Many of my former buyers are now experiencing difficulties with their high interest rates, job loss or other circumstances that are causing them financial distress. In order to best assist my clients I took the Certified Distressed Property Expert course and have been a fully fledged CDPE for the past two years, allowing me to help my clients understand their best options, and in best case scenario's keep their home thru loan modification and worse case scenarios avoid foreclosure by negotiating a short sale.
Mortgage holders who can no longer afford their monthly home payments for whatever reason do have choices. Choice number one is to sell the home and give back the bank its money and get on with life. But what if the selling price of your home is less than they owe? This is called being “upside down” in your loan, and selling isn’t an option.
For mortgage holders who are upside down, option two is to apply to their bank for a short sale: asking the bank to accept whatever they can get for the house as satisfaction for the loan. Or, they can simply allow the bank to foreclose. Both these options will unfortunately affect the homeowner’s credit severely.
The Hows and Whys of Loan Modification
The other option for homeowners is convincing the bank to offer a loan modification. And loan mods don’t apply just for upside-down homeowners. Borrowers of adjustable-rate mortgages and home equity loans may also be considered for a loan modification.
Bear in mind that some loan modifications which come with debt forgiveness also come with credit damage, and possibly income tax consequences. Dear Old Uncle Sam may see the debt forgiveness as a form of income. But other loan modification types can be quite attractive, and range from the bank giving you a do-over and re-instating your account to current if you resume payments, to reducing your interest rate, changing an adjustable rate to fixed, allowing interest-only payments for a while or deferring payments altogether, extending the loan’s term, or eliminating bank fees.
But why would a bank say, “Can’t pay your mortgage anymore? Tut tut there, old friend. How ‘bout we just forget that nasty loan you agreed to and give you a better deal?” Bankers don’t even give away toasters any more for cryin’ out loud! The answer? One word: Good Old Uncle Sam again. (Ok, too many words, but come on…)
Under the 2008 Bail-Out Program, the U.S. government has been pushing banks to negotiate loan modifications with borrowers. Some banks are actually cooperating, or trying to appear to be cooperating. Whatever their intention, some modifications are actually being offered, and in the least, the application and approval process can delay foreclosure for up to a year.
Programs by the Major Banks
The following is information on several of the programs from major banks. Co-operating institutions include Citigroup, Bank of America (aka: Countrywide), JPMorgan Chase, IndyMac and Wells Fargo, including the HOPE for Homeowners program guidelines and revisions, and Fannie Mae / Freddie Mac loan modifications.
CityGroup
CitiGroup's loan modifications help borrowers in default by reducing the monthly mortgage payment. Choices for this are accomplished either by lowering the interest rate, extending the loan's term, or forgiving part of the debt or a combination of those terms. If you are not in foreclosure yet, call CitiGroup at 866.915.9417. Home owners who not yet delinquent may qualify for the Citi Homeowner Assistance program by calling 800.667.8424.
CitiGroup Eligibility Requirements:
- CityGroup must hold the first mortgage. Second mortgages or home equity loans don’t count.
- The home in question must be the owner’s primary residence. The summer place in the Hamptons doesn’t count either.
- The homeowner must be working in good faith with CityGroup and be truthful about his situation and income.
- The loan must be current, but the homeowner must be able to show a need for help to remain current.
- The present monthly payment must be at least 38% of the homeowner’s monthly income.
- Filing requirements:
- A hardship letter (hardship letters explain how a borrower got into the situation, what he has done to rectify the situation so far and why he needs help).
- Pay stubs dated within the last 30 days, covering at least a 60-day (2-month) period.
- W2/tax return or year-end business statement (if applicable) for the prior year.
- Personal bank statements from the last 6 months.
A handy tip on filing packages for ALL banks:
Most banks will require you to assemble and present them with a plump packet of financial information. Keep a copy of the package you initially file, and keep it current with copies of new bank statements, pay stubs etc. One game banks like to play is to keep requesting applicants to submit and re-submit financial documents. True, it keeps the banks informed of changes in your personal situation. But it also gives them an “out” in granting modifications if the applicant can’t keep up with the blizzard of paperwork often required by loan modification departments. Now I know where all the trees are going.
JP Morgan Chase Loan Modifications
Chase gobbled up Washington Mutual and EMC Mortgage Corp. some months ago. Chase started a loan program at the end of January, 2009 for two years, intended to help homeowners in trouble with their Chase mortgages.
JP Morgan Chase Eligibility Requirements:
Chase requires applicants to submit the usual packet of information (see “Handy Tip” above) including hardship letter, pay stubs proving you have income, financial statements, bank statements and tax returns. Beyond that:
- Chase must hold the first mortgage on the loan.
- The property must be the owners’ primary residence and he must occupy it.
- Adjustable rate mortgages, sub-prime and Option ARM loans from JP Morgan Chase, Washington Mutual or EMC Mortgage Corp. may qualify.
- The homeowner must show the ability to afford a debt ratio including principle, interest, taxes and homeowners insurance of 31-40% of his monthly income.
Call JP Morgan Chase at 866-550-5705 for more information.
Bank of America (Countrywide Mortgage)
Bank of America bought Countrywide and its assets in 2009 and controls its mortgage loan portfolio. Countrywide Financial's (Bank of America) loan modification program is called The Homeownership Retention Program. It runs from December 1, 2008, with no definite termination date.
Loan Modification Program Options Offered by Bank of America (Countrywide)
Providing borrowers qualify for the HOPE for Homeowners Program, Countrywide will first offer an FHA refinance to eligible borrowers. This program calls for equity sharing.
If borrowers do not qualify for the FHA refinance, the following options are available, based on what kind of loan the borrower has:
- Sub-prime Adjustable Rate Mortgages. Borrowers will be offered a five-year extension on the introductory rate or an interest-only rate conversion to as low as 3.5%, which later converts to a fixed-rate mortgage.
- Pay-Option ARM. The negative amortization feature will be removed, and the interest rate reduced to as low as 2.5%; the loan will convert to a fixed-rate mortgage or a 10-year interest-only loan. Upside-down loans will be reduced to 95% of appraised value.
- Sub prime Fixed-Rate loans. The interest rate will be reduced to as low as 2.5%; and the loan will convert to a fixed-rate mortgage or a 10-year interest-only loan, with periodic interest rate adjustments.
Eligibility Requirements
- The property must be owner occupied and be from 1 to 4 units.
- Borrower must have a qualifying loan such as a sub-prime mortgage or a pay-option ARM, originating before December 31, 2007
- Borrower may be current but likely to become 60 days delinquent between Dec. 1, 2008 and June 30, 2012, with a loan-to-value ratio above 75%.
- Sub-prime ARM resets or Option ARM recasts must be likely to cause or have caused the borrower to become delinquent, providing the loan-to-value ratio is above 75%.
Call Bank of America’s mortgage department at 1.800.669.6607
HOPE for Homeowners Program
The Hope for Homeowners Plan is a government stimulus program executed with lenders willing to write down (or discount) the loan pay-off. Contact your lender first to see if they are willing to participate. The program began Oct. 1, 2008 and ends Sept. 30, 2011.
How it works:
Eligibility requirements are strict to prevent fraud, but because the program is a good one. First, your original mortgage is funded by a new FHA backed loan by a conventional lender. This often results in debt forgiveness on upside-down properties. The loan is funded at 90% of the property’s appraised value. Homeowners pay closing costs and an up-front mortgage premium of 3%. When the home is sold, the homeowner must share some of the future equity with the government, somewhere between 100% and 50%, depending on how much equity has accumulated to the date of sale.
Hope for Homeowners Program Eligibility Requirements
The intention of the plan is to provide a program designed to fit many upside down homeowners, and no credit score is required. Its requirements are like many other programs:
- The home must be the mortgagee’s principle place of residence and he cannot own any other properties.
- Mortgage payments cannot exceed 31% of the borrower’s gross monthly income.
- The homeowner must have been truthful in obtaining the mortgage and cannot have a record of felony fraud for the last ten years.
- The loan was originated prior to Jan. 1, 2008 and the borrower has made at least six payments.
- The homeowner is struggling to meet the mortgage payments and can not currently afford the mortgage.
IndyMac FDIC
IndyMac was seized by the government and as such is operating under the new corporation name of IndyMac Federal Bank. IndyMacFed’s program’s intent is to lower mortgage payments for its borrowers to prevent even more foreclosures. The program hopes to rescue borrowers in trouble through lower interest rates, extended terms or reduced principle balances. The program started in August, 2008, and so far has no ending date.
IndyMacFed Eligibility Requirements
As with most programs, it must be a first mortgage that is owned or serviced by IndyMac originally.
- The home must be owner occupied.
- The loan must be in default or at risk for default because of either an upcoming balloon on an adjustable rate or Option Arm.
- The homeowner must be able to afford a mortgage payment including principle, interest, taxes and insurance of 38% at a reduced rate and extended term.
Contact IndyMacFed at call 800.781.7399 or 877.908.4357.
FHFA Federal Loan Modification Program
The federal government is getting into the act to help speed up the loan modification process with its own program. Called the Federal Government Loan Modification Program (under the perplexingly illogical acronym of FHFA, for Federal Housing Finance Agency) the Fed hopes to lower mortgage payments and keep borrowers at risk in their homes longer. No termination date so far. Participants include:
Fannie Mae
- Freddie Mac
- Federal Home Loan Banks
- Wells Fargo
- Department of the Treasury
- FHA
- Federal Housing Finance Agency
- All HOPE Now lenders
FHFA Eligibility Requirements
- The property must be owner occupied and a primary residence.
- Borrowers must have missed at least three or more payments.
- Borrowers must be able to afford a 38% payment including principle, interest, taxes and insurance.
- No one already in bankruptcy need apply. Borrowers already bankrupt are ineligible.
Finally, it's never obtaining a loan modification is never an easy process as most banks arbitrarily turn down loan modification applicants with little or no reason. My advice is Don't Give Up! Get a good attorney. I can point you in the direction of a really good one that deals with New York clients and has a great track record of turning peoples lives around. He writes a blog "Keep Home Your Own" which will give you some insights into his compassion, diligence and competitive spirit which makes him a winner for his clients.
For further discussion on your options when experiencing financial distress, please call me at 845 598 5083.