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Federal Mortgage Loan Modification Program Meets Goal

[Nov 11, 2009.]

 

The federal government's Making Home Affordable program has met its goal of modifying 500,000 loans as of the beginning of November. This is encouraging news, as the US Treasury reports that the number of households needing assistance with mortgage payments has increased by another 500,000 between the end of July through October. The HAMP program assists borrowers who can document financial inability to make their mortgage payments at their existing mortgage rates.The HAMP program permits mortgage companies to modify mortgage loans in the following ways as needed to achieve the target income to mortgage payment ratio (also called front end ratio) of 31 percent of gross income.

  • Reduce mortgage rates: Mortgage companies can reduce a mortgage rate as low as necessary, subject to a limit of 2%, to provide a housing payment equal to 31% of gross monthly household income. The monthly housing payment amount includes principle, interest, taxes, insurance, and (if applicable) condominium or homeowner association dues. (PITIA).
  • Capitalize delinquent amounts: Any delinquent interest and certain fees and expenses incurred by mortgage companies may be added to the loan balance and the payment due date adjusted to bring the mortgage payment due date current.
  • Extend repayment term: If lenders cannot achieve the target ratio of 31% by reducing the mortgage rate, they may extend the mortgage loan term to 40 years after the borrowers have completed the three-month trial modification period.

Certain circumstances may delay or prevent completion of your loan modification.

Mortgage Loan Modifications: Obstacles to Success

  • Second mortgages: Homeowners can encounter problems with loan modifications if they have home equity loans or home equity lines of credit. If your home equity lender refuses to subordinate its interest to the loan modification, your lender may not be able to complete the modification.
  • Bankruptcy filings: Filing bankruptcy does not necessarily exempt you from eligibility for the HAMP program, but other legal actions involving your home (divorce proceedings, judgments, tax liens, etc) could affect your ability to qualify for a mortgage loan modification.
  • Assets: Having assets that you could be using to pay your mortgage can stop your from getting a mortgage modification--you won't see that on the www.MakingHomeAffordable.com Web site, but most lenders have policies that require you to use up your savings before they will change your mortgage terms.

Consult an attorney or financial advisor for guidance concerning individual circumstances. Real estate law varies according to state law; it's important to determine how legal issues may affect your ability to modify your mortgage loan. Mortgage lenders administer the HAMP program and approve applicants for trial modifications. Once borrowers make three consecutive payments according to trial modification terms, the modification becomes permanent. Homeowners seeking loan modifications should contact their mortgage company's loss mitigation department.

 

About Author:

Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.

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