As the government reviews options on the best ways to continue to help struggling homeowners there is rumor of the Obama making home affordable program and other federal housing assistance programs that may be going "bye, bye". As Republicans argue that the federal housing program especially the Home Affordable program should be considered to come to an end because of the failure of the program. As many of us have read in the past few months how the projections of the millions of homeowners this program was suppose to help and in reality it has only helped not even half of what it was projected. As the chairman of the House Financial Services Committee, Representative Spencer Bachus - Republican of Alabama has stated "failed and ineffective housing foreclosure programs" marks the possibility of four foreclosure programs that may end.
What does "loan modification" mean exactly? By definition, a loan modification is a permanent change in one or more terms of a home loan that results in a more affordable monthly payment. A delinquent loan is brought current, and the interest rate may be lowered, a longer term offered and sometimes a reduction in the principle balance. A successful loan modification should offer the homeowner an affordable and sustainable monthly loan payment.
Will I have to pay all the late fees & penalties? Most lenders are offering modification programs that waive the late fees and penalties. The federal program, Obama making home affordable program, mandates that the lender waive any late fees and penalties. Always ask for a detailed accounting and description of all fees from your lender-some fees may not be justified or allowable and should be waived. I can't afford to bring my loan current-can my missed payments be added back in to the loan? Generally your lender will allow your missed loan payments to be added into the new loan balance and spread out over the term to make it affordable.
If the balance of the loan is greater than 140% of the balance of the home, they will pay the mortgage company $.10 on the dollar for the amount reduced. If the balance of the loan is less than 115% of the value of the home, The Obama Administration is giving the mortgage company an added incentive. They will pay them $.21 on the dollar for the amount reduced. Going back to our example, the loan balance of $130,000 is 130% of the value of the home ($100,000). The amount that the balance is reduced is $15,000. So the mortgage company would be paid $2,250 (15,000 X $.15). If you are facing foreclosure, you may be thinking that this is great. The balance on your mortgage is far higher than what your home is worth. So your mortgage company is going to reduce it to 115% of the value.
Well there are certain problems which will arise. These were not addressed in the revisions announced on March 26. The first is that this is voluntary for the mortgage companies. What happens if some elect not to do this? The second is that there is no time limit for the mortgage companies to put this in place. Are the mortgage companies going to delay implementing this? Will we see the same type of delays that have plagued the Making Home Affordable Program from the start?The third is that the mortgage company or investor will contact those people who are eligible for this.
Do you know who the investor on your mortgage is? Not many people do. By the way, the mortgage company to whom you are sending your monthly payments is normally not the investor. How will your mortgage company or investor determine who actually qualifies for this? Will anyone monitor them to make sure this is done fairly? What if some mortgage companies do this quickly and others drag their feet?Fourth - What happens in those instances where there are two loans? It looks like the administration assumed that most people who have a first and second loan got these through the same mortgage company. So the balance on the second loan will be reduced first. If the remaining balance is still over 115%, the balance on the first loan is reduced. The guidelines indicate that a mortgage company that has to reduce the balance on a second lien to bring the total down to 115% will be paid $.06 on the dollar for the amount reduced. This payment will only be made if the person had not made a payment on that second loan in more than 6 months. Let's look at the example we have been using. The balance on both loans totals $130,000. The balance on the first mortgage is $109,000. The balance on the second is $21,000. The value of the home again is $100,000. 115% of $100,000 is $115,000. The balance on the second loan would be reduced to $6,000. The balance of $109,000 on the first loan would remain unchanged. If there was a different mortgage company for the second loan, they are being asked to forgive $15,000 of their loan. For that the government may pay them $900 ($15,000X$.06).
They will get that only if the person facing foreclosure has not made a payment on that loan in the last 6 months. So the mortgage company here can possibly get $900 at the most while in those instances there is only one loan, the mortgage company there would get $2,250 regardless of when the last payment on that loan was made. Is there anything wrong with that picture? It sure looks like the mortgage company handling the second loan is getting the shaft. Do you think that most mortgage companies on these second loans are going to willingly participate in this program? Current estimates are that in about 50% of the cases where people are facing foreclosure first and second loans exist. It is not clear on how many of these two different mortgage companies are involved. Chances are the percentage is high. One other big challenge exists for mortgage companies when it comes to reducing the principal balances on loans. If they start doing this for people facing foreclosure, won't the people who have made their loan payments on time and are not facing foreclosure complain? Won't they demand that the balance on their loans be reduced if the value on of their homes has dropped? When the Obama Administration announced the revisions to the Making Home Affordable Program on March 26, the news media focused on this one. Their stories just focused on mortgage companies reducing the principal balances on those loans of people facing foreclosure whose properties had dropped in value. They did not go into detail on the guidelines for the revision.People facing foreclosure who are in this situation had their hopes raised that their mortgage companies would be reducing how much they owed on their loans. Many will be disappointed if the problems I mention here occur prevent this from being done. It looks like the Obama Administration has opened itself up to much additional criticism because the guidelines for this revision to the Making Home Affordable Program were not well thought out.
What does "loan modification" mean exactly? By definition, a loan modification is a permanent change in one or more terms of a home loan that results in a more affordable monthly payment. A delinquent loan is brought current, and the interest rate may be lowered, a longer term offered and sometimes a reduction in the principle balance. A successful loan modification should offer the homeowner an affordable and sustainable monthly loan payment.
Will I have to pay all the late fees & penalties? Most lenders are offering modification programs that waive the late fees and penalties. The federal program, Obama making home affordable program, mandates that the lender waive any late fees and penalties. Always ask for a detailed accounting and description of all fees from your lender-some fees may not be justified or allowable and should be waived. I can't afford to bring my loan current-can my missed payments be added back in to the loan? Generally your lender will allow your missed loan payments to be added into the new loan balance and spread out over the term to make it affordable.
If the balance of the loan is greater than 140% of the balance of the home, they will pay the mortgage company $.10 on the dollar for the amount reduced. If the balance of the loan is less than 115% of the value of the home, The Obama Administration is giving the mortgage company an added incentive. They will pay them $.21 on the dollar for the amount reduced. Going back to our example, the loan balance of $130,000 is 130% of the value of the home ($100,000). The amount that the balance is reduced is $15,000. So the mortgage company would be paid $2,250 (15,000 X $.15). If you are facing foreclosure, you may be thinking that this is great. The balance on your mortgage is far higher than what your home is worth. So your mortgage company is going to reduce it to 115% of the value.
Well there are certain problems which will arise. These were not addressed in the revisions announced on March 26. The first is that this is voluntary for the mortgage companies. What happens if some elect not to do this? The second is that there is no time limit for the mortgage companies to put this in place. Are the mortgage companies going to delay implementing this? Will we see the same type of delays that have plagued the Making Home Affordable Program from the start?The third is that the mortgage company or investor will contact those people who are eligible for this.
Do you know who the investor on your mortgage is? Not many people do. By the way, the mortgage company to whom you are sending your monthly payments is normally not the investor. How will your mortgage company or investor determine who actually qualifies for this? Will anyone monitor them to make sure this is done fairly? What if some mortgage companies do this quickly and others drag their feet?Fourth - What happens in those instances where there are two loans? It looks like the administration assumed that most people who have a first and second loan got these through the same mortgage company. So the balance on the second loan will be reduced first. If the remaining balance is still over 115%, the balance on the first loan is reduced. The guidelines indicate that a mortgage company that has to reduce the balance on a second lien to bring the total down to 115% will be paid $.06 on the dollar for the amount reduced. This payment will only be made if the person had not made a payment on that second loan in more than 6 months. Let's look at the example we have been using. The balance on both loans totals $130,000. The balance on the first mortgage is $109,000. The balance on the second is $21,000. The value of the home again is $100,000. 115% of $100,000 is $115,000. The balance on the second loan would be reduced to $6,000. The balance of $109,000 on the first loan would remain unchanged. If there was a different mortgage company for the second loan, they are being asked to forgive $15,000 of their loan. For that the government may pay them $900 ($15,000X$.06).
They will get that only if the person facing foreclosure has not made a payment on that loan in the last 6 months. So the mortgage company here can possibly get $900 at the most while in those instances there is only one loan, the mortgage company there would get $2,250 regardless of when the last payment on that loan was made. Is there anything wrong with that picture? It sure looks like the mortgage company handling the second loan is getting the shaft. Do you think that most mortgage companies on these second loans are going to willingly participate in this program? Current estimates are that in about 50% of the cases where people are facing foreclosure first and second loans exist. It is not clear on how many of these two different mortgage companies are involved. Chances are the percentage is high. One other big challenge exists for mortgage companies when it comes to reducing the principal balances on loans. If they start doing this for people facing foreclosure, won't the people who have made their loan payments on time and are not facing foreclosure complain? Won't they demand that the balance on their loans be reduced if the value on of their homes has dropped? When the Obama Administration announced the revisions to the Making Home Affordable Program on March 26, the news media focused on this one. Their stories just focused on mortgage companies reducing the principal balances on those loans of people facing foreclosure whose properties had dropped in value. They did not go into detail on the guidelines for the revision.People facing foreclosure who are in this situation had their hopes raised that their mortgage companies would be reducing how much they owed on their loans. Many will be disappointed if the problems I mention here occur prevent this from being done. It looks like the Obama Administration has opened itself up to much additional criticism because the guidelines for this revision to the Making Home Affordable Program were not well thought out.
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