You own a piece of the "American Dream" and you most certainly want to hold onto it. Times were hard and perhaps have gotten harder. You find it difficult to make that mortgage payment in a timely and consistent manner. Perhaps the lender has already sent you a letter threatening foreclosure. All homeowners are subject to events beyond their control that can make it difficult to maintain their mortgage obligation. What is a homeowner to do? The homeowner can look into "foreclosure prevention."
Are there options available for you to avoid foreclosure? Yes, there are options available. The key is that you must act immediately to explore alternatives. You cannot wait until the last minute. This website intends to give you a "heads up" on how to avoid foreclosure. Keep in mind that ther are "housing counseling agencies" to assist you with your housing concerns. This is a "free" service!
After viewing the information on this site, you should visit an agency near you. Because you have done your homework, you will better understand what the counselor will attempt to do for you. Why? Because you are now familiar with the options that are available to you.
Let's define foreclosure. Foreclosure is a forced sale of property at a public auction. It is the legal and professional proceedings in which a mortgagee, or other lien holder, usually a lender, obtains a court ordered determination of a mortgagor's equitable right of redemption. Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure a loan. This is a process that allows a lender to recover the
amount owed on a defaulted loan by selling or taking ownership (repossession) of the
property securing the loan. The process begins when a borrower defaults on loan payments
and the lender files a public default notice, called a Notice of Default or Lis Pendens.
Please note that not all alternatives are available to all homeowners. Lenders generally are willing to help you with your mortgage problem. However, you must communicate with them to let them know that there is a problem. You should be open and honest about your situation. This way they know that you are not just trying to skip out of making a payment.
FORECLOSURES: JUDICIAL vs. NON-JUDICIAL
Every state in the U.S. handles its real estate foreclosures differently (both judicial and non-judicial foreclosures). Therefore eadh state has a unique system of regulations that dictates how a bank can take back a home from someone who defaults. You need to know whether your state follows judicial or non-judicial policies in dealing with foreclosures.
What is a Judicial Foreclosure?
Judicial Foreclosures are processed through the courts. The lender will file a complaint and also a Lis Pendens. The lender will make its case to the judge as to why it should be allowed to take back the property from the homeowner which was given as security. It will also state what the debt is. The Lis Pendens gives notice that the property is the subject of foreclosure proceedings.
The homeowner will be served notice of the complaint and will have the opportunity to be heard before the court. If the court agrees with the lender by finding the debt valid, and in default, it will issue a judgement for the total amount owed, including the cost of the foreclosure process. A sheriff sale will be authorized after the judgement has been entered and a writ issued.
Wha is a Non-Judicial Foreclosure?
Non-Judicial foreclosures bypasses a court and the lender lets the defaulting borrower know by mail that they are in default. In many states, A Notice of Default will be recorded at approximately the same time. After this there is usually a "period of redemption" in which the homeowner can pay the past due amounts plus penalties assessed by the lender in accordance with the loan document provisions. If the homeowner does not cure the default, a "Notice of Sale" will be mailed to the homeowner, posted in public places, recorded at the county recorders office , and published in area legal publications. After the legally required time period has expired, a public auction will be held, with the highest bidder becoming the owner of the property. You must note that each non-judicial state has different procedures. You need to know the procedures for your state. A seperate page has been set up to show
"STATE FORECLOSURES AND TIME FRAMES."
ALTERNATIVES TO FORECLOSURE
If you wish to maintain ownership of your home, you may want to look at the following alternatives to foreclosure. In order to be eligible, you will need to prove to the satisfaction of the lender/investor, that a hardship exists, your budget will allow you to maintain future payments and that you will meet any other requirements as they see fit.
1. Total Reinstatement: involves bringing your loan current in one payment. You will be
required to provide a certified check in an amount which includes all past due
payments, late charges and any fees which have been assessed to your account.
For the following alternatives, the lender or counselor will request a workout packet to be filled out. The lender can send the packet to you the homeowner, or to the counselor to complete, Sometimes the information can be given directly over the phone to the lender. What is a "workout packet?" A workout packet is simply the details of your budget. It asks for information concerning your monthly income and expenses. A hardship letter, tax returns and pay stubs can also be requested. Actually, the lender is looking to see if you have a "positive cash flow" or a "negative cash flow." Keep in mind that when the lender looked at housing affordability, it was based on gross income (before taxes). Now that you are in trouble paying your mortgage, they are now looking at net income (take home pay). Their findings will determine what alternatives are available to you. An example of a positive cash flow is as follows:
Your mortgage and your major monthly bills total $1200/month, but your take home pay is $1800/month. This means that you have $600 left over for whatever! A portion of that $600 can now be used in addition to your regular mortgage payment to help cure the default each month. With a negative cash flow, you have the exact opposite. Your monthly income happens to be less than your monthly bills. If you don't have enough monies to pay your regular monthly bills, how will you be able to apply extra money toward your monthly mortgage to cure the default?
2. Repayment Plan: involves repaying the amount past due over a period of months by
paying a full payment plus a partial payment on the past due balance each month.
When you are caught up, you go back to paying your regular monthly mortgage
3. Forbearance: allows for the reduction or suspension of payments for a period of time. It
then requires a period of time in which the payments are made up, similar to the
repayment plan. Example-$600 regular payments monthly deferred for 7 months at
which time $4200 is due.
4. Loan Modification: a change to the original terms of the mortgage through one or a
combination of the following methods: an adjustment of the interest rate, the
addition of the delinquent interest amount to the current unpaid principle balance,
and/or an extension of the term (life of the mortgage). A loan modification requires
the prior approval of the investor and a payment of the modification fee. A cash
contribution toward any loss to the investor may also be required.
Example: $70,000 principle blance, mtg. pymnt @ 8%= $950/mo.
$5,000 in arrears---modification= new loan of $75,000
Rate down to 6% and new monthly payment of $750
5. Emergency Mortgage Assistance Programs: the state of Pennsylvania has a unique
mortgage assistance program (other programs may be available in other states).
The program is under the Pennsylvania Housing Financial Administration. This
program is called HEMAP (Housing Emergency Mortgage Assistance Program).
Under this program, if you have a conventional or VA mortgage, you are covered. The
law states that if you have fallen behind in your mortgage by three months or more,
the lender must send you an ACT 91. The Act 91 is informing you that because of
your mortgage default, the lender is moving to foreclose on your property. You are
given 30 days from the date of notification to meet with a housing counseling agency
to assist you in applying for financial assistance through HEMAP.
The counselor has 30 days from your meeting to prepare your application to show
"just cause." This means that the counselor will try to show that through no fault of
your own, you are unable to make that mortgage payment. For example, you may
have lost your job or your work hours have been reduced from 40 to 20 hours per
week. Another example, you were out sick with no sick leave, or some other
financial hardship, such as divorce. Every situation is different.
The application is taken and documents are collected. On the day of your visit, the
counselor will fax to your lender a document called an "Appendix B." This
document lets the lender know that you are meeting with a housing counselor (as
required). When it is received by the lender, all foreclosure proceedings are to stop!
The application upon completion will then be sent to PHFA. PHFA has 60 days to
review the application and render a decision.
If "just cause" has been shown, a homeowner can fall behind by as much as
$60,000, the mortgage will be brought current. If you have two mortgages and both
are behind, both will be brought current. These loans are limited to a maximum
of 24 months from the date of the mortgage delinquency, or to a maximum of
$60,000. HEMAP loan recipients are required to pay up to 40 percent of their net
monthly income towards their total housing expense. The minimum contribution is
$25.00 per month per mortgage assisted. The interest rate is 9% and in some
cases, may not be charged. These loans can be continuing or non-continuing.
This means you can be brought current and then will be assisted in making your
mortgage payments, or you will be brought current and will then make full mortgage
payments on your own.
If you already have three mortgages on your home, then you are out of luck with
HEMAP. The state will not accept a lien position of number four, it is third position or
less. Also, this program is for your primary residence only. Please note that FHA
Title II (purchase) mortgages are not eligible for this program. The program is
geared to prevent homelessness. By giving assurance of steady mortgage
payments, it allows homeowners to seek alternate emloyment, job training, and/or
education when they need it most.
APPLICATION PROCESS CHANGES FOR HEMAP
Because of the rising unemployment rate and the economic slowdown, changes
have been made to the program. As of January 1, 2009, lenders are required to use
the new Act 91 notice. Basically, the new notice states that homeowners have 33
days from the postmark date of the notice to get to a housing counseling agency to
make application for HEMAP assistance. This meeting is referred to as a "face to
face" meeting. Also, the agency will accept "late" applications. Effective with
applications received from February 1, 2009 and until further notice, applicants will be
eligible for up to 36 months of loan assistance and the loan calculation will be
reduced from 40% back to the original 35%. Interest rates on closed loans in the
calender year 2010 is set at 5.25%. Please keep in mind that this assistance is for
owner occupied properties.
You were just given information concerning a positive cash flow situation. Now we need to know what a "negative cash flow" situation is and what the alternatives are. A negative cash flow is when your monthly expenses exceed your monthly net income. Again, how can a homeowner make payment arrangements to catch up on their mortgage when they are not earning enough to pay their regular bills. Your credit report can be pulled to verify your monthly bills.
If you are unable to maintain ownership of your home because of lack of income, there are several alternatives to foreclosure to consider. You will have to provide to the lender/or investor that a hardship exists. What follows is a listing of available options:
1. Pre-foreclosure Sale--selling the property prior to foreclosure sale at fair market value.
Keep in mind that you must sell your property for a price that will cover what is owed
on the property, that way you will cover your total debt. In some instances, "fair market
value" may not be as much as the total owed. Selling a property for less than the
total amount due requires prior approval of the lender/investor. This is referred to as
a "short sale." What the lender is doing when he accepts, is permitting you to sell your
home for less than you owe him and taking the loss himself. If the lender goes along
with the short sale, it will relieve you of the arrearages as well as the cost, emotional
strain and embarrassment of a messy foreclosure procedure. This sale is suppose
to be listed as a "settled debt' on your credit report. It however can be harmful to your
credit score, but less destructive than a foreclosure. You will need counseling, a
broker's price opinion, listing agreement, sales contract and an estimate of closing
costs. The lender has to agree to take a loss.
2. Deed-in lieu of Foreclosure---involves returning the property to the lender/investor prior
to a foreclosure sale. This option is usually a last resort, usually in cases of death of
the mortgagor and/or after an unsuccessful attempt to sell the property. Also, if you
have little or no equity in the property, you may offer your deed to the bank in lieu of
foreclosure. If the bank accepts, a foreclosure would not show on your credit report.
When you give the home back to the lender, you will take your losses and thereby
prevent the foreclosure. This is less expensive and a less time consuming process
for the lender than a full foreclosure action. A deed in lieu of foreclosure may not be
accepted from homeowners who can financially make their mortgage payments. A
deed in lieu (DIL) of foreclosure must be completed within 90 days of initiation of the
process. HUD has increased the homeowner's DIL of foreclosure consideration to
not exceed $2000. The funds may be paid to the homeowner upon vacating the
property or they may be used to pay off junior liens in order to clear title. If the property
in question is worth more than the amount owed on it, the lender would be better off
to liquidate the property rather than to pursue a DIL The entire process of securing a
DIL of foreclosure takes place outside of the judicial system and is reached by a
settlement out of court. By agreeing to a DIL of foreclosure, the lender will be able to
assume title to the property immediately instead of having to wait for months for the
foreclosure to complete.
3. Bankruptcy-- Foreclosures under some circumstances may be prevented by filing
bankruptcy. This should be done under the advice of a lawyer. There are new
guidelines for filing bankruptcy. On October 17, 2005, the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 went into effect. The Act requires that
a consumer seeking to file for bankruptcy protection must submit to pre-bankruptcy
counseling evidenced by a certificate issued by a counseling provider approved by the
Executive Office of the United States Trustees (EOUST). In addition, the Act requires
that upon a discharge in bankruptcy, a consumer must complete an approved
personal financial management course.
If your income is above the state median income, you must pass the means test or
your case may be dismissed.
The vast majority of bankruptcy filers are not subject to the means test because their
income is below the state median income. Even if your income exceeds the state
median income, you may still be allowed to file chapter 7 if you pass the means test.
And, even if your income exceeds the state median income and you fail the means
test, you probably can file a chapter 13 bankruptcy.
You must get credit counseling from an approved nonprofit budget and credit
counseling agency within 180 days prior to filing bankruptcy.
Fraud exception to discharge for large recent debts has been expanded. Also, there is
a waiting period for prior filers as follows:
You cannot receive a chapter 7 discharge if you previously received a chapter 7
discharge within 8 years of the filing date of the new case.
You cannot receive a chapter 13 discharge if you received a chapter 7 discharge
within 4 years of the filing date of the new case.
You cannot receive a chapter 13 discharge if you received a chapter 13 discharge
within 2 years of the filing of the new case..
The minimum length for a chapter 13 plan is lengthened to 5 years from 3 years. An
updated budget must be filed annually.
Filing bankruptcy will help you stop the foreclosure proceedings in the short term, but
you will still have to work with the lender to make up the arrears and payment that you
can afford.
4. Right of Redemption--The law in most states gives the homeowner every opportunity to
stop the process leading to foreclosure, right up to the minute of the auction. In some
states there is a period after the foreclosure during which the homeowner can redeem
the property (right of redemption). If you are able to redeem the property, it is then
reinstated and all your original rights of ownership is then granted back to you. By
redemption, you must pay off the mortgage (or taxes), all interest, all court costs, title
search fees, appraisal fees and attorney's fees.
5. Reverse Mortgage--If you are a senior citizen, age 62 or older with a mortgage ,
there is a program available to release the equity in your property. If you are finding it
hard to keep up with your mortgage payments or is in fear of not being able to pay
down the road, then you may want to consider a "reverse mortgage" in lieu of
foreclosure. A reverse mortgage is a loan available to seniors, and is used to release
the home equity in the property as one lump sum or multiple payments. You can
even choose to take whatever monies are availabel to you as a partial lump sum and
the balance in multiple payments. The homeowner's obligation to repay the loan is
deferred until the owner dies, the home is sold, or the owner leaves (moves out for
12 consecutive mos.).
In a conventional mortgage, the homeowner makes a monthly amortized payment to
lender; after each payment the equity increases within his or her property, and typically
after the end of the term (mortgage term) the mortgage has been paid in full and the
property is released from the lender. In a reverse mortgage, the homeowner makes
no payments and all interest is added to the lien on the property (negative
amortization). If the owner receives monthly payments, or a bulk payment of the
available equity percentage for their age, the debt on the property increases each
month..
To qualify for a reverse mortgage, the borrower must be at least 62 years of age.
There are no minimum income or credit requirements, but there are other
requirements. For most reverse mortgage(s) , the money can be used for any
purpose; however, the borrower must pay off any existing mortgage(s) with the
proceeds from the reverse mortgage. The homeowner must also ensure that taxes
and insurance are kept current at all times. If either taxes or insurance lapse, it could
result in a default on the reverese mortgage. To apply for an FHA/HUD reverse
mortgage, a borrower is required to complete a counseling session with a HUD
approved counselor. The counselor will explain the legal and financial obligations of a
reverse mortgage. After the session, the borrower receives a "certificate of
counseling" that is required before the loan application is processed.
During the loan and the remainder of its life, the homeowner cannot be asked to leave
tbe property, as you are still the owner and deed holder. This is the case whether you
outlast the performance of the loan or not. As far as your heirs go, they are still entitled
to the property upon your passing. The estate will be settled the normal way, the
property will be passed to the heirs, and they can refinance out of the reverse mortgage
and keep the balance of the monies of the estate. They have one year, from the
passing of the note holders, to settle the mortgage.
PRESIDENT OBAMA'S STIMULUS PLAN
Because of the downturn in the economy and so many people losing their homes, we now have a stimulus program to help our economy get back on its feet. One of those programs is called "MAKING HOME AFFORDABLE." Making Home Affordabel is part of President Obama's comprehensive strategy to get the housing market back on track. Through the Making Home Affordable Program, up to 9 million American families may be eligible to refinance or modify their loans to a payment that is affordable now and into the future. What follows are "Borrowers Frequently Asked Questions" that were put together by this program:
HOME AFFORDABLE REFINANCE
1. I am current on my mortgage. Will the Home Affordable Refinance help me?
Eligible borrowers who are current on their morgages but have been unable to take
advantage of today's lower interest rates because their homes have decreased in
value, may now have the opportunity to refinance. Through the Home Affordable
Refinance Program, Fannie Mae and Freddie Mac will allow the refinancing of
mortgage loans that they own or that they placed in mortgaged backed securities.
2. How do I know if I am eligible?
You may be eligible if:
* You are the owner occupant of a one to four unit home
* The loan on your property is owned or securitized by Fannie Mae or Freddie Mac
(Don't know? See below).
* At the time you apply, you are current on your mortgage payments (current means
that you haven't been more than 30 days late on your mortgage payment in the last
12 months or, if you have had the loan for less than 12 months, you have never
missed a payment).
* You believe that the amount you owe on your first mortgage is about the same or
slightly less than the current value of your house.
* You have income sufficient to support the new mortgage and the refinance
improves the long term affordability or stability of your loan.
3. How do I know if the refinance will improve the long term affordability or stability
of my loan?
Your lender will give you a "Good Faith Estimate" that includes your new interest rate,
mortgage payment and the amount you will pay over the life of the loan. Compare
this to your current loan terms. If it is not an improvement, refinancing may not be
right for you. Also consider that refinancinf from an adjustable rate to a fixed rate
loan or eliminating higher risk loan terms such as interest only payments or balloon
payments may also provide long term stability.
4. How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie
Mac?
You should call your mortgage lender or servicer (the organization to whom you
make your monthly mortgage payments) and ask about the program
Both Fannie Mae and Freddie Mac have established toll-free telephone numbers and
web information to determine if either agency owns or securitized the loan. This
information is not a guarantee of eligibility for the refinance program, as other
qualifying criteria must be met.
* For Fannie Mae- 1800-7FANNIE (8am to 8pm EST).
www.fanniemae.com/loanlookup
* Freddie Mac 1-800-FREDDIE (8am to 8pm EST).
www.freddiemac.com/my mortgage
5. I owe more than my property is worth. Do I still qualify to refinance under the
Making Home Affordable Program?
Eligible loans will include those where the first mortgage will not exceed 105% of the
current market value of the property. For example, if your property is worth $200,000
but you owe $210,000 or less on your first mortgage you may qualify. The current
value of your property will be determined after you apply to refinance.
6. I have both a first and a second mortgage. Do I still qualify to refinance under MHA?
As long as the amount due on the first mortgage is less than 105% of the value of the
property, borrowers with more than one mortgage may be eligible for a Home Afford.
Refinance. Your eligibility will depend, in part , on agreement by the lender that has
your second mortgage remain in a second position, and on your ability to meet the
new payment terms on the first mortgage.
7. Will refinancing lower my payments?
The objective of the Home Affordable Refinance is to provide creditworthy borrowers
who have shown a commitment to paying their mortgage, the opportunity to get into
a mortgage with payments that are affordable today and sustainable for the life of the
loan. Borrowers whose mortgage interest rates are much higher than the current
market rate should see an immediate reduction in their payments.
Borrowers who are paying interest only, or who have a low introductory rate that will
increase in the future, may not see their current payment go down if they refinance to
a fixed rate payment. These borrowers however, could save a great deal over the life
of the loan by avoiding future mortgage payment increases. When you submit a loan
application, your lender will give you a "Good Faith Estimate" that includes your new
interest rate, mortgage payment and the amount that you will pay over the life of the
loan. Compare this to your current loan terms. If it is not an improvement, a
refinancing may not be right for you.
8. What are the interest rate and other terms of this refinance offer?
The rates will be based on the market rates in effect at the time of the refinance and
any associated points and fees quoted by the lender. Interest rates may vary across
lenders and over time as market rates adjust. The refinanced loans will have no
repayment penalties or balloon payments.
9. Will refinancing reduce the amount that I owe on my loan?
No. The objective of the Home Affordable Refinance is to help borrowers get into
more affordable loans. Refinancing will not reduce the principle amount you owe to
the first mortgage holder or any other debt you owe. However, refinancing should
save you money by reducing the amount of interest that you pay over the life of the loan
10. Can I get cash out to pay other debts?
No. However, borrowers whose loans are owned or securitized by Fannie Mae may
be eligible to finance all closing costs and obtain a small amount of cash (2% of the
mortgage amount not to exceed $2000) through the refinance if there is sufficient
equity. For borrowers whose loans are owned or securitized by Freddie Mac.
transaction costs (not to exceed $2,500) such as the cost of an appraisal or title
report, may be included in the refinanced amount.
11. How do I apply for a Home Affordable refinance?
You should call your mortgage servicer or lender and ask about the Home Affordable
Refinance application process. The number is on your monthly mortgage bill or
coupon book. Please be patient. Lenders and servicers are implementing the
program now and it may take time before they are ready to process all applications.
In the meantime, it will help your lender and speed up the application process if you
gather some information and documents before you call. Additionally, beginning
April 4,2009, borrowers whose loans are owned or securitized by Fannie Mae may
also apply through any Fannie Mae approved lender. Nearly all major banks and
brokers are approved to work with Fannie Mae
12. What documentation will I need?
* Information about the monthly gross (before taxes) income of all the borrowers on
your loan, including recent pay stubs if you receive them or documentation of
income you receive from other sources.
* Your most recent income tax return
* Information about any second mortgage on the house
* Account balances and minimum monthly payments due on all of your credit cards
* Account balances and monthly payments on all your other debts such as student
loans and car loans
13. I am delinquent on my mortgage. Will I qualify for a Home Affordable Refinance?
No. Borrowers who are currently delinquent or have been 30 days overdue more
than once during the past 12 months will not qualify. You should contact your servicer
to see if a Home Affordable Modification is an option for you.
14. Will I need mortgage Insurance?
If your existing loan has private mortgage insurance, you will need the same amount
of insurance coverage for the refinanced loan. If your existing loan does not have
private mortgage insurance it will not be required as part of the Home Affordable
Refinance
15. How long will the Home Affordable Refinance be available?
The program expires on June 10, 2011. Your refinance must be closed and funded
on or before that date.
HOME AFFORDABLE MODIFICATIONS
1. Can Making Home Affordable help mi if my loan is not securitized by Fannie Mae or
Freddie Mac?
Yes. Making Home Affordable offers help to borrowers who are struggling to keep their
loans current or who are already behind on their mortgage payments. By providing
mortgage services with financial incentives to modify existing first mortgages, the Treasury
hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who
owns or services the mortgage.
2. How do I know if I qualify for a Home Affordable Modification?
To apply for a Home Affordable Modification, you must:
-- Be an owner-occupant in a one to four unit property
--Have an unpaid principle balance that is equal to or less than $729,750 for one unit
properties (there is a higher limit for two to four unit properties-consult servicer)
--Have a loan that was originated on or before January 1, 2009
--Have a mortgage payment (including taxes, insurance, and homeowners
association dues ) that is more than 31% of your gross (pre-tax) monthly income, and
--Have a mortgage payment that is not affordable, perhaps because of a signifcant
change in income
3. Do I need to be behind on my mortgage payments to be eligible for a Home Affordable
Modification?
No. Responsible borrowers who are struggling to remain current on their mortgage
payments are eligible if they are at risk of imminent default, for example, because their
mortgage payment has recently increased to a level that is not affordable. If you have had
or anticipate a significant increase in your mortgage payment or you have had a
significant reduction in income or have experienced some other hardship that makes you
unable to pay your mortgage, contact your servicer. You will be required to document
your income and expenses and provide evidence of the hardship or change in your
circumstances.
4. I have a second mortgage. Am I still eligible?
Yes, but only the first mortgage is eligible for a modification. ( check for updates)
5. How do I know if my servicer is participating? Are all servicers required to participate?
Servicer participation in the program is voluntary. However, the government is offering
substantial incentives to servicers and investors, and it is expected that most major
servicers will participate. Participating servicers will sign a contract with Treasury's
financial agent, through which they agree to review every potentially eligible borrower who
calls or writes asking to be considered for the program. As contracts are signed, a list of
participating servicers will be available at www.makinghomeaffordable.gov.
6. What will my servicer do to determine if I qualify?
If you report a hardship, your servicer will:
--Determine whether your loan meets the minimum eligibility criteria (owner occupied, or
originated on or before January 1, 2009, unpaid principle balance equal to or less
than $729,750). If yes
--Ask about current income, assets and expenses as well as the specific circumstances
relating to the hardship to determine if you will be unable to make your mortgage
payment. (Your servicer may initially accept verbal information about your income and
expenses, but eventually you will need to provide proof in the form of tax returns, pay
stubs and other evidence).
--Determine if your monthly first lien mortgage payment is more than 31% (approximately
1/3) of your gross pre-tax monthly income. If yes:
--Add past due charges (interest, taxes, insurance and costs that your lender paid to
other parties on your behalf-but not late fees, those must be waived) to the loan balance
--Determine how much of an interest rate reduction will be required to get your first
mortgage payment down to a point where it is no more than 31% of your monthly
gross income
--Apply a value test to determine if the cost of the modification (including the government's
incentive payments) is less costly for the investor than not modifying the loan (loans
held by borrowers who have a lot of equity or whose incomes are very low in relation to
the value of their homes probably will not pass this value test). If yes:
--Put you on a trial modification for three months at the new interest rate and payment
level.
--If you successfully make the payments and are current at the end of the trial period, your
servicer will execute a permanent modification agreement that will lower your interest
rate to a fixed rate for five years, and then capped at a low rate for the remaining life of
the loan.
NOTE; You will be required to sign the modification agreement and other documents and
attes that all of the information you provided to your servicer was true and accurate.
Misrepresenting any information required for the Home Affordable Modification is a
violation of Federal Law and has serious consequences.
7. What happens after five years?
If the modified interest rate is below the market rate, the modified rate will be fixed for a
minimum of five years as specified in your modification agreement. Beginning in year
six, the rate may increase no more than one percentage point per year until it reaches the
rate cap incicated in your modification agreement. The cap is equal to the prevailing
market rate on the date the modification is finalized as published by Freddie Mac based
on a survey of its customers. This cap means that your rate can never be higher than the
market rate on the day your loan was modified. If the modified rate is at or above the
prevailaing market rate, as defined above, the modified rate will be fixed for the life of the
loan.
8. Will the modified loan include property taxes and homeowners insurance?
Yes. The modification payment will include a monthly amount to be set aside (escrowed)
to pay taxes and insurance when they become due. This escrow is rquired even if your
prior loan did not include an escrow.
9. How low can my interest rate go?
Treasury is providing incentives to your investor to write the interest down to as low as 2%
if necessary to get to a payment that you can afford based on your income.
10. What happens if that is not enough to get to an affordable payment?
If a 2% rate does not result in a payment that is affordable (no more than 31% of your
gross monthly income), your servicer will:
--First try to extend your payment term. At the servicer's option your payments could be
extended out to 40 years.
--If that is still not sufficient your servicer may defer repayment on a portion of the
amount you owe until a later time. This is called a principle forbearance.
--A portion of the debt could also be forgiven. This is optional on the part of the investor
There is no requirement for principal forgiveness.
11. Could I end up with a balloon payment?
Yes, If your servicer determines that a principle forbearance is required to get your
monthly payment to an affordable level, the amount of the forbearance, say for example ,
this was $20,000, would be subtracted from the amount used to calculate your
mortgage payment, but you would still owe the money. You would have a $20,000
balloon payment that had no interest and was not due until you paid off your loan,
refinanced or sold your house.
12. What happens if I am unable to make payments during the trial period?
Borrowers who are unable to make three payments by the end of the trial period are not
eligible for a Home Affordable Modification. However, you may be eligible for other
foreclosure prevention options offered by your servicer.
13. How much will the modification cost me?
Borrowers who are behind on payments or at risk of imminent default often do not have
cash to pay for the expenses of a loan modification. Borrowers who qualify for a
Home Affordable Modification will never be required to pay a modification fee or pay
past due late fees. If there are costs associated with the modification, such as
payment of back taxes, your servicer will give you the option of adding them to the
amount you owe on your mortgage or paying some or all of the expenses in advance..
Paying these expenses in advance will reduce your new monthly payment and save
interest costs over the life of your loan
If you would like assistance from a HUD approved housing counseling agency or are
referred to a counselor as a condition of the modification, you will not be charged a
counseling fee. Borrowers should beware of any organization that attempts to charge
an upfront fee for housing counseling or modification of a delinquent loan, or any
organization that claims to guarantee success..
14. Is housing couseling required under this program?
Borrowers, especially delinquent borrowers, are strongly encouraged to contact a HUD
approved housing counselor to help them understand all of their financial options and
to create a workable budget plan. These services are free. However, housing
counseling is only required for a borrower whose total monthly debts are very high in
relation to their income. It is voluntary for other applicants.
15. I heard the government was providing a financial incentive to borrowers. Is this true?
Yes. Borrowers who make timely payments on their modified loans will receive
success incentives. For every month you make a payment on time, Treasury will pay an
incentive that reduces the principle balance on your loan. The incentive will be applied
directly to your balance annually and over five years the total principle reduction could
add up to $5,000. This contribution by the Treasury will help you build equity faster.
16. I do not live in the house that secures the mortgage I'd like to modify. Is this mortgage
eligible for a Home Affordable Modification?
No. For example, if you own a house that you use as a vacation home or that you rent
out to tenants, the mortgage on that house is not eligible. If you used to live in the
home but you moved out, the mortgage is not eligible. Only the mortgage on your
primary residence is eligible. The mortgage servicer will check to see if the dwelling is
your primary residence. Misrepresenting your occupancy in order to qualify for this
program is a violation of Federal law and may have serious consequences.
17. I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible
Yes. Mortgages on two, three and four unit properties are eligible as long as you live in
one unit as your primary residence.
18. I owe more than my house is worth. Will a Home Affordable Modification reduce what
I owe?
The primary objective of the Making Home Affordable Program is to help borrowers
avoid foreclosure by modifying troubled loans to achieve a payment the borrower can
afford. Investors may, but are not required to, offer principle reductions. It is more likely
that your servicer will use interest rate reductions in order to make your payments
affordable.
19. I have an FHA loan. Can it be modified under the Making Home Affordable Program?
Are all loans eligible?
Most conventional loans including prime,subprime and adjustable loans, loans owned
by Fannie Mae, Freddie Mac and private lenders and most loans in mortgaged backed
securities are eligible for a Home Affordable Modification. The Administration is
working with the Congress to enact legislation that will allow FHA and VA to offer
modifications consistent with Making Home Affordable in the near future.
At the beginning, loans insured or guaranteed by these agencies were being
modified under other programs that also enabled borrowers to retain home
ownership. However, recently new programs have been implemented to further
help these homeowners. This information can be found at the end of the next
section (FHA-HAMP)
20. How do I apply for a modification under the MNaking Home Affordable Plan?
If you meet the general eligibility criteria for the program, you should gather the financial
documentation that your servicer will need to dtermine if you qualify. Once you have
this information, you should call your mortgage servicer and ask to be considered for a
Home Affordable Modification.
If your loan is current, please be patient as it may take some time before servicers are
able to process all applications. However, servicers immediately can begin reviewing
the eligibility of borrowers..
If you would like to speak to a housing counselor you can call 1-888-995-HOPE (4673)
HUD approved housing counselors can help you evaluate your income and expenses
and understand your options. This counseling is FREE.
If you have already missed one or more mortgage payments and have not
spoken to your servicer, call them immediately.
21. What information and documents do I need?
It will help your servicer and speed processing of your application if you gather some
information and documents before you call. For all borrowers on your loan, you'll need:
--Information about monthly gross income, including recent pay stubs if the
borrowers are salaried and receive them and documentation of any income
received from other sources
--Most recent income tax return
--Information about assets
--Information about any second mortgage on the house.
--Account balances and minimum monthly payments due on all credit cards
--Account balances and monthly payments on all other debts such as student
loans and car loans.
--A letter describing why your mortgage is unaffordable (i.e. what caused your
income(s) to be reduced or expenses to be increased).
22. How long will the Home Affordable Modification Program be available?
The program expires on December 31, 2012. Your trial modification must be in place
by that date.
23. My loan is scheduled for foreclosure soon. What should I do?
Many servicers have made a commitment to postpone foreclosure sales on all
mortgages that meet the minimum eligibility criteria for a Home Affordable
Modification until those loans can fully be evaluated
24. I am unemployed. Can i still get a mortgage modification?
If you are unemployed, ask your servicer immediately for consideration through the
Home Affordable Unemployment Program (UP). This program is only available for a
first mortgage.
This program provides homeowners a forebearance, which is a temporary period of
time during which your regular monthly mortgage payment is reduced or suspended.
This program will be available on or before July 1, 2010 to eligible unemployed
homeowners through participating HAMP servicers.
To be eligible, you must request that your servicer consider you for UP before three
full mortgage payments are due and unpaid. You must be unemployed when you
request consideration for UP, and be able to document that you will receive
unemployment benefits in the month of the forbearance period effective date. However
your servicer may require that you have been on unemployment benefits for up to three
months before your forbearance period can begin.
The UP forbearance period is at least three months long. It can be extended, however,
depending on investor and regulatory guidelines.
If you get a new job during the forbearance period, let your servicer know. Otherwise, 30
days before your forbearance expires, your servicer will provide you with an initial
package so that you can request a modification through the Home Affordable
Modification Program (HAMP). Return the Initial Package immediately so that the
servicer can formally evaluate you for HAMP
However, borrowers whose loans have been scheduled for foreclosure or any borrower
that has missed one or more mortgage payments and has not yet spoken to their
servicer should contact the servicer immediately. Borrowers may also contact a HUD
approved counselor by calling 1-888-995-HOPE (4673)
WHAT ELSE DO I NEED TO KNOW
1. Who is my "loan servicer"? Is that the same as my lender or investor?
Your loan servicer is the financial institution that collects your monthly payments and
has responsibility for the management and accounting of your loan. Your servicer may
also be your lender, which means they own your loan, however, many loans are owned
by a group of investors.
Traditionally, banks used money deposited in customer's savings account to make
loans. They held the loans, earning the interest as borrowers repaid over time. Banks
were thus limited in the number of loans they could make because they had to wait to
make new ones until savings deposits grew or existing borrowers repaid their loans.
Many families who wanted to own a home were unable to do so because there was not
a steady supply of money to lend.
Over time, banks started to turn loans into cash by pooling large groups of loans
together to create mortgaged backed securities that could be sold to investors such as
pension funds and hedge funds. The investor get the right to collect future payments
and interact with customers.
If you have questions about your loan or you are behind on your payments you should
call your loan servicer at the number on your payment cupon or monthly mortgage
statement.
2. Why does my loan servicer have to ask the investor if they can do a loan modification?
If the organization that services your loan does not own it, your servicer may need to get
permission from the owner or investor before they can change any of the terms of your
loan. Generally, there is a contract between the servicer and the investor that states
what kind of actions the servicer is allowed to take. Most of these contracts, called
pooling and servicing agreements (PSAs), give the servicer a lot of leeway to make
modification decisions, so long as the modification provides a better financial outcome
for the investor than not modifying the loan..
3. What should I do if my servicer tells me that the investor is not participating in HAMP?
Borrowers should check first to see if their servicer is listed. If so, you should call your
servicer back and ask to speak to a supervisor or you may contact a HUD approved
housing counselor for assistance. If your servicer is not participating in the program,
you should ask your servicer or a housing counselor about other workout options that
may be available.
FHA'S HOME AFFORDABLE MODIFICATION PROGRAM ( FHA-HAMP)
Hud has implemented new changes to its FHA loan modification guidelines that will allow FHA borrowers to significantly reduce their monthly mortgage payments by seeking a loan modification through their current mortgage company or loan servicer. The servicer will be paid by FHA to implement the program..
The program will permanently reduce a family's monthly mortgage payment through the use of a partial claim, which defers the repayment of mortgage principle through an interest free subordinate mortgage. This subordinate mortgage will not be due until the first mortgage is paid off.. The program will allow HUD to bring the borrower's payment down to an "affordable" level , by bringing the mortgage current and buying down the loan by up to 30 percent of the unpaid principle balance.
FANNIE MAE ALTERNATIVE MODIFICATION PROGRAM
The Alt Mod is an alternative to the HAMP for those borrowers who were eligible for and accepted into a HAMP trial period plan but were subsequently not offered a HAMP permanent modification because of eligibility restrictions.
Servicers are required to offer the Alt Mod for mortgage loans in active HAMP trials initiated prior to March 1,2010. This must be done prior to the initiation of foreclosure for all eligible borrowers who were not offered a permanent HAMP modification after making all required payments under a HAMP trial period plan. All borrowers must meet eligibility criteria. You can contact your servicer for additional information.
FHA REFINANCE OPTION FOR UNDERWATER HOMEOWNERS
This relief effort is to provide an additional refinance option to qualifying homeowners who owe more than their home is worth. Eligible underwater loans are refinanced into new FHA- insured loans on standard FHA refinance terms for documentation, income ratios and complete underwriting. The terms of the FHA refinance are:
--FHA loan will be equal to no more than 97.75% of the value of the value of the home
--Combined mortgage debt must be written down to a maximum of 115% of the current
value of the home
--Standard mortgage insurance premium structure will apply
Mandatory principle write down as part of refinance-write down by lender of at least 10% of the unpaid balance of the original loan. The total monthly mortgage payment, including for second mortgage will not be greater than approx. 31% of income and total debt service including all forms of household debt will not be greater than approx. 50% except for some borrowers with especially strong credit histories. Homeowners must have a FICO credit score of at least 500. You can go to the HUD site for more information
BE AWARE OF FORECLOSURE RESCUE SCAMS---HELP IS FREE
1. There should never be a fee for assistance with or information about the Making
Home Affordable Program
2. Beware of any person or organization that asks you to pay an upfront fee in
exchange for a counseling service or modification of a delinquent loan.
"DO NOT PAY---WALK AWAY!"
3. Beware of anyone who says they can "save"your home if you sign or transfer over
the deed to your house. Do not sign over the deed to your property to any
organization or individual unless you are working directly with your mortgage
company to forgive your debt. Here is an example of a Leaseback Scheme:
A scammer urges you to surrender the title of your home as part of a deal that
will let you stay in your home as a renter and then buy it back in a few years.
He may tell you that surrendering the title will permit a borrower with a better
credit rating to get new financing which will keep you from losing your home.
However, the scammer may have no intention of ever selling the home back
to you. The scammer may raise your rent over time where it may become
unaffordable. After you miss a few payments, you are then evicted.
4. Never make your mortgage payments to anyone other than your mortgage
company without their approval. Here is an example of a Foreclosure Rescue
Scam:
A scammer tells you that he can negotiate with your lender to save your house.
He will most likely ask for an upfront fee ( The U.S. Federal Trade Commission
warns that "paying up-front fees is a red flag to avoid when looking for
foreclosure prevention help). The scammer may even insist that you make all
mortgage payments directly to him while he negotiates with the lender. Once
you pay the fee, or a few mortgage payments, the scammer disappears with
your money.
5. Be aware of businesses that tell you not to contact lenders, lawyers or credit and
housing counselors.
OTHER PROGRAMS
NACA
Another program that is available to help save homes comes from an organization called "Neighborhood Assistance Corporation of America (NACA)." They have a Home Save Program. Information pertaining to this program can be obtained through their website at
www.naca.com. The phone number to their national office is 1-888-302 6222. What follows is a brief summary of what they say as to how they can help you save your home:
NACA provides the most effective solution for owner-occupant homeowners with an unaffordable mortgage who are not investors. NACA is recognized as the most effective in restructuring mortgages by permanently reducing the interest rate and/or mortgage amount to a payment the homeowner can afford. NACA can enforce and achieve these solutions with major lenderw/servicers and is advocating against others. NACA is a nonprofit advocacy and HUD certified counseling agency. All services are FREE.
NACA provides free, personalized , and comprehensive counseling to all members to address your particular credit and financial issues and help determine a mortgage payment you can afford. NACA's counseling and underwriting criteria are "character based" and not based on credit scores and ratios.
NACA has agreements with the major servicers to restructure loans. NACA has developed a streamlined process to best assist you including working with a dedicated NACA Mortgage Consultant. You need to complete the Homeowner Submission, attend a NACA Workshop and meet with your mortgage consultant. The NACA process may take some time, so if you have an auction date click Urgent Situation and we will work to postpone your auction.
Residential Mortgage Foreclosure Diversion Pilot Ptogram
The city of Philadelphia, Pa. has come up with their own "foreclosure prevention program." What follows is a brief summary of the current program that was put into place in 2008:
Mortgage Foreclosure actions filed in the Court of Common Pleas, as well as reliable data, established that a mortgage foreclosure crisis, caused in part by "subprime" and "predatory lending" practices as well as rising interest rates, unemployment and underemployment, have negatively impacted a substantial number of homeowners causing an increasing number of mortgage foreclosures actions which are being filed and will be filed in the Court of Common Pleas requiring the expenditure of substantial judicial resources.
The Court has adopted a Residential Mortgage Foreclosure Diversion Pilot Program which is designed to provide early Court intervention in residential owner occupied mortgage foreclosure cases which will assure timely determination of eligibility under various federal, state and local programs established to facilitate loan work out and other sloutions tp permit residential homeowners, where possible, to retain their properties and permit lenders to move forward to the Sheriff Sale of the properties upon conclusion of the process established pursuant to the General Court Regulation.
The Court order gives homeowners in Philadelphia a chance to work out a solution with the lender so as to keep their home from going to Sheriff Sale. The Regulation states that all Mortgage Foreclosure cases involving owner-occupied residential properties which are subject to execution to enforce a residential mortgage must be scheduled for a Conciliation Conference, before a real property can be sold to Sheriff Sale
STEPS TO BE TAKEN UNDER THIS PROGRAM
1. HOMEOWNER IS CONTACTED BY THE LENDER OR THE COURT FOLLOWING THE
INITIATION OF A FORECLOSURE COMPLAINT
2. THEY ARE TOLD TO CALL THE "SAVE YOUR HOME PHILLY HOTLINE AT
215-334-HOME
3. THE HOTLINE CONNECTS HOMEOWNERS WITH A HOUSING COUNSELOR AND AN
ATTORNEY IF THE HOMEOWNER IS FINANCIALLY ELIGIBLE FOR AN ATTORNEY.
THE HOUSING COUNSELOR SCHEDULES A MEETING WITH THE HOMEOWNER
AND TALKS TO THE HOMEOWNER'S ATTORNEY
4. THE COUNSELOR THEN COMPUTES THE HOMEOWNER'S INCOME AND EXPENSES
AND FIGURES OUT WHAT IS AN AFFORDABLE WORKOUT. A WORKOUT PROPOSAL
IS DEVELOPED. THIS IS SENT TO THE LENDER AND THE LENDER'S ATTORNEY,
AS WELL AS THE PRO BONO ATTORNEY
5. THEN THE HOMEOWNER MUST ATTEND THE CONCILIATION CONFERENCE WITH
THE ATTORNEY AND THE HOUSING COUNSELOR. IF THE HOMEOWNER IS
INELIGIBLE FOR LEGAL SERVICES OR VIP THEY WILL GET A VOLUNTEER
ATTORNEY FOR THE CONFERENCE ONLY.
6. A JUDGE PRO TEMP OVERSEES THE CONFERENCE AND A REPRESENTATIVE OF
THE SERVICER, WITH THE AUTHORITY TO ENTER INTO ALTERNATIVE PAYMENT
AGREEMENTS MUST BE PRESENT, AT LEAST BY PHONE, AS WELL AS ATTORNEYS
FOR BOTH SIDES AND THE HOUSING COUNSELOR IF AVAILABLE. THE FACTS OF
THE CASE AND THE POTENTIAL FOR A WORKOUT IS DISCUSSED.
7. THE JUDGE PRO TEMP THEN MAKES A RECOMMENDATION ABOUT THE CASE
WHICH COULD INCLUDE HOLDING AN ADDITIONAL CONFERENCE OR
SCHEDULING THE PROPERTY FOR SALE. THE COURT THEN MAKES AN ORDER
ABOUT THE NEXT STEP.
The information given concerning alteratives in foreclosure prevention, hopefully will be helpful to you, the homeowner. Please remember that there are "housing counseling " professionals that can assist you in your situation. These services are free.
UNEMPLOYMENT PROGRAM
This program is administered by the United States Treasury Department together with
participating mortgage servicers. There is no cost to apply. Late charges may accrue
while homeowner is being evaluated for the program or in the program.
The purpose of the program is to offer a temporary forbearance period to unemployed
homeowners while they seek re-employment. The forbearance period is for a minimum of
three months and the maximum is at the mortgage servicer's discretion.
Eligibility Requirements :
1. Mortgage must be a first lien mortgage and originated on or before 1/1/2009
2. Unpaid principle balance must be less than or equal to $729,750 (one unit prop.)
3. Property must be the homeowner's primary residence
4. Mortgage has not been previously modified through HAMP
5. Homeowner was ineligible for HAMP
6. Total monthly mortgage payments is more than 31% of the homeowner's gross monthly
income. If less, it is servicer's discretion to offer the program
7. Homeowner is either behind on payments by no more than three consecutive months or
can reasonably foresee they will fall behind
Servicers may not initiate foreclosure proceedings or conduct a foreclosure sale while a
homeowner is being evaluated for the program or in the forbearance period. Mortgage
servicers may not collect late charges from the homeowner while still in the forbearance pd.
If a homeowner becomes re-employed while in forbearance, the period will end and the
homeowner will be evaluated for a mortgage modification under the MHA Program You can
contact your servicer for additional information.
SO DON'T DELAY--SAVE YOUR HOME TODAY
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