Supporting Homeowners

7 Common Myths around the Making Home Affordable Loan Modification Program

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. 

Law Firms Investigated for Loan Modification Fraud

I am sure everyone has heard about a friend, neighbor or relative being charged excessive amounts of money for loan modification or someone who scammed them out of their money without doing anything to modify the loan.   In many cases, the dishonest individuals are able to operate because there is very little regulation on who can provide loan modification services unlike Realtors who are governed by the Department of Real Estate or attorneys who are operate under the jurisdiction of the State Bar of California.  However, you must also be wary of attorneys providing loan modification services.

On September 18^th the State Bar of California made a press release announcing disciplinary action taken against its own lawyers for taking advantage of homeowners in financial crisis.  In an unprecedented move by the State Bar, the names of the law firms being investigated were released to protect the public.

Russell Weiner is the Chief Trial Counsel for the State Bar, and in the press release he stated, “The number of attorneys using their law licenses to essentially take money from unwary but trusting consumers is astounding… There are literally thousands of victims who have lost money they could not afford to lose.” 

The press release advises any homeowners working with an attorney that they feel may be taking advantage of them or their situation to contact the State Bar of California at 1-800-843-9053 or visit the State Bar website at www.calbar.ca.gov.  

Please click here to view the complete press release including the 16 law firms named in the investigation on the State Bar website.

Loan Modification with Making Home Affordable Program

The Making Home Affordable Program is an element of President Obama's comprehensive strategy to bring the housing market and economy back on track.

A Home Affordable Modification is a uniform loan modification  program for borrowers in default or at risk of becoming in default.  Loans are modified to more affordable monthly payment with the monthly  payment not exceeding 31% of the borrowers gross monthly income.

Possible Changes to  Your Mortgage to Reduce Monthly Payments

Your loan may be modified in one or more  of the following ways:  

1) Your account is brought current (so there are no more penalties and late fees)

2) Reducing the interest rate on your loan

3) Extend the term of your loan (ex. 30 years to 40 years)

4) Forbearance — a portion of your principal will be deferred until the end of the loan term

 

Eligibility Requirements

1) The mortgage must be for your primary residence, which will be verified by tax returns or credit reports

2) You must document a hardship  — examples of hardship include:  decrease in income, increase in expenses, increase in mortgage payments, “upside down” homeowner (the value of the home is lower than the mortgage) and being at risk of defaulting on the loan.

3) Your monthly mortgage payment is greater than 31% of your gross monthly income

4) Your mortgage must be less than $729,750

 

Important Notes

Loans can only be modified once under the Home Affordable Modification Program. 

Any foreclosure proceedings will be temporarily suspended while being considered for the program

Incentives for Lender

Lenders have realized that in some cases it is better for them to work with their current borrower to lower their payment or possibly improve their terms in order to keep them in their property.  The average foreclosure can cost a lender from 35 to 50% of the value of the property so keeping a borrower in their home is better for everyone. 

  Incentives for You

The Making Home Affordable plan includes incentives for you the borrower.  If modify your loan without falling behind on payments, you will receive a $1,500 incentive.   In addition, there is incentive for you to stay current after the modification.  Your principal will be reduced by $1,000 for each year you go without missing a payment for up to 5 years.

For detailed information on the Making Home Affordable website, click here.