A loan modification is a loan modification, right? If it helps you avoid a foreclosure on your home it is good news, right? Not necessarily. It is a little more complicated than all that.
HAMP is a Government sponsored loan modification program. This might not give you much peace of mind but the truth is that mortgagees that are part of this program must follow certain requirements in order to receive the incentives the Government offers for loss mitigation actions, another name for loan modifications.
These requirements have been recently (Nov. 23rd 2009) updated and include:
1) Mortgagees must reduce the interest rate of a loan modification to the market rate. Market rate is defined by the Government as the most recent Freddie Mac Weekly Primary Mortgage Survey Rate for a 30 year fixed-rate conforming mortgage.
2) The Mortgagee must re-amortize the total unpaid amount due over a 360 month period from the due date of the first installment of the modified loan. This is code for: the bank has to offer you a 30 year fixed-rate loan at the market rate.
However, if you go for an in-house loan modification or even for a mortgage refinance your mortgagee is not required to follow these rules. This doesn’t mean the in-house mortgage modification will be bad or any worse than the HAMP loan modification. You might find your mortgage provider is really generous and wants to improve the Government’s deal out of the goodness of his heart. No? You don’t think that is likely?
The problem is that even the relatively good terms HAMP loan modifications offer are no guarantee you will get approved or that you will even get a decision on your loan modification before your mortgage forecloses. Lenders use this fact to push borrowers into choosing a bad loan modification in the belief that a bad loan mod in the hand is worth two in the bush. Is that true?
The alternative to the HAMP loan modification or in-house mortgage modification is to simply walk away from your mortgage, but that is another story.
In conclusion, only you can decide if a loan modification is the right move for you, but if you do decide to go for a loan modification it is most likely you will get a better deal if you go with a HAMP loan modification. Unfortunately many banks are using the fact that HAMP loan modifications are slow and hard to get to push their own in-house subprime loan modifications.
Related posts:
Homeowners in the United States have all asked themselves questions about loan refinance. Whether they are in serious financial trouble or not they all wonder if they could benefit from the governments eagerness to spend taxpayer dollars on loan refinance.
This series of articles seeks to answer in a simple, jargon-free manner to the all-important questions that are on your mind.
Question 1.) I am current with my mortgage payments. Can a refinance under the Home Affordable Refinance Program (HARP) actually help me?
Oh yes. If you are current on your loan payments but want to modify your loan to take advantage of the current lower interest rates but can’t do it because your home has decreased in value you are one of the demographics HARP is specifically targeting. A loan refinance that lowers your interest rate can provide significant savings now and for the entire lifetime of your loan.
If you take advantage of a refinance under HARP, Fannie Mae and Freddie Mac will allow you to modify a loan they provided or guaranteed with mortgage backed securities.
Question 2.) I want a loan refinance but how do I know if am eligible for a HARP loan refinance?
The answer to this question deserves an article of its own but here are five basic requirements.
- The loan or mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac. If you don’t know who owns or guarantees your mortgage check below for how to find out. It does not mean you can’t get a loan refinance if your mortgage is not with Fannie or Freddie just that you won’t get it under the HARP program. However many banks and mortgage providers are willing to provide loan refinances for premium borrowers.
- You are current on your payments. Yes sir, despite what some “experts” might have told you, you DO NOT have to be delinquent in your payments to qualify, in fact that disqualifies you.
- What you owe on your primary mortgage must not be more than 125 percent of the value (today) of your property.
- You must be able to afford to pay the modified monthly payments.
- The loan refinance actually improves your overall and long term financial stability.
Question 3. How do I know if my mortgage is with Fannie or Freddie?
Call your mortgage lender or servicer, which means whoever you pay your monthly payments to and ask about the HARP program. You can also contact Fannie or Freddie by phone or online and find out directly from them:
o Fannie Mae
1-800-7FANNIE (8am to 8pm EST).
www.fanniemae.com/loanlookup
o Freddie Mac
-800-FREDDIE (8am to 8pm EST)
www.freddiemac.com/mymortgage
Related posts:
Loan modifications are complicated products. It does require some understanding about how they work and what options you have when trying to modify them. Two options homeowners have to protect their homes are loan modifications and FHA refinancing.
Contacting a qualified financial advisor is always a great idea if you are struggling to understand what your options really are. Remember however that often free help is better than paid consultants that can financially from decisions you make through commissions and kickbacks.
The Government is investing heavily in public (that means free) counseling offices that provide homeowners with the best options.
Whatever your choice is, it is a good idea to understand as much as you can about loan modifications and FHA refinancing. Understanding the basics of loan modification and refinance before you talk to a qualified consultant will help you make an educated decision based on his advice.
So which is best for you?
A loan modification or an FHA refinance. Which is best for you might very well depend on who insures your loan.
You need to ask your lender or service provider (not always the same) who insures your loan, Freddie Mac, Fannie Mae or the Federal Housing Administration (FHA). These insurers are authorized by congress to insure home loans. This allows banks to provide low interest rates to high risk borrowers which enables borrowers in trouble to still get a fair interest on their mortgage, modify or even refinance their home. If your mortgage is insured by Fannie, Freddie or FHA your lender is pretty much safe and should be happy to modify or refinance your home.
If your mortgage is insured by Freddie or Fannie then you should apply for Making Home Affordable mortgage aid. There is no real difference between the two of them, they are based more on the location of the borrower than any other significant factor.
If you are insured by FHA you are eligible for the Hope for Homeowners plan. These plans allow borrowers that previously did not qualify for loan modification or refinance to now be accepted, so even though you didn’t qualify in the past apply again and you might get a pleasant surprise.
Making Home Affordable loan modification plan is designed to reduce monthly payments and stabilize the expenses of borrowers in trouble until they can get a hold of their finances. It is very regulated and fine tuned to provide the specific results the administration is looking for. There are some clever incentives both for borrowers and lenders to encourage loan modifications and paying them on time.
If you are insured with FHA you cannot apply for a Making Home Affordable loan modification but there are other options, some of which are more flexible and can adapt better to your personal circumstances.
Visit a government counselor for free and ask for your best options. It is a good idea to check the website of the program you qualify for to be prepared for what paperwork you need.
Most importantly don’t trust your loan modification to a loan modification company without understanding what they are doing and the effects it will have on your home and credit score.
Related posts:
Fannie and Freddie are on soaring. For five days in a row Fannie Mae and Freddie Mac mortgage securities have rose. Interesting the rise in mortgage bonds is not due to an increase in the mortgage refinancing and modifying but in a reduction in refinancing, well below the forecasted levels.
Bloomberg.com reported yesterday a rise in Fannie Mae’s current-coupon 30 year fixed rate mortgage bonds of 0.09 to 4.8 percent. This is the highest since June 18.
What has driven this rise in Mortgage Bonds?
The Treasury Department has published reports with higher benchmark rates due to a recent report that showed a slowing down in the number of jobs lost in the United States.
What are the effects?
This rise in mortgage rates has caused refinancing to slow down. This is evident when you see the drop of 21 percent on the number of prepayments last month to Fannie Mae and Freddie Mac securities. This drop was sharper than analysts predicted triggering the rise in mortgage bonds.
The rise in mortgage rates after record lows in interest rates has slowed down the number of mortgage refinancing, making it much harder homeowners without the best credit rating to get their mortgage refinance approved.
How Is The Obama Administration Reacting?
The Obama Administration announced a loosening of Fannie Mae and Freddie Mac rules in order to boost the number of borrowers that refinance and modify their loans by increasing the percentage of the home value the mortgage can represent to 125% of the house’s value. This helps homeowners that have seen the value of their house drop refinance.
Fannie Mae and Freddie Mac are also planning to reduce their home financing costs. Currently even the government sponsored mortgage companies charge up to 2% of loan balances with sub-premium customers with low equity or credit scores.
The Bottom Line
An increase in mortgage bond rates is not necessarily good news for borrowers as it will increase interest rates but the rise is being pushed by lower unemployment growth which is a good news for the overall economy. Government mortgage companies Freddie Mac and Fannie May must also reinvest their “profits” in aiding borrowers in trouble by either reducing their fees or the principal on loans which can be good news for borrowers in the future.
Related posts:
