BiggerPockets

The TRUTH about home loan modifications

Monday, September 21

Before we explain how the program works, it’s important for you to understand who’s involved with your mortgages & what it really means…

There are 2 parties involved with each homeowner’s mortgage. The Servicer/Servicing Company and the Investor. The Servicer/Servicing Company is who you make your mortgage payment to. The Investor is the company that actually OWNS your mortgage. The Servicer/Servicing Company is hired by the Investor to collect payments, provide customer support (or lack thereof), etc. because the Investor is normally a large investment company that purchases large pools (bulk amounts of mortgages) to earn a certain percentage of a return (monthly profit) on their investment (the monthly interest portion of your mortgage).

For example, your payment may be sent to Bank of America (the Servicer/Servicing Company) but the Investor is a large Wall Street Investment company.

Sometimes the Servicer/Servicing Company actually owns your mortgage so they are also the Investor.

On September 8, 2008, the government seized control of the nation’s two largest mortgage finance companies – Fannie Mae (Federal National Mortgage Association) & Freddie Mac (Federal Home Loan Mortgage Corporation). As of July 2008, Fannie Mae and Freddie Mac OWN or GUARANTEE approximately HALF of the nation’s $12 TRILLION mortgage market.

Similar to when you purchased or refinanced your home and received your mortgage, there are 2 parts to be eligible for the HAMP.

1) The homeowner needs to qualify/be eligible

(Your 1st mortgage payment (Principle/Interest/Taxes/Homeowner’s Associate Fee) needs to be more than 31% of your gross monthly income – before taxes. You also need to be struggling to make your payment, behind on your payments or in foreclosure – this is basically MOST of the homeowners in AMERICA!

2) Your mortgage needs to be qualified/eligible

(ALL Fannie Mae & Freddie Mac OWNED or GUARANTEED loans AUTOMATICALLY QUALIFY) - which is approximately 1/2 of all the mortgages in America. All other Investor owned mortgages do not have to participate but most are – especially the Investors/Banks that took bail out money from the Government (TARP funds).

THE GUIDELINES OR RULES WHEN YOU PURCHASED OR REFINANCED YOUR HOME WERE MUCHMORE STRICT, FIRM & DIFFICULT THAN THOSE OF A LOAN MODIFICATION.  IT DOESN’T MATTER WHAT YOUR CREDIT SCORE IS, IT DOESN’T MATTER HOW MUCH YOU OWE OR THE APPRAISED VALUE OF YOUR HOME, THE % OF YOUR DEBT TO YOUR INCOME DOESN’T MATTER, HAVING A PREVIOUS BANKRUPTCY, FORECLOSURE OR CURRENTLY BEING IN FORECLOSURE – DOES NOT MATTER!

Also, the closings costs associated with a purchase or refinance mortgage do not apply to a Loan Modification.  That was generally 3-5% of your loan amount.  For example, a $250,000 mortgage would cost you approximately $7,500 in fees (Loan Origination, Appraisal, Credit Report Fee, Application Fee, Lender Fee, , Escrow Fees, Title Insurance, Doc Preparation Fees, Recording Fees, etc.)

KEEP IN MIND, YOU STILL NEED TO BE ABLE TO AFFORD THE NEW MODIFIED MORTGAGE PAYMENT. IF THE AMOUNT OF MONEY YOU SPEND EACH MONTH (AFTER ELIMINATING EVERYTHING YOU POSSIBLY CAN) IS MORE THAN YOU EARN – WITH THE NEW MORTGAGE PAYMENT – YOU WILL NOT BE ELIGIBLE TO RECEIVE THE LOAN MODIFICIATION

Here’s the information on the program & how it works…

On July 30, 2008, President Bush signed into law, The Housing and Economic Recovery Act of 2008 (H.R. 3221).  It established the Home Ownership Preservation Entity Fund to fund the HOPE (Home Ownership Preservation Entity) for Homeowners Program.  The HOPE for Homeowners program refinances mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD’s Federal Housing Administration (FHA).  The program was designed to insure up to $300 billion for 30 year refinanced loans for distressed borrowers beginning on October 1, 2008 and ending on September 30, 2011.

The program is available only to owner occupants and offers only 30-year fixed rate mortgages.  In many cases, to avoid what would be an even costlier foreclosure, banks will have to write down the existing mortgage to 90% of the new appraised value of the home.  All borrowers must meet the underwriting guidelines of FHA loans (Full documentation, their mortgage payment must not be lower than 31% and their total debt – household + new mortgage payment but be lower than 43%)

As the economy & real estate market continued to decline, on November 19, 2008, the Bush Administration announced flexibility for the HOPE for Homeowners program.  (Sometime between October 1^st & November 19^th they “nicknamed” the program H4H).  Higher loan to value ratios, simplification of the process to remove 2^nd liens & the introduction of the 40 year mortgage were some of the improvements to the program.

The program had great intentions but came with numerous barriers that prevented it’s success.  The main problem was that Congress could not craft a program which was satisfying to the banking industry.  So, the lenders had to provide huge and costly concessions and were not thrilled with the idea.  Almost all chose not to comply, which only resulted in a virtual nationwide boycott of the program.  HUD reports that as of April 15^th, 2009, it has received only 752 H4H applications and approved just ONE. The program was provided with funding of $300 billion but ironically, the cost to administer the HOPE for Homeowners program was $29.5 million.  To put it in perspective, 1 loan cost the TAXPAYERS $29.5 million.

On February 18, 2009, President Obama announced the Homeowner Affordability and Stability Plan to help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. This comprehensive plan is called the Making Home Affordable Program (MHA). As part of this plan, the Treasury Department (Treasury) announced a national modification program aimed at helping 3 to 4 million at-risk homeowners – both those who are in default (behind on their payments or in foreclosure) and those who are at imminent risk of default (homeowners that are current on their mortgage but struggling to make the payment) – by reducing monthly payments to sustainable levels.

On March 4, 2009, the Treasury issued uniform guidance for loan modifications across the mortgage industry. These are the guidelines or rules that determine if the homeowner and/mortgage is eligible for a loan modification. They then created the Home Affordable Modification Program (HAMP) which is the LOAN MODIFICATION portion of the Making Home Affordable Program (MHA) & it sounds a lot “cooler” to say than (muh) – the phonetic spelling.

These rules or guidelines were provided to all the Servicers/Servicing Companies that have chosen to participate in the HAMP process. It’s not required that all Servicers/Servicing participate in this program but it was “strongly suggested” by the Treasury. Most of the Servicers/Servicing Companies are participating. CLICK HERE to view the list of Servicers/Servicing Companies participating.

ALL Fannie Mae & Freddie Mac OWNED or GUARANTEED mortgages automatically are eligible for HAMP. The homeowner just need to be eligible.

CLICK HERE TO SEE IF YOUR LOAN IS OWNED OR GUARANTEED FANNIE

CLICK HERE TO SEE IF YOUR LOAN IS OWNED OR GUARANTEED FREDDIE

All of other the Investors that own the other 1/2 of the mortgages in America, are not required to participate in HAMP or adhere to the HAMP guidelines. Most are, but that is why there are some modifications being done that have different terms than those clearly described in the HAMP guidelines. The HAMP guidelines do not change with each Servicer/Servicing Company and clearly state that YOU DO NOT NEED TO BE BEHIND ON YOUR MORTGAGE PAYMENTS TO QUALIFY. Bank of America has stated that they will only accept homeowner HAMP applications if they are 60 days delinquent or later.  They also are taking the longest to even review homeowner HAMP applications.  They’re telling homeowners it will be at least 90 days until their application is reviewed.

2^nd MORTGAGES & HOME EQUITY LINES OF CREDIT:

On April 28, 2009, The Treasury issued the guidelines for all 2^nd liens (2^nd mortgages & Home Equity Lines of Credit).  When a first mortgage is modified, the 2nd lien AUTOMATICALLY GETS MODIFIED! The rate will be reduced to either 1% if you have a 2nd mortgage & your payment includes PRINCIPLE & INTEREST or 2% if your 2nd mortgage/Home Equity Line of Credit is an INTEREST ONLY payment.

Despite these guidelines from The Treasury, there are some lenders who actually still will not modify 2^nd liens.  E-Trade & Indymac are the largest of the lenders.  They are “supposed” to comply with the above terms but because the 2^nd liens are help by private investment firms, they typically have their own guidelines.  Until there is enforcement & financial repercussions from the government, we will continue to experience these violators.

You may have seen or heard of www.995hope.org, Homeownership Preservation Foundation or 888-995-HOPE.  This is not another program from the government but simply a non profit organization that refers homeowners to various non-profit organizations & for-profit companies to assist homeowners on their path of homeownership.

The reason we bring this to your attention is because after reading the list of 8 different programs & names the government have created in less than 1 year, we wanted to clarify and illustrate who really is who in this ever growing pool of parties.

Now back to yet more Acts created by the government…

On May 20, 2009 President Obama signed the Helping Families Save Their Homes Act and the Fraud Enforcement and Recovery Act (S.896) into law.  The Helping Families Save Their Home Act was created as a further measure towards stabilizing and reforming our nation’s financial and housing markets – helping American homeowners and increasing the flow of credit during these difficult economic times.  The legislation was intended to strengthen our nation’s housing sector and facilitate the goals of the Administration’s Making Home Affordable Program (MHA – which is now referred to as Home Affordable Mortgage Program – HAMP – because it sounds cooler) by helping millions of American homeowners stay in their homes.

The Fraud Enforcement and Recovery Act will protect the American people by giving the federal government new tools and resources to prevent fraud.  This reform bill will help the federal government keep markets free and fair, so that American consumers can thrive.

What?

At this point, the details of this new Act are irrelevant because in less than 1 year we’ve created the following:

1) The Housing and Economic Recovery Act of 2008 (H.R. 3221)

2) Home Ownership Preservation Entity Fund

3) HOPE (Home Ownership Preservation Entity) for Homeowners Program

4) “Nicknamed” the program H4H

5) Homeowner Affordability and Stability Plan

6) Making Home Affordable Program (MHA)

7) Home Affordable Modification Program (HAMP)

Helping Families Save Their Homes Act

9) Fraud Enforcement and Recovery Act

& the results through August 2009 are (5 ½ months into the program) …drum roll please…

1)   HUD reports that as of April 15^th, 2009, it has received only 752 H4H applications and approved just ONE.  The program was     provided with funding of $300 billion but ironically, the cost to administer the HOPE for Homeowners program was $29.5 million.  To put it in perspective, 1 loan cost the TAXPAYERS $29.5 million.

2)   Since HAMP began, February 18, 2009, there have been 360,165 Trial Modifications Started.  (homeowners that have entered into the program and have been mailed their offer for the Trial Period Plan.  The Trial Period is 3 months)

3)   Since HAMP began, February 18, 2009, there have been 571,354 Trial Period Plans Offers extended to borrowers. (homeowners that have successfully passed the Trial Period – complied with the terms & conditions – basically paid on time for 3 months)

4)   There have been 1,883,108 requests for financial information that have been sent to borrowers.

5)   There are approximately 110 million households in the U.S.

6)   About 75.5 million of these are homeowners

7)   Approximately 68% of the 75.5 million, or 51,340,000, have mortgages

8)   As of 6/30/09 – 6,750,000 of the country’s 51.340mm loans were delinquent or in some stage of the foreclosure process (13.16%)

9)   The number of Trial Modifications that were started increased by only 124,918 from July to August.

10)   The government only started issuing Servicer Performance Reports in July (the program started in February)

11)   1 in every 8 homeowners are LATE on their mortgage

WE HOPE THIS GIVES YOU SOME CLARITY AS TO HOW THIS PROGRAM & PROCESS WORKS. AFTER READING THIS, YOU SHOULD NOW UNDERSTAND WHY IT’S SO VERY IMPORTANT TO HAVE A PROFESSIONAL PERFORM YOUR LOAN MODIFICATION APPLICATION & PROCESS YOUR FILE.

OUR PARTNER IN THE LOAN MODIFICATION PROCESS DOES CHARGE A FEE ONCE THEY HAVE REVIEWED YOUR FILE AND DETERMINE THAT YOUR ARE AN ELIGIBLE CANDIDATE.  THEIR RATE FOR PERFORMING SUCCESSFULLY CLOSED MODIFICATIONS IS 98.5%.  THEY ONLY ACCEPT CLIENTS THEY HAVE BEEN PREQUALIFIED AND OFFER A SERVICE REFUND GUARANTEE.

WE HAVE NEGOTIATED A LOW FEE OF ONLY $1795 (FOR THE FIRST MORTGAGE) WHICH WILL BE PAID OVER A PERIOD OF 60 DAYS. (IT CAN EVEN BE CHARGED ON A CREDIT CARD).  PLEASE REFER TO OUR FREQUENTLY ASKED QUESTIONS FOR MORE INFORMATION.

OUR GOAL IS PROVIDE SOLUTIONS FOR THIS CURRENT HOUSING CRISIS AND

WE LOOK FORWARD TO ADDING YOU AS ONE OF OUR SUCCESS STORIES