If the loan on your home is insured or otherwise backed by any one of several government programs, such as FHA, VA, of HUD, there may be a variety of programs that you should be aware of.
Homeowner Affordability and Stability Plan
Under the new Homeowner Affordability and Stability Plan, millions of homeowners can now either qualify for a mortgage modification or refinance their homes by either qualifying under The Home Affordable Modification Program or the Home Affordable Refinance Program. Here is how each Program works:
The Home Affordable Modification Program
The Home Affordable Modification is helping millions of at risk homeowners avoid foreclosure by allowing their lenders to modify their loans, thereby reducing their monthly mortgage payments to an affordable payment and reducing their risks of losing their home to foreclosure. While the guidelines are applicable for FHA, Fannie Mae and Freddie Mac loans, it is hoped that these guidelines will be adopted as the industry guidelines for all loan modifications so that homeowners can choose this option and save their homes from foreclosure.
Highlights of the New Loan Modification Guidelines
- Loans must have originated on or before January 1, 2009.
- Loans must be owner occupied first lien loans with unpaid principal balances not exceeding $729,750. Higher limits apply for owner-occupied properties with 2-4 units. Investment owned, vacant or condemned properties will not qualify and cannot take advantage of the program.
- Borrowers must be able to document their income with last two paycheck stubs, a recent bank statement, income tax returns for the last two years, a hardship letter explaining why they are not able to make their current mortgage payments.
- If borrowers are current on their mortgages, their lenders and loan servicers will receive incentives to modify their at risk loans and avoid the borrower from defaulting on their mortgage.
- Guidelines are in effect for loan modifications currently through December 31, 2012. The loan can only be modified once under this program.
- Participating servicers or lenders are required to service all eligible loans unless for some reason their contract does not allow it.
- The servicer must conduct a net present value of cash flow test with and without a loan modification. If the net present value of the expected cash flow is greater with a modification, then the servicer must issue a modification unless the borrower has committed fraud or some other illegal act.
- The loan interest rate can be reduced not to exceed 2 points; the maximum loan term can be extended to 40 years and no longer. An option of refinancing or forbearance can be offered to the borrower instead.
- The lender or loan servicer has to enter into agreements with the Treasury Department prior to December 31, 2009 to qualify for the incentives.
The Home Affordable Refinance Program
- Allows homeowners with equity of at least 5% to be eligible for refinancing. Prior to this new law, homeowners had to have at least 20% equity available to refinance.
- Borrowers do not have to pay any prepayment penalties.
- All loans must be backed by Fannie Mae or Freddie Mac.
- Jumbo mortgages, which exceed $417,000 are not eligible.
- Investment properties or vacant or condemned properties are not eligible for refinancing.
For more information, contact Matt Weidner at www.mattweidnerlaw.com
