Know Your Options
Written by Susanne on October 20th, 2009
Loan modifications have been described as the great savior of our current crisis. Whether this is true or not is a matter of debate. However there appears to be considerable confusion regarding loan modifications.
There is a ton of information whirling around the media and internet. But what exactly is a loan modification? Hopefully the information below will add clarity! It’s really important that a homeowner understands their options.
A Rate Modification option – this is offered to those homeowners that have no financial hardship but are unable to refinance because their property has lost value. This is generally offered by a lender on ARM products that have not sold the loan in the secondary market and is still servicing the loan. Typically for a small fee they will lower the interest rate on the loan to the current offered rate on the same product. Lenders that offer these type of rate modifications usually have a maximum loan-to-value of 105%. This may not be a prevalent option as there are very few lenders who keep mortgage loans in their own portfolio.
A refinance option is for those homeowners that are making timely mortgage payments but have been unable to refinance to a lower rate due to declining property values. The important thing to know is that your primary mortgage balance is less than 125% of the current market value of your home. This is part of the Obama Stimulus Plan and both Freddie Mac and Fannie Mae are onboard with this program. If your loan was sold to either of them you may be eligible and benefit from this refinance option.
For those homeowners struggling and behind in their monthly mortgage payments there is a hardship modification option called the Home Affordable Modification Program (HAMP). What makes this different? For one, you can be behind on your monthly payments. If the requirements of the HAMP loan are met, the lender may agree to modify your loan so you can avoid a foreclosure. What are the requirements? Below are a few:
- The subject property must be your owner occupied primary residence
- It can be 1 to 4 units
- You must owe a principle balance that is within conforming loan guidelines
- It must be the 1st lien mortgage and have been contracted before January 2009
- Your monthly mortgage payment is greater than 31% of your monthly household income
- And you must have a documented financial hardship
A word of caution when modifying your mortgage –
Be very careful if you choose to use a loan modification company that takes a fee upfront. They cannot guarantee a successful modification and can end up costing you another month’s mortgage payment in exchange for false hope. The best of these companies have done modifications countless times and will actually try to help you in earnest without a guarantee. The worst are scams that take your money with a cursory attempt to help you. To avoid being a scam statistic, below are 6 easy things to keep in mind:
- Know your options – understand what your options are and who qualifies for help is vital. Websites that should be on your list are:
- Beware and be alert – if you are struggling with your mortgage you are a prime target for scams – recognize and avoid common scams
- Avoid fast loan modification decisions – companies that want you to sign papers immediately or who claim they can save your home if you sign the deed over to them are scam artists. No one can save your home but you and your mortgage lender
- Again, do not sign the deed of your home to anybody unless you are working directly with the lender to forgive the debt. In other words only sign-off the deed if you are selling it back to the bank
- Only make payments to the lender – a common scam is for a “consultant” or loan modification company to ask that you pay them and they will deal with the lender on your behalf
- Don’t pay anybody for advice on your loan modification or for counseling services on a delinquent loan
Still a little confused? Understandable – obtaining the right loan modification can be very challenging. No matter what your situation we are here to help. Call us today at extension #7102 – the Credit Union can help alleviate any confusion!
