Proof Of Income Archives – Refinance – Mortgage Refinancing Rates And Information

Loan Modifications Are Going To Be Simpler, What Do You Need Now?

February 3rd, 2010 No comments

HAMP, the Government’s Loan Modification Program is changing their tune about the paperwork required to apply for a loan modification. Homeowners applying for a loan modification must now include their paperwork before even entering the trial stage.

Previously troubled homeowners could apply for a loan modification trial by simply providing proof of income over the phone. The problems arose when some troubled homeowners either took too long to send the paperwork or could not prove the claims they had made. The Treasury and many servicers claim that this is the cause that the conversion of trials to completed modifications has been so slow.

The Treasury’s response has been to simplify the paperwork required for HAMP conforming loan modifications and require that it is provided before a trial can start. The goal is to accelerate the process and help homeowners to start paying lower mortgage payments sooner.

What are the requirements?

Homeowners that want to apply for a HAMP mortgage modification must provide:

- Two pay stubs. If they have a job.

- A completed form that gives permission to the servicer to pull up a tax return.

- A modification request with a hardship letter included. Hardship letters are documents that explain why you need a modification for your mortgage. The hardship letter must explain what has changed in your circumstances so as to no longer afford your mortgage payments.

When will these changes occur?

The first of June is the official starting date but servicers are allowed to start sooner if they want to. If you are going to apply for a modification you will need the documentation detailed above.

The Benefits.

The plan is that these changes will increase the conversion rate of homeowners on trial modifications to those on completed modifications.

This has been a bone of contention between servicers and homeowners. Servicers complaining at how bad homeowners were at providing the required paperwork and homeowners claiming it was only an excuse.

It must be said that banks that required paperwork for the trial process to start, like GMAC, had much better trial to modification conversion rates. Herb Allison, assistant secretary at Treasury believes that these changes will help all servicers to speed up the whole process.

Let us hope these changes work because HAMP has a long way to go to fulfill its goal of helping 4 million homeowners with affordable mortgages by 2012. Up to date the program has more than 90,000 homeowners on trials and 66,000 homeowners have signed their mortgage modification papers with average savings of around $500 a month.

Although the simplified paperwork requirements will in all likelihood help speed up the process it does seem like speed is the least of HAMP’s troubles, helping the 3,800,000+ troubled homeowners that are neither on trials or have completed modifications does seem to be more of an issue.

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Loan Modifications, A Loose, Lose Story With No Winners

December 23rd, 2009 No comments

Loan Modifications have been touted as the solution to all evils brought about by the latest economic crises and as the worst idea an administration has ever had.

The administration shouts out that the whole point of Loan Modifications is to help the middle class by giving them a break on their underwater mortgages while many commentators claim that it is just one more ploy to funnel money to big bank corporations that have already received billions in bailout money.

How is it that such an apparently simple idea as modifying the interest rates, loan tenure, and if the borrower is really lucky, the loan principal, is received with such opposite feelings?

The reason is that it is a loose, loose program where neither lenders nor borrowers get what they really want. The intention was good when designing the Home Affordable Modification Program (HAMP) but just as the Communist Manifesto sounded great on paper, the reality is that in practice it simply doesn’t work.

As nobody gets what they want everybody suspects it is a ploy to steal their money so nobody makes the effort needed to make it happen. Another way to see it is that the government is not creating the incentives that would make the ploy work.

Borrowers Loose:

The whole Loan Modification Program is based on a three month trial period that must be “passed” before the loan mod is permanent. In order to qualify borrowers must provide proof of income, pay their monthly payments on time every month, after which they must supply more paperwork. This creates a bottleneck where a lot of applications come in, 750,000 seems to be the last count, but only a very few actually make it to permanent loan modification, around 31,000. And of the few that make it even fewer are that much better off. The reason being that when a loan is underwater, or put another way, when a borrower owes more than his house is worth, the only real long term solution is to reduce the principal. If you don’t the borrower still owes more than his house is worth and there is little incentive to pay for an investment that is upside down when the borrower could simply walk away from a sour deal and put his money elsewhere.

Lenders lose:

Many feel that the only winners in the loan modification (a.ka. HAMP) program are corporate banks. One argument explains that the whole program is designed to squeeze three extra months out of underwater borrowers that would otherwise not think about paying another month. Others feel that it is only another way to get money to banks through the incentives the program offers.

The three month trial scam does carry some credibility because it costs the bank little to reduce payments for three months and carry on with foreclosure proceedings. The cost of manning the loan modification and running the paperwork would probably be covered by receiving payments from the three month trial.

However it seems silly to think that the whole program is designed to give bonuses to banks. The government only pays a “bonus” to banks when they complete a permanent loan modification and there has only been 31,000 of them up-to-date. The maximum incentive a bank can receive for a loan modification is around $4,000 over a period of three to four years, which means that in total the government will pay in the next three to four years around $124,000,000. Compare $4,000 with the loss a bank incurs when they reduce the interest rate of a loan which climbs into the tens of thousands plus whatever principal reduction might be involved. Although it is true that foreclosures are also expensive it is not as if the government’s measly incentive is going to make a loan modification a great deal. This is why banks are not in a hurry to carry out loan modifications, in most cases it is bad business, and even when there is a small margin to be made the rate of re-default with modified loans is high and banks might just be kicking the can down the road a few blocks.

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