Tuesday, December 16, 2008

Loan Modification FACTS

Folks with good credit are finding it harder to get a decent Home Equity Line or Refinance terms these days. The current market is very challenging for many who had previously relied on their investments for income or cannot sell real estate in this market. Below are some options:

First Step: Explore Loan Workout: If you have an Adjustable Rate Mortgage that is resetting to a higher rate, you have missed mortgage payments, or you may simply be financially stressed by a change of circumstances, you may approach your mortgage holder to negotiate new new terms. Your lender may offer several options including but not limited to: reinstatement, forbearance or a new repayment plan to suit your situation. When you call your lender directly ask for a supervisor for best result! As a consumer, you have every right to negotiate with your lender for better terms. Making your case to lower your rate or extend your loan requires a very solid plan and documents to back up your ability to meet your proposed new terms. Your up to date financials are essential.

FHA Rescue and Secure Plans FHA: Officially, these plans were rolled out to offer help for people needing to get out of ARM loans or who may be in arrears. Not all lenders offer these plans. FHA manages the higher risk of default with pricing hits (translated: higher interest rates) to encourage lenders to fund these loans. Certainly you should speak with an FHA licensed broker or bank about whether you will qualify. Officially FHA prefers a minimum FICO score of 500. However, the banks who fund FHA loans have very strict loan limits (by city/county) and very few will fund under 580 FICO. Unfortunately, with guidelines tightening on all fronts, alternative credit reports are no longer acceptable in this market. Officially, the FHA Secure Plan expires December 31st, so we are not sure if any new plans will take effect in 2009. FHA loan limits are established by county so be sure your loan is allowed. Generally all government loans require lower debt to income ratios and very stiff documentation levels (paperwork).

Mortgage Modification For longer term issues impacting your ability to afford your current mortgage, you are advised to pursue mortgage modification with your current lender. Mortgage modification may help by adding missed payments to your current loan balance while adjusting the adjustable rate to a fixed rate. This may be accomplished by extending the number of years on your loan, thereby lowering the payment within your means.Mortgage Insurance Loan: If your mortgage is insured (via Mortgage Insurance) you may qualify for a one-time interest-free loan from your MI guarantor to bring your account current and pay it back within a certain time frame. Your lender handles this process since they are essentially the insured party.

Modification Resources: There are some specialist companies and attorneys who will help you work with your lender to modify your loan for a fee. These firms usually charge a flat fee from $1000 to $4,000 or more. Your success depends on your circumstances and you ability to build your case with your lender. Modifiers are professionals who have the inside story with lenders and are skilled negotiators. Be prepared for the process to take a while. 

In Washington State, our Dept of Financial Institutions has proposed a rule that only Licensed Loan Officers and Brokers or Attorneys can offer this service to protect consumers. You should not have to pay more than $1000 up front, and be billed for the balance, depending on what extra work may be required. If they don't get an acceptable result, you should get your money back less an application fee. Please undstand that in this market, lenders are very motivated to keeping people in homes. They do not want your house back. Saying that, banks are less likely to help you out if they think a minimal effort will keep your business.

Private Options: Some private lenders offer refinance terms for distressed borrowers. Generally, they are very strict on minimum 580 to 600 FICO Scores in this market. Most private lenders charge heft fees and interest rates starting at 10-12% for higher risk loans. Since some ARM loans are already adjusting higher than that, a private lender could be a very decent option if you are in too deep to have your loan modified.

Non Profit Counseling Hotline: For borrowers in arrears call your local HUD sponsored counseling organization who will help you determine the parameters of your situation. After which, they will refer you to the appropriate party at your bank. The bank will then respond directly to you-- and you are on your own to negotiate.

The Making Home Affordable program offers information and resources about the current  programs http://www.makinghomeaffordable.gov

If you are not sure how to proceed, the first step is to ask your lender directly about potentially working out a solution. Before you call, read about your options online at the HUD site. http://portal.hud.gov/portal/page?_pageid=73,1827467&_dad=portal&_schema=PORTAL

12/17/2008 Hope For Homeowners HUD's new program has been deemed an utter failure since it's launch earlier this year. The program is very user unfriendly so the average consumer is confused. HFH has not funded a single loan modification to date according to National Public Radio release yesterday. Weigh your options carefully and if you have questions, contact your State Attorney General or or just ask around. Lots of people have tried working with lenders themselves with mixed results.

03/04/09 UPDATE: U.S.Treasury Summary of the new program: Making Home Affordable http://www.treas.gov/press/releases/reports/guidelines_summary.pdf

Unfortunately, the money going to banks to assist homeonwers will take time to implement. Some banks are reporting 30000 requests daily. Lenders are hamstrung by getting staff trained and up to speed who can actually help the consumer. You need to be persistant to get to the right party who can help you. Exhaust all options open to you.

Note: Loan Modification only applies to folks having difficulty --so if you are just trying to lower your rate and you are managing within your means, you may consider refinancing.

Success to you!

© 2008 susan templeton
Susan Templeton is not a loan modification advocate