Myth #1 -- My Loan has to be backed by Fannie Mae or Freddie Mac -- False
This only applies to the Making Home Affordable Refinance Program. However, your lender has to be participating in the Making Home Affordable Program. The list of participating lender and servicers increases everyday, and the deadline to sign up as a participating lender or servicer is December 31, 2009.
Myth #2 -- I have to be current on my mortgage – False
You can apply for a Making Home Affordable Loan modification even if you have received a notice of default and the foreclosure proceedings have started. Once you apply for a loan modification, all foreclosure proceedings will be suspended and you will be placed on a 3 or 4 month trial period with a new mortgage payment. At the end of the trial period, you will sign an agreement for a full loan modification.
Myth #3 -- I have to be behind on my payments in order to qualify – False
You do not need to be behind on your mortgage payments to qualify for a Making Home Affordable Loan Modification. In fact, if you are current on your mortgage and you qualify, there are added incentives such as $1500 principal reduction and an added $1000 principal reduction for each year you do not miss a payment for up to 5 years.
Myth #4 -- The bank will reduce my principal to the current market value – False
The intent of the Making Home Affordable is to bring your monthly payment to an affordable amount at 31% or your gross monthly income. Your lender will reduce the interest rate, increase the term of the loan and move principal to the end of loan before they will consider principal reduction in most cases.
Myth #5 -- Filing bankruptcy will automatically disqualify me from the Making Home Affordable Program – False
Discuss the Making Home Affordable Program with your bankruptcy attorney. In many cases, your home can be excluded from the bankruptcy and a loan modification can be done along with the terms of the bankruptcy.
Myth #6 -- The Making Home Affordable Loan modification does not apply to my second mortgage – False
When you modify your loan with your first lender through the Making Home Affordable Program and your second lender is also a participating lender or servicer, then the second must modify your second loan. The second lender may reduce your interest rate to 1% if you pay on the principal every month or 2% if you have an interest only second loan.
Myth #7 -- Everyone automatically qualifies for Making Home Affordable Program since it is a government program – False
While the guidelines for the Making Home Affordable Program allow a greater number of homeowners to qualify for a loan modification, there must be a documentable hardship in the family. Hardships may include an increase in monthly mortgage payment due to an increase in interest rate, increase in property taxes or insurance. Of course loss of job, decrease in earnings, or hours work all are hardships. A change in family status such a divorce or a new baby can qualify a homeowner for the Making Home Affordable Program. There are many other hardship circumstances that would qualify borrowers for a loan modification.
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