Eligible Borrowers Archives – Refinance – Mortgage Refinancing Rates And Information

Loan Modifications Eligibility Criteria, The Rules Explained.

September 27th, 2009 No comments

Providing loan modifications to those that need them and are eligible according to the current criteria is the goal of the cash happy loan modification aid program.

The goal is to keep out scammers and those who wish to take advantage of the system while not letting the “deserving” fall through the cracks. This is an ambitious goal. As we have discussed in previous blogs making good rules that keep out the cheats and welcomes the eligible is very hard.

Here is the current ten point criteria for loan modifications:

1.) Loans must be conforming conventional loans or conforming jumbo mortgage loans and they must have been contracted before January 1, 2008. What is a “conforming” loan is changing all the time.

2.) You must be three payments past due. This requirement was happily dropped. You don’t need to be behind in your payments although you must be able to prove you can’t pay your mortgage payments but could afford those of a modified loan.

3.) The loan is secured by a one-unit property and must be the borrower’s primary residence.

4.) The current mark to market LTV must be of 80 per cent or more.

5.) Property must not be abandoned, vacant, condemned or in serious disrepair as well as being the borrowers primary residence.

6.) The goal of the loan modification is to reduce monthly payments to 33% of the homeowners monthly income. In order for this to occur, servicers may:

7.) Capitalize accrued interest, escrow advances and costs as far as state law allows.

8.) Extend the term of the mortgage (tenure) by up to 480 months (40 years).

9.) Reduce the mortgage loan interest rate in increments of .125% to a fixed rate of no less than 3%. If this causes the rate to be below market rate it will step up in annual increments to a market rate after 5 years have passed.

10.) As a last resort eligible borrowers will be provided principal forbearance which will result in balloon payment. This means payments will be kept low while the big money is paid when the house is sold or the loan matures.

Some of the points of this criterion are under their third or even fourth revision so checking for accuracy is wise. The key criteria is to be able to afford the reduced monthly payments. If you can’t afford a reasonable loan modification there is little hope. This does not mean unemployed borrowers are automatically barred from loan modifications but they must provide some proof of income or prove they are likely to find employment soon.

The methods the government suggests to reduce monthly payments are rather bold which explains why many banks are doing their best to drag their feet as in many cases it actually costs them money to provide the loan modification.

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Loan Modification Success Report, The Truth Is Far Worse

August 20th, 2009 No comments

Loan Modifications has been the flavor of the month in the finance news sections for some time now and August was no exception. We started the month with the government’s report on mortgage services participating in the government’s loan modification program. The administration reported how unsatisfied it was with the progress and that mortgage providers had been inconsistent in their efforts to modify loans which is a polite way of saying they were doing a rubbish job.
The Treasury department also reported the number of loan modifications and trial modifications that were being carried out. The picture was not great but it is very likely that the real picture is far worse.

The Treasury department prepared its figures by comparing the number of trial modifications each bank or service provider had started with the number of loans eligible for the loan modification program. All is clear up to there. The glitch occurs when you realize that only borrowers that are 60 days or more behind in their payments are included as “eligible borrowers”. The real number of borrowers in desperate need of a loan modification is much larger.
Is this a small discrepancy with the real story, just a different way of describing the situation? Hardly.

The Making Home Affordable program included in its data homeowners that had already defaulted or will likely default “imminently” which includes those that have not missed a payment yet. This is very different when compared with what the Treasury department did and the discrepancy is by no means small. For instance in the first quarter of this year 8.8 percent of mortgages were 60 days or more delinquent but there was an additional 3.25 percent between 30 and 60 days according to the Mortgage Bankers Association National Delinquency Survey. If we counted those that were just on the edge of becoming delinquent the picture just gets worse and worse.

The Treasury Department reported that 9 percent of the eligible borrowers were being helped by the loan modification program. However the real figure is really between 5.9 percent and 7.8 percent if we use the Making Homes Affordable figures.
The change in accounting methods is caused by what the Treasury Department wanted to highlight; the number of desperate homeowners that are already in trouble that are being helped. Up to now over 235,000 homeowners are involved in a three month trial modification and the goal is to reach 500,000 by November.

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