LOAN MODIFICATION
Part II
This is a continuation of yesterday's post on Loan Modification.
The Market In recent years investors were clamoring for ever increasing returns on their investments. Financial markets developed more risky loan products to meet that demand, knowing full well that in order to increase the reward there had to be an increase in risk. These products allowed buyers to qualify for purchases that they could not otherwise afford and, they met the investor's need for a higher return in investment. Real estate related financing was riding high.
Home buyers were seduced into accepting loans that provided initially low monthly payments because those products allowed a buyer to purchase a larger and nicer home. Some even accepted negative amortization loans (a loan with an allowable minimum payment that did not cover the interest cost of servicing the outstanding balance. Each month the shortfall between the minimum acceptable monthly payment and the actual cost to cover the outstanding principal was added to that outstanding principal!). Many buyers found themselves an additional $ 10,000 in debt after having a neg-am loan for only six months!
Then the bubble burst. Values stopped appreciating and immediately went into free fall. Buyers disappeared and the exit strategy for many financially stretched homeowners evaporated. They could not just sell and walk away with a clean financial record as they originally planned. By the time they realized what had happened they were upside down on the largest investment most of us will ever make: our home.
Facing foreclosure is not a pleasant prospect. Foreclosure and bankruptcy are stigmas that remain on a borrower's credit report for seven years, making it difficult or even impossible to make any kind of a purchase on credit for those seven years. Merchants who will extend credit will exact excruciatingly high interest rates.
So, how can one remain in their home and avoid foreclosure?
Unfortunately, many distressed homeowners will not be able to do so. However, there are options that will work for many.
The first step is to attempt to get a loan modification.
How do I qualify for a loan modification? In order to start the process you must ask. Prior to contacting your lien holder you can quickly complete an eligibility test at http://www.MakingHomeAffordable.gov. This test will let you know if you are eligible for a modification through the government-sponsored Home Affordability and Stability Program (HASP)
Find a list of mortgage lenders and servicers at http://www.HomeNow.org.
Once you have completed this test it is time to call your lien holder. Do Not Delay. Have the information listed in yesterday's post ready so that you are fully prepared to discuss your situation with them. Approach this call as a problem solving exercise, without emotion or placing blame. The old adage that you can catch more flies with honey than you can with vinegar applies in spades. Different lenders have different names for the department that you should talk to. Common names may be loss mitigation, mortgage modification or H.O.P.E.
Loan Modification Experts A word of caution at this point. In the last year or so we have seen a proliferation of loan modification experts entering the market place. Many collect fees up front: a RED FLAG. Unfortunately, the business is rife with hucksters and con-artists who prey on distressed homeowners. The doctrine of caveat emptor (let the buyer beware) applies. Check references before you open your wallet.
What is a Home Affordable Refinance? If Fannie Mae or Freddie Mac owns your mortgage, you may be eligible for a Home Affordable Refinance. This program will allow qualified borrowers to refinance their home and often lower payments.
A borrower can find out if their mortgage applies by entering their property information in each of the following web sites.
How do I know if my loan is owned by Freddie Mac?
Website: ww3.freddiemac.com/corporate
How do I Know if my loan is owned by Fannie Mae?
Website: lookup.fanniemae.com/loanlookup
What are the qualifications for a Home Affordable Refinance? According to the resources provided by the government, the following is a list of qualifications:
The owner must occupy the property of a one - four unit property
The loan on the property is owned or securitized by Fannie Mae or Freddie Mac (see links above)
At the time you apply you are current on your mortgage payments (you have been more than 30 days late on your mortgage payments in the last 12 months, or you have had your loan for less than 12 months and you have never missed a payment)
You believe that the amount you owe on your first mortgage is about the same or less than the current market value of your home
You have income sufficient to support the new mortgage payments, and the refinance improves the long-term affordability or stability of your loan
What if I don't qualify, can't afford my home, and owe more than it's worth? You are not alone and foreclosure is not your only option. Some loan servicers are under contract with the investors which prohibit loan modification.
Others may not be willing to work with you for reasons that they will not disclose.
In these instances, you may wish to consider a short sale. A short sale allows you to sell your home for less than you owe and avoid foreclosure. We have clients who completed a short sale two years ago and are presently out shopping for another home.
Agents with the Certified Distressed Property Expert Designation have undergone extensive training in how to process and negotiate short sales. Speak to your market expert to see if you may qualify.
Feel free to contact us. We are always prepared to answer questions and help wherever we can.
Mike West Certified Distressed Property Expert
(916) 337-0658
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