Since March of this year, qualified homeowners have been able to
renegotiate the terms of their mortgages through the Making Homes
Affordable plan (MHA), a federally-subsidized program designed to check
the foreclosure freefall by helping homeowners meet their monthly
payments.
Not everyone will qualify, but for those who do—and the government’s
hoping that 3 to 4 million do—$75 billion has been set aside to fund the
program (and to provide banks a monetary incentive, good news for the
borrower).
Here are some frequently asked questions to help you navigate this…
1. What is a loan modification?
This is a change in one or more of the terms of a home loan.
Generally speaking, it allows the reinstatement of the loan and provides
lower monthly payments. You may also hear it referred to as a mortgage
modification, restructuring, or workout plan. Under Obama’s plan, the
goal is to help the borrower reduce monthly payments to 31% of monthly
income or lower.
2. How do I qualify?
The short answer is that you’ll need to show that modification will
make the difference between your keeping the home and losing it. So
you’ll need to prove financial hardship—loss of income and/or increase
in expenses due to job loss or relocation, divorce or separation, death
of spouse or other, illness, or even military service; and you’ll need
to prove responsibility–proof of income, and a complete and accurate
disclosure of your financial statement.
3. What are the restrictions?
Here are a few: Only those living in the home on which the loan is
being paid are eligible. Mortgages on second homes, investment
properties, commercial properties, and vacation homes are ineligible.
The mortgage must have originated prior to 2009 and be no more than
$729,750.
4. What is the procedure?
The bank will look at your monthly income and monthly loan payment.
Under the MHA, borrowers can lower their payments to less than 31% of
income. One or more of the loan’s terms may be adjusted to meet this.
The new mortgage payment will then be in effect for five years.
5. Do I have to be currently delinquent on my payments to get a loan modification?
Not necessarily. One of the goals of the program is to help borrowers
before they get into trouble. To that end there’s a provision and
incentive which allows lenders to reach out to those homeowners who are
not yet delinquent but deemed at risk.
6. Will a loan modification help me stop foreclosure?
Yes, it will. And that’s the program’s main goal. You’ll work with
your lender to find a payment solution that halts the foreclosure and/or
reinstates the loan.
7. Can my missed payments be added back into my new loan modification?
Yes. Arrears can be rolled into the new loan balance, making it current.
8. Can I do a loan modification myself or should I pay someone to represent me?
Before the MHA program came along the burden of getting a loan
modified was largely on the borrower’s shoulders. But incentives for the
lenders to get involved are making that less so. Still, it’s not a
simple process. For what it’s worth, the Treasury Department is
discouraging third-party, fee-based representatives. But the decision is
yours. Either way, learn the process (you’re starting that now), think
like a bank when putting together your materials, and know your legal
rights.
9. How long will the MHA program be available?
Through the end of 2012.
10. So how do I get started?
Be informed, learn all you can, then contact your lender’s loss-mitigation department.
