Like me, are you responsibly paying your mortgage? Like me, do you wonder if you didn’t responsibly pay your mortgage what programs would be available to you that might reduce your interest rate, reduce your principal or that ‘golden ticket’get you a free house? We hear so many things that the government says they are doing to help out homeowners who bought their homes before 2009 – when lenders were doing crazy things, like penalizing homeowners for trying to refinance, and causing, in retrospect, such a mess. I was wondering what was true, what wasn’t true…..Then I received a loan modification package from my bank, JP Morgan Chase, without applying for one. I thought it was a scam – so I called Chase and they said this was part of a lawsuit that was settled and they are offering loan modifications to those with jumbo loans that have never been late on their payments. I was still skeptical so I took it to my loan broker and asked him to review it. He told me it was an amazing thing and that I should sign it right away. I still wasn’t sure so I took it to another loan broker who asked me how I got this….I told him the truth, it just came in a FedEx package. He said….SIGN it right away and send it back before it is too late. So I did! What this made me do is begin to research what programs are available to people who make their mortgage payments in a timely manner – but who have high interest rates, owe more than their house is worth or just cannot afford their home any longer.
This is part one of a three part discussion on programs that are available for loan modifications. Please feel free to call me to discuss, there are a lot of subtleties that cannot be addressed in this blog but I would be happy to explain them all to whoever would like the information.
Home Affordable Modification Program (HAMP): Let’s start here – This is a big umbrella like thing that was created by the government to help direct and incentivize banks to work with underwater homeowners. There are many different options within this program, but to get to any of the other options, a homeowner must apply for a modification first. Under HAMP, a participating loan servicer must consider a sequence of modification steps for each eligible homeowner’s mortgage loan until the loan’s monthly payment is reduced to 31 percent of the homeowner’s verified monthly gross (pre-tax) income. This is the basis for all modifications. I have seen modifications where they have reduced the interest rate AND added 6 years to the loan to reduce the payment amount. I have seen modifications where the rate is reduced to 1% for the first 5 years then adjusts up to 4.5% for the balance of the loan. I have not seen one yet where the bank has reduced the principal owed or put the money in a ‘forbearance account’ as described below. Sometimes, a change in the mortgage loan’s interest rate is sufficient to reach the 31–percent target. Sometimes additional modification steps of term extension or forbearance are necessary as well.
Since the last quarter of 2010, if a mortgage loan is being considered for a HAMP modification and if the ratio of the amount owed to the value of the home is greater than 115 percent, then the servicer must consider whether a Principal Reduction AlternativeSM (PRA) principal reduction should be effected as one part of the HAMP modification.
For HAMP modifications that include a PRA principal reduction, the unpaid principal balance of the modified loan is divided into an interest-bearing principal amount and a non-interest-bearing PRA Forbearance Amount. If the homeowner then achieves a payment history that is sufficiently timely over a three-year period, the entire PRA Forbearance Amount is eventually reduced to zero.
You may be eligible for PRA if:
- Your mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac.
- You owe more than your home is worth.
- You occupy the house as your primary residence.
- You obtained your mortgage on or before January 1, 2009.
- Your mortgage payment is more than 31 percent of your gross (pre-tax) monthly income.
- You owe up to $729,750 on your 1st mortgage.
- You have a financial hardship and are either delinquent or in danger of falling behind.
- You have sufficient, documented income to support the modified payment.
- You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
Other things to note:
1. You need to show that you have had a hardship – like a divorce, a spouse looses a job…something like that.
2. Your liquid cash reserves cannot exceed 3 months of your mortgage payment. So if your payment is $3000.00 per month – you cannot have more than $8,000 liquid in the bank.
3. Your combined monthly income has to be less than 3 times the amount of your monthly payment.
This is why my ‘gift’ of a modification was so interesting to all the lenders I spoke with. The bank did not ask me for any supporting documentation, just asked me to sign in front of a notary and return the document. My new payment will be reflected in my June statement. This was not even reported to the credit bureaus as a modification because I was not late – I had no closing fees like you would expect with a refi. This modification did not fall within the guidelines I have illustrated above.
Stay tuned for next time when we discuss the possibility of getting another modification after you have already gotten one. Call me to discuss – it might be a better solution to short sale and get into another property – we can help you with that too!