Homeowners, if you are likely to fall behind on your mortgage payments or are already behind, there is a test that most mortgage servicers now recommend taking that can help you stay in your home with smaller payments. The National Association of Realtors recently said on their blog that ninety percent of all loans are affected, but this is doubtful. No Fannie Mae or Freddie Mac loans are included, and Fannie Mae and Freddie Mac invest in the majority of homeowner loans. (There may be some confusion about this since Fannie Mae administers the program, but does not participate with loans in which she is an investor.)
With that being said though, it’s still worth seeking out your lender or letting a competent resource do it for you. There are out-of-the-box search tools that are used by professionals who are involved daily with the issues you face. You can contact your lender and ask if they are part of the HAMP program. Hopefully you’ll either reach out to a knowledgeable person or contact me and I’ll find out for free. I have internal searches for loans from Freddie Mac and Fannie Mae. All you need to do is give me your address. If you call your lender, give them your loan number. If it’s not a loan from Freddie Mac or Fannie Mae, you’ve just removed the most formidable pitfall.
If the servicer is part of the HAFA program, you are entitled to receive a HAMP application to apply and must consider it and provide you with a determination within 30 days. The requirements your application must show in order for you to qualify to enter a three-month trial modified payment program as the first step to permanent modification. Please note that this program is only available to owners living in the home:
- Your current monthly PITI (including flood insurance, if applicable, but not mortgage insurance) must be greater than 31% of your gross income
- Reducing your payment by what is called a cascade of various methods must be able to achieve a reduction so that the PITI (including flood insurance, if applicable, but not mortgage insurance) can be reduced to 31% of your verified gross income.
- Cascading involves first lowering your interest rate in increments of 1/8 of 1 percent until you reach 2%.
- The second way is to increase your repayment period at the rate of 2% to 40 years. Otherwise, the lender may forgive part of the balance or charge interest on a reduced balance, but rewrite the loan so that there is a balloon payment at the end.
- However, all of these alternatives are subject to tests that the FED has provided and that are only available to lending institutions. Statistically compares the commitments they are considering when making loan modifications to a projected experience factor if they don’t, which may mean the possibility of foreclosure. This is called the Net Present Value (NPV) test. Lenders typically lose up to sixty percent of your loan balance when all is said and done if the property goes into foreclosure, including legal fees and property disposition costs if they are unable to obtain a satisfactory price at auction. foreclosure, which is often the case. The Associated Press wrote in the newspapers on May 18 that about half of the modification requesters are being turned down. What follows is HAFA, the simplified short sale process.
Why choose a short sale under HAFA instead of a foreclosure?
- In most states, foreclosure means the homeowner will have to pay the deficiency. For example, if the loan balance is $100,000 and the lender only repossesses $40,000 of the property after all expenses. The deficiency is $60,000 and lenders will generally try to aggressively collect the deficiency for up to ten years before canceling it.
- Better chance of getting a new home loan sooner. Fannie Mae provides 2-year eligibility for a new loan for those who sell short, but 7 years for those who have gone through foreclosure or deed-in-lieu of foreclosure. Credit bureaus do not have a derogatory category for short sale, so according to HAFA, the lender reports that the loan was paid in full for less than the full amount, which is not such a derogatory report. Of course, all previously reported late payments remain on the record and are usually the worst part of the report.
- With HAFA, the lender provides money for you to move, $3,000. And they provide money to help your real estate broker negotiate a payment on your minor liens, like a second mortgage, up to $6,000. This is a great help since it is your real estate agent who typically has to deal with subordinate lien holders. Before HAFA, they often simply could not be dealt with and the short sale could not continue. Under HAFA, neither the first mortgage lender nor the subordinated lender can pursue you for a deficiency judgment, so it is as if the first mortgage lender is paying your subordinated loan and to the extent that it is not, he’s still making them pay for it. agree to waive their right to enter a deficiency judgment against you. Think of a rich guy who pays off his debt and makes the lenders promise not to bother him for any unpaid debt.
- With HAFA, the Fed pays an incentive to your loan servicer and the actual lender calls the investor to agree to the short sale. Typically, the investor and manager drag their heels and make the short sale slow or fail because they have no incentive to help.
- In HAFA, the Servicer must agree to a sales price early in the process (in the first 30 days) if the borrower goes through the HAMP step. If the borrower goes directly to a short sale, called an alternate HAFA, the servicer must decide within 30 days.
- HAFA requires that a real estate licensee handle the sale and that the owner does not participate in the real estate commission, that the buyer is not related to the seller.
- Today a new feature was just added to HAMP for Unemployed Individuals, which will provide up to 3 months of grace and/or reduced unemployment related payments. I should write more on this topic soon. Stay tuned for my next article.