need all the evidence of your lender's footdragging. At least judges are showing themselves willing to take on lenders and intervening when possible.

Who would have thought "mortgage" would be everyone's favorite cocktail party topic?! And listening to the misconceptions flying around you'd have to conclude that everyone at the party was drunk. So here's a quick course on mortgage rescue.

Part of the confusion stems from all the names and acronyms for the plan or its various parts. Making Home Affordable. The Homeowner Affordability and Stability Plan, aka HASP. Home Affordable Refinance Plan, or HARP. Home Affordable Modification Plan (HAMP, anyone?). People are running around claiming things like, "The program drops interest rates to 2% if you have a Fannie Mae loan and are behind on your payments and at least 105% underwater on your loan."

No, it doesn't.

Here's the straight answer:

The Homeowner Affordability and Stability Plan (HASP) is the name of the whole plan. HAMP and HARP are parts of the plan. Making Home Affordable is a cute nickname for a great site that walks you through some questions and tells you what you're eligible for (or not). The plan offers many provisions for helping homeowners with a variety of issues.

Home Affordable Refinance Plan (HARP) Qualification

This plan is designed to allow homeowners who are underwater on their houses but successfully making their payments to refinance to today's lower rates. It is what's called a streamline refinance with minimal qualifying. To be eligible:

1. Your mortgage must be owned by Freddie Mac or Fannie Mae.

2. The home must be your primary residence. No investment or vacation properties.

3. You can't have been more than 30 days late on your mortgage payment any time in the last 12 months.

4. Your refinanced first mortgage can't exceed 105% of your home's current appraised value.

Home Affordable Modification Plan (HAMP) Qualification

This program is for homeowners in trouble--those whose mortgage payment is unreasonably high for their income (perhaps with a subprime loan or payment option ARM that reset to wacky terms). To be eligible:

1. Your housing costs must exceed 31% of your gross income.That's monthly principal, interest, property taxes, and insurance.

2. The unpaid balance of your mortgage can't exceed $729,750 (multifamily homes have a higher limit).

3. You may be required to attend credit counseling sessions if you've been silly with your money and have too much consumer debt.

4. Modification takes place first by lowering the interest rate (to as low as 2% if necessary). Then, if more needs to be done, the term of the loan can be extended to up to 40 years. Finally--only as a last resort--the balance may be reduced (to no less than the appraised value of the home). You must be able to realistically make a modified payment.

5. Mortgage servicers don't have to make you a modification if you're close to defaulting or you are at least 60 days behind on your payments. In that case, the servicer is required by law to determine if modifying your loan will generate more cash flow over five years than not modifying it. If it does, you get a modification. If not, the lender doesn't have to modify your loan and if you default it can foreclose.

Say a borrower owes $400,000 on a $300,000 home. He makes $6,000 a month. Can he save his house with a modification?

The principal and interest payment on a $400,000 loan would be $2,935 at his current 8% rate. The whole monthly payment (including $854 for taxes and insurance) is $3,789, or 63% of his gross income. Obviously an impossible payment for him.

So how does modification work? First, the interest rate could be lowered. At 2%, the payment could be dropped to $1,478 (plus $854 for a total of $2,332). Oops, that's still 39% of the homeowner's gross income.

So stretch the term out to 40 years. The total payment drops to $2,179 ($854 + $1,325), which is still 36% of the gross income.

Dropping the loan balance nearly down to the home's value ($303,400) gets him a payment of $1,859 ($854 + $1,005). That's the magic number--31% of his income! So he can get a modification, yay! However, if before seeking help he let the mortgage go into default, the lender may not have to modify his loan. So getting help early is important.

These programs have been created with the goal of helping 9 million homeowners. Check with your current loan servicer to see if you might be one of them.

Today I spoke with a friend who is at her wit's end dealing with her two mortgages. She and her husband were fine until they were hit with economy-related work reductions and some unforseen expenses. Despite the fact that it would almost certainly be to their advantage to walk away from their home loans, they want to do the right thing, keep their house, pay their bills, and not uproot their kids.

Isn't the Home Affordable Modification Plan (HAMP) supposed to take care of this problem? Yes, it is. The homeowners have a documented hardship. They are capable of making their payments if the prescribed modifications are made. However, the participation of second lienholders is "not required" according to the treasury department. Here's what it says about second liens:

Second Liens: While eligible loan modifications will not require any participation by second lien holders, the program will include additional incentives to extinguish second liens on loans modified under the program, in order to reduce the overall indebtedness of the borrower and improve loan performance. Servicers will be eligible to receive compensation when they contact second lien holders and extinguish valid junior liens (according to a schedule to be specified by the Treasury Department, depending in part on combined loan to value). Servicers will be reimbursed for the release according to the specified schedule, and will also receive an extra $250 for obtaining a release of a valid second lien.

In my friends' case their first mortgage lender has been willing to work with them on a mortgage modification that gets their payment down to a workable level. But their second mortgage holder won't budge. In fact, the loss mitigation department refuses to work with these people because they have "too many debts." And the rep threatened to foreclose if the required payments weren't made. My buddy wanted to know if the second lienholder could really do this.

Can the holder of a second mortgage foreclose if you're current with your first mortgage? The short answer is yes. A second lienholder can foreclose for non-payment even if you are in good standing on your first mortgage. Foreclosing involves filing the required documents (in this case a Notice of Default) and all public notices and forcing the sale of the property. But the first lienholder gets paid first. So to protect its interest the holder of the second mortgage typically pays off the first mortgage. Which brings us to...

What's wrong with this picture? There is no equity for the second lienholder to wrest from the homeowner. The borrower has a home currently worth $225,000. The first mortgage balance is $250,000, and the second mortgage is $40,000. The borrowers are currently $65,000 under water. Right now the second mortgage lender is out $40,000 if the homeowner doesn't pay. By foreclosing it will end up $65,000 in the hole, plus the costs of foreclosing.

In addition, the HAMP guidelines state that foreclosure actions are halted while the modification is being hammered out. So it's not like the house could just be yanked out from under the family while they are trying to work this out.

So if you are between a rock and a hard place with your second mortgage lender, and your property is under water, you can reasonably assume that the second lienholder won't foreclose on you. The lenders have everything to lose by foreclosing and nothing to lose by working with the homeowners. But there's no guaranty that some lenders won't be stupid.