The process starts with me getting you qualified for the program: gathering all the required documentation, requesting the broker price opinion, and submitting the documentation to your new servicer. They take your paperwork, review it for accuracy, and make sure that all of the qualifications are met. After a preliminary review, Your new servicer submits your file to their attorney group for review. Once you have been qualified for the program, Your new servicer adds your file to their "bucket" of files for your current lender. Once the bucket is full, they present the group of files to your lender. This can take anywhere from a few days to a couple of months, depending on the lender holding your mortgage.Your new servicer begins bargaining with the lender to purchase the loans, including yours and works with the lender to get access to TARP funds. Your lender must submit a formal request to the Federal Government for the TARP funds to reimburse them for 80% of the amount they are giving up in reducing your principal. Once they are notified that the funds have been secured, your lender can agree to the lower payoff amount. Your new servicer now has the servicing rights to your loan and can finance a new loan at current market value for you. To do so, a new mortgage is written at the market value, and a closing date is chosen. Normal wait time for a closing is now 30-45 days. While there are no closing costs involved, your new lender still has to do all the normal due diligence involved in writing a mortgage, including a title search to make sure there is clean title. The PRP process generally takes 60-90 days to complete, but can take longer depending on the lender. This process from start to finish involves me, your new servicer, the financial institution, the federal government, attorney firms, a title company and you.
Because we are going to your lender with multiple loans, you reap the benefits of "shopping in bulk", meaning that your individual characteristics are not as important to the lender as if you went to them on your own. There are only a few qualifications for the program: You must have documented income proving qualifying debt ratio. With the new loan payment, you will need to have a fifty percent (50%) or less debt-to-income ("DTI") ratio. This means that your income needs to be at least twice your monthly liabilities. Your current loan needs to be with a public lender, like Fannie Mae or Bank of America. The Principal Reduction Program is akin to the "Cash for Clunkers" program that came about from federal legislation. PRP spawns from the "Troubled Assets Relief Program" ("TARP") of the federal government. As an incentive for lenders, Congress has earmarked TARP funds to be distributed to those lenders who relieve homeowners of their "troubled assets": their home mortgages. The federal government will reimburse lenders eighty percent of their loss from selling a troubled asset. Then, the lender can write off the other twenty percent of their loss. The homeowner wins, the bank wins, and yes I make a profit doing this. :D
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