A large number of troubled homeowners have approached their lenders requesting modification of their home mortgage loans. A loan modification/loan workout is a borrower's attempt to negotiate new terms on their current loan to avoid foreclosure.
Some ask the lender to reduce their loan amount. Some ask for a reduced interest rate. Others ask for reductions of both loan amount and interest rate.
Many loan modification efforts are rejected and the lender proceeds with foreclosure. Recently, the trend is changing. More and more, the attempts of honest people to re-work their mortgages are actually succeeding. The worsening economy is causing lenders to become more open-minded.
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If you are considering approaching your lender to request a loan modification, there is another option you should be aware of, the "FHA - Hope for Homeowners Program." However, lenders are not required to participate.
Here are some important points about each option:
Loan Modification:
1. You can have your current loan restructured with new terms such as a lower interest rate and/or a lower loan amount.
2. Loan modification involves basic expenses. If you work directly with your lender, you will pay anywhere from $1000 to $2500. These expenses can usually be added to your new loan.
3. You can hire professional help. A loan rework specialist will cost at least $1000. You may want to get an attorney as well--another $1000 minimum cost. These expenses are optional, therefore you cannot add them to your new loan amount. But they can save you a lot of headaches and can help the process move along more quickly.
NOTE: Payment plans are usually available, but most professionals require 50% of their fees up front. Fees are due even if the lender rejects your request.
4. Your lender's loss mitigation department processes requests for loan modification. If they accept your request, they may not accept your terms. In other words, they may not lower the interest rate or loan amount as much as you request.
5. Your loan may have been sold to another lender. Transferring the paperwork is a long, complicated process. In the meantime, you could be facing foreclosure. Loan modification has the best chance if it is initiated months before foreclosure begins.
6. Loan rework requests are not well documented by lenders. If your request is rejected, wait a couple of months and try again.
7. Most times, the lender will not require a new appraisal.
8. The lender may require you to reimburse expenses they have incurred if foreclosure proceedings have commenced.
10. If the lender offers a tiered-fixed loan or an adjustable rate mortgage, make sure it will work for you. Have them explain everything. You do not want to make the same mistakes again.
11. With the high volume of requests, loss mitigation personnel feel pressure to make decisions. Provide items requested as soon as you can so that you do not slow down the process.
12. Borrowers in heavily populated areas like Los Angeles, Orange County, San Francisco, Seattle, Portland, Denver, Miami, etc., where there is a high volume of foreclosures will likely succeed in loan modification efforts.
FHA (Federal Housing Administration)- Hope for Homeowners Program:
1. In order to qualify, you must accept a 30-year fixed rate loan.
2. FHA will loan up to 90% of the property's current value.
3. The goal of the Hope for Homeowners Program is to boost our economy by reducing foreclosures.
4. FHA has less stringent requirements for approval than conventional lenders regarding income, employment, and credit history.
5. Qualifications for a Hope for Homeowners loan:The home must be a principal place of residence. Home owners can't own any other property. The existing mortgage payments must exceed 31% of the home owner's gross monthly income. The home owner did not obtain the existing mortgage by falsifying documents. The home owner has not been convicted of fraud within the past 10 years. The home owner is struggling to meet the mortgage obligations and can no longer afford to pay on the mortgage.
6. Since the activation of Hope for Homeowners, no major lenders have stepped forward to participate in the program.
7. HERE IS THE CATCH associated with participation in the Hope for Homeowners Program! The home owner must agree to give some future appreciation (money) to FHA and the lenders. During the first year, if the home owner sells, FHA and the lender can collect 100% of the equity. Their right to your equity reduces to 50% by the fifth year. For the home buyer, this is better than losing their home and ruining their credit.
8. Make sure you ask if your lender is an FHA approved lender
9. Some of the expenses in loan modification such as attorney fees, loss mitigation fees, foreclosure posting fees, etc. will be written off by your lender. You won't have to pay those with Hope for Homeowners. However, you WILL have to pay for an FHA appraisal (under $400).
Consumers, now have several options to preserve home ownership. If one option does not work try the other. Remember, time is of the essence, so act promptly.
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