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.
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So it looks like not that many will benefit from the refinance deal. At least where I live most people are a lot more underwater than 5%. But if you have a Fannie Mae loan and your payments are too high you can still get help. My husband recently became disabled. We are making our payments but they are very high for our income. Can I see about a modification, at least until he can get back to work?
That’s correct. And modifications aren’t necessarily permanent–some consist of a reduced rate for 3 years or so. To see if you qualify for modification or refinancing, go to financialstability.gov and answer a few questions. Good luck!
Thank you for putting in in plain English. I finally understand (sort of), but I have the gist of it now. Those of us already in default or already in foreclosure don’t fit the criteria.
There has been so much double talk about this “rescue” and having been recently turned down for a modification by my lender, it was unclear to me just who does or doesn’t, should or shoudn’t qualify.
There is a group of us, all with the same lender and/or servicer who are already in forclosure trying to find out how we make this “rescue” work for us. Just now reading that the lender does not have to work with you really cleared it up for me.
Now, I am not saying that this lender and/or servicer is necessarily playing by the rules… Telling all or most of us that we have to be “in default” in order to qualify to apply for a loan modification, then filing a foreclosure suit against us, knowing full well we need a loan modification I find to be very suspect, hence our letters to the president, congress, the news media.
But I do thank you for stating it so claarly.
I’m sorry that your lender(s) are not coming up with a workable solution for you. The reason a lender doesn’t have to work with you is because like all companies, lenders are by law supposed to work for the best interest on their owners, or shareholders. In this case many of those shareholders are American taxpayers. So if it pencils out that in the long run the lender loses less by foreclosing than by working with the borrower (and there are fairly complex formulae used to determine this), unfortunately the borrower loses the home. It’s too bad that even with the best intentions everyone cannot be saved.
You have my sympathies.
Gina
Dear Gina Pogol,
I am a first time home buyer(or hoping to be)I would like some help figuring out what i can do. I have exellent credit somewhere around 680-700 But at the time am Looking for a Full time job. I recently quit to find a better paying job and am still looking. I work part time no more than 20 hrs a week and have worked partime for 2 and a half years. Full time I have worked 6 months before I quit. I am going to College when I have time. My Fiance is a full time student searching for summer work but really hadn’t established credit yet. Now when i was working i was approved for like 45,000 and am currently renting a house we’re paying 450 a month plus utilities. I figured if i can get a Mortgage it would cut costs a little bit we can afford 500 a month plus utilities and i’m trying to get a mortgage instead of a land contract. I know there is a new credit stimulus that you can use your tax credit for down payment now i found a house that is 61,500 should be able to get it for 50,000 now can i get a mortgage with out a full time steady income I would like some help one this matter if there is a way to get a lender who can do this and is fha approved?
Any help would be great and you could contact me agentorangeway@hotmail.com if questions or help to solving my problem thanks for anything you can do for me.
Hi Tyler,
A couple of things are going for you–your credit and the fact that you have had your part time job for a couple of years. That makes it easier for underwriters to count your income. Had you been working a full time job at the same time as your part time job? That will help once you find a new job (preferably in a field you already have plenty of experience in. Your fiance is okay with limited credit–it’s bad credit that gets you. A good loan officer can help her build a credit report using utility bills, rent, college tuition payment plans, etc. And FHA has no minimum requirement for the amount of time she will have had to be on her new job to count the income. I suggest that in addition to looking for work you develop a pattern of saving (you’ll need a 3.5% down payment). This will also show that you are financial responsible even though you are just starting out. You should also inquire about other community programs that may assist you with down payment options. If you live in a rural area, USDA has loans that require no down payment as well. And, in addition to the tax credits for first timers, check into mortgage credit certificates in your state.
The bad news is that you will need to get that job before qualifying. Or maybe you can get someone to do a lease option and sell you the house now. As long as you nmake your rent payments, once you get your jobs you shouold be able to qualify for a mortgage and close the deal.
Finally, go to http://www.hud.gov/offices/hsg/sfh/hoc/hsghocs.cfm and find out what help is available in your state at a HUD home ownership center. And look into Mortgage Credit Certificates (which allow you to buy more home here: http://www.mortgagecreditproblems.com/blog/mortgage-credit-certificate-programs-free-money-for-first-time-home-buyers/
each state offers a different program, so you will have to check with your individual state for lenders and exact benefit and eligibility.
Good luck!
Галеас - боевой корабль, состоявший на вооружении многих стран Европы в XVI—XVII вв. Усовершенствованная крупная галера.
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Re: HAMP: I happen to be working for a company who services loans for a number of different companies and my job is to understand and implement the program for thousands of customers and I know understand this program more than I ever wanted to.
If you are having trouble getting a modification may I suggest contacting NACA (www.naca.com) to see if they can help in anyway. I will say DO NOT work with any organization that claims they will help you for a fee. Their are exceptions. Example: I have helped some people and AFTER the mod is complete I will charge a couple of hundred $$ for my time (No I am not offering to help people in general. I have plenty of friends and family I am helping right now).
If there is a desire I can put together a simple spreadsheet that will better tell you if you can be qualified for the HAMP program. If there is a desire send me an email to sodapopevans@gmail.com
Or contact your lender / servicer and they will send you their spreadsheet / form. Everyone’s different. Especially if you are out of HASP territory but would still like to try for a modification. Some lenders are responsive to requests even for large loans or investor properties–because they don’t want them back. For instance, many will say that you can’t accomplish a modification if you are filing for bankruptcy protection. But a friend (with a super-jumbo mortgage that didn’t qualify under HAMP) was told my her lender that they would be willing to work a modification into a Chapter 13 filing, and they were true to their word. Because you still won’t be financially viable with a 31% front end ratio if your back end is over 100%. And that’s what those forms / spreadsheets are designed to calculate.