Loan Modification Program Continues To Evolve

Home owners unable to meet their financial obligations to their mortgage lender have several options that could make it possible to avoid foreclosure.

Assuming that most home owners are desirous of protecting their credit, foreclosure is the least desirable outcome of being “upside down” on a mortgage loan.

Foreclosure can be avoided by selling the home, if necessary on a short sale, refinancing the loan, or obtaining a loan modification.

A home owner with good credit and a property that has retained its value may be able to refinance at a lower interest rate and obtain better terms from their lender providing they can show capability to handle the new payment schedule.

The government-backed Home Affordable Refinance program was created to help qualified home owners whose homes have decreased in value refinance at lower interest rates, convert from an adjustable rate mortgage and lock in a favorable fixed interest rate, and eliminate loan terms that militate against their long term stability as home owners.

The government’s Loan Modification Program was initiated in response to the sub-prime crisis with the goal of making it possible for “people to stay in their homes.” Through it, Federal subsidies are made available to lenders to encourage them to renegotiate rather than foreclose on eligible home owners.

Who is eligible?

According to Miles Kimhan, President of Mortgage Masters, Inc., the home owner would need to be facing delinquency on mortgage payments but capable of making payments should the rate and consequently the monthly amount due be lowered.

“As a mortgage brokerage, we obtain loans for qualified

borrowers and have had very few instances of default. However, we are able to provide information to our clients who may find themselves in a challenging position due to a loss of sufficient income to continue making the required payments.

“If they ask about the Loan Modification Program, we explain to them that the percentage of home owners who have qualified since the program was introduced is relatively small. And, it takes time to apply and receive approval, if such is forthcoming.

“Chances are the borrower will be dealing with a Mainland financial institution, since the local bank who funded the loan has quite likely sold it to one of the banking giants… such as Bank of America or Wells Fargo.

“These companies are inundated with applications for loan modification and the amount of paper work required is onerous…so the time frame involved is unpredictable, but probably long in duration. We explain to the potential applicant that the process is much the same as applying for the initial loan with all the same backup documentation. Then the individual will need to find out which of the company’s many offices will be processing the new application for loan modification…and it probably will not be the same office that is generating the coupons used to make the monthly payments. The coupons or monthly statements of the amount due will keep coming while the application is being reviewed and it’s entirely possible that foreclosure proceedings will be initiated even though the modification may be on the verge of being granted.

“So, we usually advise the client to have a backup plan should they not be among that small percentage who receive approval. They also need to realize that any hope of mortgage modification or renegotiation may not be possible if you have fallen too far behind. You need to show the lender that certain ‘good faith’ efforts were made to avoid delinquency. Also, eligibility for a loan modification, in which the lender rewrites the terms of the loan, varies from lender to lender.

“According to a recent announcement, only 15 percent of the total loan modifications applied for were actually done. The estimated number of temporary modifications was around 30 percent, but the actual number of permanent modifications was only around 15 percent. In some of the loan modification instances, accrued late charges were waived and the total mortgage was reamortized for another 30 years.

“The process is lengthy and frustrating, but if you are very persistent and can handle being kept on hold and transferred from one department to another you could be among that small percentage that get their mortgage loans modified.”

In March, the Administration announced enhancements to the existing Making Home Affordable (MHA) Program and the Federal Housing Administration (FHA) refinance program intended to increase the number of home owners who successfully avoid foreclosure.

The changes are expected to improve the effectiveness of the existing MHA program by: Providing temporary assistance for unemployed home owners while they search for re-employment; Providing servicers and lenders more flexibility to reduce mortgage principal for underwater borrowers; Increasing incentive to servicers to participate in the Making Home Affordable program; Facilitating transitions to more sustainable housing for borrowers who do not succeed within the Home Affordable Modification program; Expanding opportunities to refinance into affordable FHA loans for underwater borrowers.

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