Monday, April 12, 2010

Making Homes REALLY Affordable?

Principal Writedowns + Help for Unemployed Homeowners:

HAMP and Making Home Affordable Guidelines updated today are sounding pretty progressive: The much touted PR on Principal Write downs is being implemented by the first subscribers to this. If the idea of lowering your loan balance has any goodguy points be aware that citizens will be paying for this via more bailout funds or taxes. Supporting the collective good is after all what our democracy stands for.

Which Banks? Unfortunately, the major banks still standing have inherited many bad loans: Pay Option ARMS, and assorted Sub Prime loans i.e., loans famous for exploding one's principal balance or rate and payment when they adjust. Many of these loans were sold to people who simply did not understand ther terms or qualify for the full principal and interest payments. To the embarassment of some brokers and banks, these loans financed a rash of predictable defaults. So what is a lender holding so many bad loans to do?

The new MHA guidelines seek to expand the use of principal write-downs during the modification process. As one option. There are many. The stipulations are equally tight --so we are not cheering just yet. The approach will include incentive payments for each dollar of principal write-down, earned on a 'pay for successs' basis. Naturally lenders who are in danger of losing all via foreclosure might well breathe a collective sigh of relief. It's also good for 2nd Lienholders if the 1st Lien is brought in line to 80% of value rather than 120% thereby insuring they have a decent chance of collecting on the second. Eventually.

Unemployed Borrower Boon: The best news in this release is the consideration of reduced repayment terms for unemployed people while they are in job seeking mode. Up to 6 months break is being bandied about. So you could theoretically qualify for this using your unemployment insurance. If you find a job making less, the permanent terms would use HAMP guidelines to determine your new payment. Perhaps also lowering the principal in line with what you can now afford if your value has also dropped. 

Another HAMP initiative suggests of this annoucement promise 'clear performance timeframes" when a borrower is in the modification period. Indeed this is good news. We have seen some clients still struggling for help one year or more into their modification process.

HAMP may now apply to FHA loans. Hint: any FHA lender who is worth their salt is already applying HAMP  to their troubled assets.

Other help includes financial assistance (up to $3,000) to move to more affordable  housing and extinguishment of subordinate liens (2nd and 3rd lines and loans). Several such programs already exist (notably Cash for Keys) but this release suggests more will be done to prevent foreclosures. Bankruptcy attorneys are often involved in these actions when it is clear the borrower cannot afford the loan, nor does the home value support additional liens.

Perhaps now more than ever, it's important that homeowners in financial distress seek a trusted advisor to help them understand which programs may be of assitance. Seek out a bankruptcy attorney. Get your CPA on board. Ask your mortgage professional who is handling these programs. Speak with your State Attorney General, and HUD counselors.. The implications for individuals of which path they choose may have lasting effects on their financial future.

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Please continue to write your congressional representatives and express your views and news about people in your locale:   

All the best to you.

© 2010 susan templeton
*Susan Templeton is not a loan modification advocate