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Fewer mortgage borrowers are delinquent on their loan payments, according to the latest data from the Mortgage Bankers Association.

Understanding the factors that control the success or failure of your loan modification is vital if you want any chance of receiving a positive modification to your mortgage. Loan Modifications are not happening very fast and the modification rates for troubled homeowners are very low.

The reasons for this are many because loan modifications are complex and depend on a number of variables. Borrowers may fail to fill in paperwork, applications get lost in the process, banks and servicers drag their corporate feet and sometimes loan modifications are just bad business for lenders and must be dropped.

Determining if a loan modification makes financial sense to a lender is the purpose of the NPV (Net Present Value) test. It pays to understand how this test works because anybody that fails it has their loan modification automatically cancelled.

Why have an NPV test?

The purpose for the NPV test is to guarantee a loan modification is profitable in the long term for banks and servicers. The test is made up by an algorithm that takes into account various factors that will determine the behavior and attitude of the borrower, the price of the house and the ability of the borrower to pay the modified loan payments.

The exact form of the algorithm is kept secret to stop borrowers from trying to rig the test. The test measures the likelihood of a borrower from re-defaulting on their mortgage. This is determined by the income of the borrower and the reasons the borrower has to stay in the house. For example if a single borrower is stuck with an underwater house and has no ties with his current neighborhood he or she is going to get a much lower rating than a family with two children that moved to be closer to their aging parents.

An important part of the NPV test calculates the current value of the house. This takes into account the cost of foreclosure and the expenses related to selling the property. Once the “deducted” or real value of the house is determined it is compared with the return the bank would get from a modified loan. If the lender does not benefit from the loan modification it is automatically revoked.

How to help your chances to pass your mortgage´s NPV test?

The NPV test mainly deals with facts and figures that are hard to influence, unless you lie, but there is still much you can do to improve your chances of passing.

It is important to create a solid case that proves you are highly motivated to stay in your house. One of the biggest costs of loan modifications is that after all the work, time and money invested borrowers often re-default bringing on the borrower all the costs of foreclosure he was hoping to avoid with the foreclosure.

This can be done by giving good reasons why you will stay in your house whatever happens, even if it is underwater and does not seem like a great investment at the moment.

The valuation of your mortgage is a very important part of your NPV test. You cannot do much to control the valuation but federal valuation projections change every quarter so if you failed your NPV test one quarter it is worth doing it again the next if you still have time.

A final step you can take is to provide evidence of why you can´t afford the current mortgage payments. Loan modifications are expensive as they include reducing interest, often for the lifetime of the loan, so banks need to make sure they are not providing loan modifications to borrowers that could afford their current loan payments with a little bit of effort and good old fashioned frugality.

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It should come as no surprise that fewer troubled borrowers will redefault if their loan payments are lowered in a mortgage modification.

 Creative is probably not the first word that comes to mind when you think about loan modifications. There doesn’t seem to be many new ideas in the loan modification department.

The Government is definitely doing its best to reach the borrowers that need the help, especially those that reach those that can pay affordable mortgage payments. This helps “guarantee” the government is not throwing away good money after bad with borrowers that overstretched themselves and cannot afford any reasonably monthly payment.

However all signs show that these programs are not being as successful as they hoped. But how do loan modifications lower, or attempt to lower your monthly payments. The first and main way is by lowering your interest rate. Actually one of the main purposes of loan modifications is to allow homeowners whose homes have dropped drastically in price to still take advantage of the lower interest rates now available. The problems come when low interest rates are not enough. The government is currently trying to drop interest rates to around 2%. However if this level of interest rate is still too high to make your monthly payments affordable there are still some options open to you. You servicer or lender can still extend your payment term.

This means you will extend the amount of time you take to pay your loan. This idea is pretty intuitive if you owe $1,000 and you have to pay it in 10 months you have to pay around $100 plus interest. If you can pay it in twice the time your payments should be half as much plus interest. Servicers can extend the loan to up to 40 years which can have a drastic effect on your loan payments even though it keeps you in debt well into your eighties.

What if all this is not enough? What if you still can’t afford your monthly payments? Your lender or service provider can actually defer a portion of the principal (original) amount you owe until the maturity of the loan. We call this a principal forbearance. This does not mean the debt or part of it is forgiven just deferred or set aside until you sell your home or the rest of your mortgage has been paid. This option can be very effective in lowering your monthly payment but will create a balloon payment on your mortgage. This means that your payments will be lower monthly but you will have to make a very large payment at the end of the mortgage. This can be beneficial if you are planning to sell your home and cut short your mortgage anyway or if you want a break in your monthly payments now and expect your income to increase in the future.

Another option, not very popular with service providers is to simply forgive the principal owed. This is a long shot to say the least but still worth a try. Service providers are not required to do this so don’t keep your hopes too high. `

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The Credit Crisis of the last two to three years has changed the whole face of the economic landscape. The knee jerk reaction of the government didn’t take long to appear in the form of HARP, HOPE and other cute acronyms.

A program that hasn’t received half as much attention has been TARP. Maybe because the acronym is not as cute or because TARP is not as linked with reducing loan payments as with cleaning the mess when things don’t work out.

This article deals with what TARP is and what it means for homeowners as well as providing a short analysis how Loan Modifications have fared so far. TARP stands for Troubled Assets Relief Program which sounds nearly as bad as TARP which sounds like something you would paint on your fence to keep woodworm away, which is kind of what TARP is designed to do for Banks and foreclosures.

Enough bad illustrations, what is TARP all about and how is it linked to Loan Modifications?

Troubled Assets Relief Program (TARP) was established by the Secretary in consultation with the Chairperson of the Board of Directors of the Federal Deposit Insurance Corporation and the Secretary of Housing and Urban Development. What did such a venerably group of people prepare?

Well, Tarp is designed to provide lenders and loan servicers with compensation to cover administrative costs for each loan modified according to a set of standards. This was an important factor in cajoling banks into accepting the whole Loan Modification program. Banks and other loan servicers are designed to provide loans and receive payments not modify loans.

The government offered compensation in exchange of lenders re-tuning their administration to allow for faster loan modifications. This hasn’t quite worked as the government hoped, but more on that later. The second “job” of TARP is to provide loss sharing guarantees for certain losses incurred if a modified loan were to re-default. This is a kind of insurance for banks and other loan providers. This of course costs money. The government has set aside up to $100,000,000,000 for these purposes.

So what has been the result of all this investment, not only in TARP but also HARP, HOPE and other government sponsored programs? There is no doubt the government in the United States and other governments alike around the world have put a lot of energy and money into it. The results have been disappointing to say the least.

Many would say that the government is dealing with the wrong issues, that this is a credit crisis not a mortgage crisis. Others will grant that loan modification programs take time to prove themselves.

What are the figures so far? Nearly one in four loan modifications in the fourth quarter actually increased the monthly payments of homeowners. Which is a pretty bad result for loan modifications that are designed to make loan payments more affordable.

The re-default rate was about 50 percent where the monthly payments remained the same or increased, while it was 26 percent when monthly payments dropped.

That means that people are more likely to meet their monthly payments if they are cheaper… mmm, no surprises there.

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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

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Desperate situations elicit desperate measures. Many families are certainly living in desperate situations due to the current worldwide economic crisis with millions of families losing their homes in the U.S alone. These families and households are reaching levels of desperation where any option that provides an ounce of hope or even a temporary respite is considered. What options do they have?

Although there are various viable options open to borrowers in financial difficulties there are also some terrible options open for people that don´t understand the consequences of some of the ”solutions” borrowers provide. An inspiring story that hit the news this week was that of a recently divorced lady that was about to foreclose on her mortgage. Instead of accepting the charity of friends she sold double decker apple pies to friends and neighbors. The story touched many around her world and her business went international in the process saving her from losing her home.

Not all of us can imitate such feats of entrepreneurship but we can all make steps to increase our income and reduce our at least manage our debt. The first financial crouch borrowers seem to grasp for are credit cards. Credit cards are handy financial products that provide quick cash when needed; they are not a useful way of finding money to pay for loans. Paying loans with credit cards is like selling your car to by fuel, not very clever. To illustrate this just have a look at the interest rates credit cards charge, anything between 11% and 19%, even more in some countries and compare it to interest rate of a personal loan, car loan and a mortgage. It is much better to modify or renegotiate your current mortgage, take on a personal loan or even negotiate with you lenders than fall into the slippery slope of credit card debt. Another bad choice is to do nothing when you find you are not going to be able to pay your mortgage or loan payments.

It is vital to talk to your lender and find a solution you both can live with. Many banks and lenders will provide a number of breaks or solutions to borrowers that come out in the open when struggling to meet mortgage or loan payments. For instance if you are waiting for a large sum of money or are expecting a rise in income (that you can prove) lenders are often willing to provide a “payment holiday” for a set amount of time to help you get on your feet. Doing this instead of sticking your head in the ground and just letting things happen also has the benefit of not affecting your credit record which will be destroyed if you simply stop paying your loans. If you are unsure on how to deal with your debt problems be smart and talk to someone that can help you. This website describes some of the steps you can take to alleviate the stress and problems caused by debt and bad management. The choices you make will decide your financial future.

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How can you get out of the cycle of debt and have a fresh start. Those looking for easy fix solutions will have to continue looking but those that are determined to work hard with their problem and are willing to make big changes in their lifestyle and habits can find a solution.
We must start by saying that some debt problems are too extreme to solve in any practical way and bankruptcy is the only real solution, but that is an extreme measure you should leave as the very last resort as it will destroy your credit rating and affect your ability to get a loan, a lease or even a job for years to come.

So what steps can you take to break the cycle of debt?
Maybe you started with some small time debts, maybe a small investment loan to start a business and it all went wrong, you then required another loan, or credit card to pay for your debts, or your monthly payments and now you can’t afford to pay the interest on your debt payments, throw in a car loan and a mortgage and you can quickly find yourself in a seemingly no way out situation.

The steps you must take are surprisingly simple, which makes some think they can’t possibly work, unfortunately they are also slow and require endurance and “stickability” to make them work.

Step 1.
Sit down and work out exactly how much you owe and the rate of interest you are paying on each loan.

Step 2.
Assess what your or your family’s income is and what you can afford to pay towards your loan payments. You should aim to pay as much as you can without completely strangling your family’s economy and leaving  you with some breathing room if interest rates rise.

Step 3.
This is the hard step, to change your lifestyle and habits to reduce your expenses to a complete minimum. You are in serious debt, this is not a game, you are under moral and legal obligation to do everything you can to pay your debts and that means going without  your precious luxuries and saving every buck you can. Where people often fail when trying to break the cycle of debt is by trying to reduce their debt without changing their lifestyle.

Often people in a cycle of debt are “addicted” to spending and living above their means, just like an alcoholic is addicted to the feeling alcohol provides, in both cases a complete lifestyle change is often required.

Step 3.

If you cannot find a way to pay for your current loan payments with your income you  are going to have to find a way to reduce your payments or increase your income. Increasing your income in the short term is often difficult, although sometimes one of the spouses does not work and can start doing so to pay towards the loan.
Another solution is to consolidate your loan in a large debt consolidation loan that will allow you to reduce your monthly expenses. Although this can be a good solution beware of the high fees and interest rates that can make the loan uneconomical.

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Do’s and don’ts of mortgage refinancing.

This is not a very technical article. If you are a mortgage refinancing guru you will most surely be bored and completely unimpressed with the advice it contains. However the truth is that making good and bad decisions is not a technical issue it is rather simple to apply common sense to your mortgage refinance choices.
However common sense tends to be rather uncommon especially when we are dealing with emotional issues like refinancing a house and dealing with money you will never actually see. Refinancing a mortgage can be like using a credit card it can be awfully easy to spend without realizing the real cost and spend more than you wanted to or could actually afford.
Here is a completely incomprehensive list of do’s and don’ts that should help jump starting your common sense before doing anything crazy.

Do not..

Trust lenders who are too eager to lend you more money. Borrowing more money is always expensive and lenders who are very free with their cash are probably charging high interest to cover for borrowers that default on their payments or worse have “other” methods to guarantee the loan payments.

Sign a loan without working the real cost of refinancing. When you ask a bank or are offered a refinancing deal on your mortgage find out the real cost/savings on the loan modification. Unless you are in serious financial duress I would recommend never borrowing more but only reduce the tenure, the interest rate or preferably both. Now is a good time to modify your loan because interest rates have dropped so much. However if you refinance your mortgage with a new interest but extend your tenure you will end up paying more for your mortgage which is counterproductive unless you are in serious financial difficulties.

Do

Check the closing fees on your existing loan.
Modifying your loan at current interest rates is generally a good idea that makes financial sense but that depends completely on the overall costs of the loan modification or switch. If your current bank charges you a 5% fee for pre-paying or switching your mortgage you might lose money on the switch regardless of how good the new interest rate is.

Have all your paper work organized in a file.
With mortgages, loans and other financial products paper work is really just that, what makes things work. If you know what paperwork you need and you have it organized in a simple and accessible way you will save time, stress and money.

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