Tag Archive for 'Making Home Affordable'

Starting today, thousands of borrowers facing foreclosure will be able to stay in their homes and avoid the trauma of being evicted. Fannie Mae's new "Deed for Lease" program allows impossibly situated borrowers to transfer their home ownership to Fannie Mae and sign a one-year lease, with month-to-month extensions after that. Yes, you still lose your home--but you avoid explaining to your kids why they have to squeeze into a crummy apartment and change schools, you don't have to schlepp from landlord to landlord and blush whenever they check your credit, and you don't have to add the joy of moving to your holiday celebrations. Not a small thing.The program is designed to eliminate some of the uncertainty of foreclosure, for instance children having to change schools during the year, and help stabilize neighborhoods shell-shocked by recession fallout. Tenants of landlords in default will also be able to benefit from the program, avoiding eviction by lenders when the owner fails to pay the mortgage.

This is a variation on the practice of accepting a deed-in-lieu of foreclosure, which requires the owner to surrender the property and allows all parties to avoid expensive foreclosure proceedings. But it hasn't been widely used--in the first half of the year, Fannie Mae took back about 1,200 properties through this process, while foreclosing on 57,000 properties during the same period.

The rental program is designed to help homeowners who don't qualify for a loan modification under the Obama administration's Making Home Affordable plan, but still want to remain in their homes. Say for example that you are an unlucky homeowner in Las Vegas. You bought a $300,000 home with 5% down and a mortgage payment of $2,200 a month payment including taxes and insurance. Now that house is worth $150,000, you lost your job, and your new one only pays $2,500 a month. You don't earn enough to qualify for a modification under the Home Affordable Modification Program (yes, you discovered that under making Home Affordable, if you are too poor to make a modified payment, your lender will keep expecting you to make a larger one--go figure). However, you could easily pay the fair market value of the rent on the house at $775 a month. And Fannie Mae will not put your home up for sale during the one-year rental period.

To qualify for Deed for Lease, you have to live in the home as your primary residence and prove that you can afford the market rent. The rent can't be more than 31% of your household's gross monthly income. To see if you are eligible for Deed for Lease, contact your loan servicer.

You're in trouble with your home loan. Your income has dropped. Your expenses have not. You've been dipping into your savings to make your payments, and they're almost gone. Your retirement account is all you have left. Can you get a mortgage modification? You check www.makinghomeaffordable.com and take the quiz on the site to see if you'd qualify for a mortgage modification. You do! Except that you don't. What the site doesn't tell you is that just because you are experiencing hardship doesn't mean that your loan servicer is going to modify your loan--the program is voluntary and lenders all have their own criteria for determining who gets a modification--and who doesn't.

I have managed to get copies of modification criteria from several lenders, and here are some of them:

* If you have assets that you can access, even if they're your retirement accounts, and they exceed two or three months of your mortgage payments, you will not be given a modification--until you have exhausted all of your resources.

* If your mortgage is less than or equal to 31% of your income, you will not be given a modification. Your lender doesn't care that you have huge medical bills or ran up too much credit card debt.

* If your lender has reason to believe that you are unlikely to default (for example if you still have equity in your home) it will probably not modify your loan.

So the ideal scenario for those who want a modification is this: You have no money, you are upside down on your mortgage, you can document a hardship like an illness or job loss, you must have sufficient income to make a modified payment (with your rate dropped to as low as 2%), and the lender would generate more cash flow by modifying your mortgage than by foreclosing.

Keep these in mind when completing you application for a mortgage modification. A mortgage calculator can help you determine if a modified payment (including property taxes, mortgage insurance, and homeowner's insurance) at a 2% interest rate (and up to a 40 year term if needed) is less than 31% of your gross monthly income.

Over half of homeowners who get a mortgage modification or forbearance don't get the happy ending they expected. They simply get behind on their payments again according to a new report by bank regulators. More than 50% of mortgage borrowers with loans modified in the first half of last year had missed at least two months of payments a year later, government officials claimed.

However, those whose modifications dropped their payments significantly were far more likely to have stayed out of trouble. Approximately one third of those whose monthly payments were reduced by at least twenty percent fell behind again within a year, compared to over 60% whose loan payments weren't changed or actually increased to cover arrearages.

The report tracked 34 million home loans and spotlights a major problem with the efforts of many lenders to keep foreclosures at bay. In cases where modifications were approved just to prevent the write-down or write-off of loans gone bad, borrowers ended up back in trouble because just throwing arrearages onto the balance or rolling them into a new loan with even higher payments is not a good long-term solution. If you can't make your current payment, you surely won't be able to continue making a higher payment, duh. Meaningless modifications just allow loan servicers to cook their books another year or so before the bad loans hit the fan once again.

Under the administration's Making Home Affordable plan, borrowers' interest rates may be reduced to low as 2% for five years--the goal being to bring the total mortgage payment (PITI) to no more than 31% of the borrower's gross monthly income. The administration's effort got off to a slow start, and some banks that received bailout funds have yet to modifiy a single loan.Making Home Affordable has picked up steam in recent months, however. As of last September, approximately 360,000 borrowers (12% of eligible homeowners) were granted three-month trial modifications. They get extended to five years if the homeowners successfully make the new, lower payments.

In the past most lenders offered payment plans to help borrowers catch up on missed payments, but those modifications often result in a higher monthly payment. Make sure that if you agree to a loan modification that your monthly payment, including princpal, interest, taxes, and insurance, is no more than 31% of your gross monthly income. Then work on paying off other debts so that in five years, when your payments go back to normal levels, you can continue to pay on time each month.

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.

Anyone considering refinancing their mortgage under the Making Home Affordable plan had to be scared to death after looking at Fannie Mae's new risk-based pricing adjustments. The Loan Level pricing Adjustment matriax, aka the Chart of Death, added prohibitive surcharges to refinances for nearly anyone without perfect property and perfect credit. But as of July 1, 2009, refinancing through the making Home Affordable program will be a lot less scary and a lot less expensive.

Per Fannie Mae's Announcement 09-15, "Additionally, Fannie Mae is implementing a maximum cap of 2.00 percent on the total LLPAs and Adverse Market Delivery Charge assessed on Refi Plus and DU Refi Plus mortgage loans. This cap will reduce the cost of refinancing for some borrowers, which should help more borrowers take advantage of the refinancing benefits provided by Fannie Mae’s Home Affordable Refinance options."

This should put some teeth in the program and make it a lot more useful for those who qualify. To see if your loan is owned by Fannie Mae, click here for Fannie Mae's Loan Lookup Tool.

I created a previous post called "Second Mortgage Holder Jerking You Around?" that addressed the difficulties homeowners were having getting mortgages modified or short sales approved, despite the intentions of their first mortgage holders.That's because no matter what was done to save the homeowner (and 50% of problem mortgages have second liens attached on there ...