I have recently been googling to find out what Gilbert homeowners might find if they were to look for help with a loan modification or other mortgage workout options. What I found were sites that did not deliver complete information, sites that did not deliver correct information and sites that were just down right predatory. As someone who has been in the trenches on the banking side of the fence I'd like to offer information on what options are available to Gilbert homeowners who are behind on their payments or in danger of falling behind and who want to know what options might be available to them. Options will depend upon financial institution, number and position of liens and individual financial situation.
HOME RETENTION WORKOUT OPTIONS
1) Reinstatement - paying the total amount due or the delinquent amount to bring the account current and in good standing.
2) Repayment Plan - paying the total amount due over a period of multiple payments. The total amount due is divided by the number of months of repayment and added to the normal monthly payment. At the end of the repayment plan the loan will be current and in good standing.
3) Extension (or Forbearance) - taking a number of monthly payments and moving them to the back end of the loan. There will most likely be a larger down payment that will be needed initially and then your typical monthly payments will resume.
4) Modification - modifying the loan's rate, terms and/or balance over the short or long term. There are two main types of modifications, Making Homes Affordable mod also referred to as HAMP and MHA and non MHA mods sometimes referred to as BAU or business as usual mods. This will typically require a trial period of 3 months or more and the account will not be brought current or in good standing until final modification documentation has been signed.
5) Payoff - paying the entire balance of the laon.
6) Settlement - paying a percentage of the balance of the loan to settle the note and release the lien.
7) Deed in Lieu of Foreclosure - deeding the collateral property back to the bank to stop the foreclosure process.
8) Short Sale - selling the collateral property for less than the amount owed to the bank or banks.
9) Bankruptcy - bankruptcy will stop the foreclosure process and collection efforts during the bankruptcy process. After a bankruptcy is discharged the promissory note is wiped out, but the property is still collateral for the mortgage and the bank can still foreclose for non-payment even though they can not attempt to collect unless the note is reaffirmed. If the bankruptcy is dismissed the note remains and collection efforts can continue. -- Please consult an attorney for more information on the advantages and disadvantages of bankruptcy.
The two most popular options above are modification and short sale. These options are both options for homeowners who have had a reduction in income, however, a modification is only an option for homeowners whose reduction in income is not too severe. This is gagued based on the housing ratio. For example, a couple who qualified for a loan based on dual incomes, but who now have two lower paying jobs that bring their housing ratio to 45% are probably great candidates for an MHA mod. If the same couple both lose their job and only one of them is able to find a new, lower paying job which puts their housing ratio at 80% they will most likely need to take the next step to consider a short sale.
Let's take these examples one step further. Let's say the couple both still have the same jobs they've always had, but now have an increadible amount of usecured debt and other expenses. Their housing ratio is 31% but their DTI (debt to income) ratio is 80%. This couple is most likely not going to get help in the form of a loan modification. The MHA modification targets a 31% housing ratio so from the bank's and the government's stand point there is no need for a modification. In this situation the homeowner needs to take a look at spending and decide how much they value continuing to live in their home.
There are many, many scenarios and each scenario will have it's own solution or possibly solutions. The best advice that I can give to homeowners who are looking for information on their options is to ask multiple sources and and pay attention to discrepancies and ask questions.
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