Q&A: Making Home Affordable Program: Modification
The making Home Affordable program allows eligible homeowners to refinance or modify their loans to a payment that is more affordable. It is broken into two parts; the Home Affordable Refinance, and the Home Affordable Modification.
The following are common Questions and Answers on the Making Home Affordable Modification:
Q: Can Making Home Affordable help me if my loan is not owned or securitized by Fannie Mae or Freddie Mac?
A: Yes. Making Home Affordable offers help to borrowers who are struggling to keep their loans current or who are already behind on their mortgage payments. By providing mortgage servicers with financial incentives to modify existing first mortgages.
Q: How do I know if I qualify for a Home Affordable Modification?
A: To apply for a Home Affordable Modification, you must:
- Be an owner-occupant in a one to four unit property.
- Have an unpaid principal balance that is equal to or less than $729,750 for one unit properties (there is a higher limit for two to four unit properties – consult your service).
- Have a loan that was originated on or before January 1, 2009
- Have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31% of your gross (pre-tax) monthly income, and
- Have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.
If you answered YES to all of these questions, you may be eligible to apply for a Home Affordable Modification.
Q: Do I need to be behind on my mortgage payments to be eligible for a Home Affordable Modification?
A: No. Responsible borrowers who are struggling to remain current on their mortgage payments are eligible if they are at risk of imminent default. You will be required to document your income and expenses and provide evidence of the hardship or change in your circumstances.
Q: I have a second mortgage. Am I still eligible?
A: Yes, but only the first mortgage is eligible for a modification.
Q: How do I know if my servicer is participating? Are all servicers required to participate?
A: Servicer participation in the program is voluntary. However, the government is offering substantial incentives to servicers and investors, and it is expected that most major servicers will participate. Participating servicers will sign a contract with Treasury’s financial agent, through which they agree to review every potentially eligible borrower who calls or writes asking to be considered for the program.
A list of participating servicers will be available on the internet at www.makinghomeaffordable.gov
Q: What will my servicer do to determine if I qualify?
A: If you report a hardship, your servicer will:
- Determine whether your loan meets the minimum eligibility criteria (owner occupied, originated on or before January 1, 2009, unpaid principle balance equal to or less than $729,750). If yes
- Ask about current income, assets and expenses as well as the specific circumstances relating to the hardship to determine if you will be unable to make your mortgage payment.
- Determine if your monthly first lien mortgage payment is more than 31% of your gross or pre-tax monthly income. If yes:
- Add past due charges to the loan balance.
- Determine how much of an interest rate reduction will be required to get your first mortgage payment down to a point where it is no more than 31% of your gross monthly income.
- Apply a value test to determine if the cost of the modification is less costly for the investor than not modifying the loan. If Yes:
- Put you on a trial modification for three months at the new interest rate and payment level.
- If you successfully make the payments and are current at the end of the trial period, your servicer will execute a permanent modification agreement that will lower your interest rate to a fixed rate for five years, and then caped at a low rate for the remaining life of the loan.
Q: What happens after five years?
A: Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the rate cap indicated in your modification agreement. The cap is equal to the prevailing market interest rate on the date the modification is finalized as published by Fannie Mae based on a survey of its customers. This cap means that your rate can never be higher than the market rate on the day your loan was modified.
Q: Will the modified loan include property taxes and homeowners insurance?
A: Yes. The modification payment will include a monthly amount to be set aside (escrowed) to pay taxes and insurance when they become due. This escrow is required even if your prior loan did not include an escrow.
Q: How low can my interest rate go?
A: Treasury is providing incentives to your investor to write the interest down to as low as 2%, if necessary to get to a payment that you can afford based on your income.
Q: What happens if that is not enough to get to an affordable payment?
A: If a 2% interest rate does not result in a payment that is affordable, your servicer will:
- First try to extend your payment term.
- If that is still not sufficient your servicer may defer repayment on a portion of the amount you owe until a later time. This is called a principal forbearance.
- A portion of the debt could also be forgiven. This is optional on the part of the investor. There is no requirement for principal forgiveness.
Q: Could I end up with a balloon payment?
A: Yes. If your servicer determines that a principal forbearance is required to get your monthly payment to an affordable level, the amount of the forbearance is not due until you pay off your loan, refinance or sell your home.
Q: What happens if I am unable to make payments during the trial period?
A: Borrowers who are unable to make three payments by the end of the trial period are not eligible for a Home Affordable Modification.
Q: How much will a modification cost me?
A: Borrowers who qualify for a Home Affordable Modification will never be required to pay a modification fee or pay past due late fees. If there are costs associated with the modification, such as payment of back taxes, your servicer will give you the option of adding them to the amount you owe on your mortgage or paying some or all the expenses in advance.
If you would like assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a counseling fee.
Q: Is housing counseling required under this program?
A: Borrowers, especially delinquent borrowers, are strongly encouraged to contact a HUD-approved housing counselor to help them understand all of their financial options and to create a workable budget plan. These services are free. However, housing counseling is only required for borrowers whose total monthly debts are very high in relation to their incomes. It is voluntary for other applicants.
Please contact me for a list of HUD approved housing counselors in NV.
Q: I heard the government was providing a financial incentive to borrowers. Is that true?
A: Yes. For every month you make a payment on time, Treasury will pay an incentive that reduces the principal balance on your loan. The incentive will be applied directly to your loan balance annually and over five years the total principal reduction could add up to $5,000.
Q: I do not live in the house that secures the mortgage I’d like to modify. Is this mortgage eligible for a Home Affordable Modification?
A: No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. Only the mortgage on your primary residence is eligible.
Q: I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?
A: Yes. Mortgages on two, three and four unit properties are eligible as long as you live in one unit as your primary residence.
Q: I owe more than my house is worth. Will a Home Affordable Modification reduce what I owe?
A: The primary objective of the Making Home Affordable Program is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Investors may, but are not required to, offer principle reductions. It is more likely that your servicer will use interest rate reductions in order to make your payment affordable.
Q: I have an FHA loan. Can it be modified under the making Home Affordable Program? Are all loans eligible?
A: The Administration is working with the Congress to enact legislation that will allow FHA and VA to offer modifications consistent with Making Home Affordable in the near future. Currently loans insured or guaranteed by these agencies are being modified under other programs that also enable borrowers to retain homeownership.
Q: How do I apply for a modification under the Making Home Affordable Plan?
A: If you meet the general eligibility criteria for the program, you should gather the financial documentation that your service will need to determine if you qualify. Once you have this information, you call your mortgage servicer and ask to be considered for a Home Affordable Modification.
Q: What information and documents will I need?
A: For all borrowers on your loan, you will need:
- Verification about monthly gross income, including recent pay stubs if borrowers are salaried and receive them and documentation of any income received from other sources.
- Most recent income tax return.
- Information about assets.
- Information about any second mortgage on the house.
- Account balances and minimum monthly payments due on all credit cards.
- Account balances and monthly payments on all other debts such as student loans and car loans.
- A letter describing why your mortgage is unaffordable.
Q: How long will the Home Affordable Modification Program be available?
A: The program expires on December 31, 2012. Your trial modification must be in place by that date.
Q: My loan is scheduled for foreclosure soon. What should I do?
A: Many servicers have made a commitment to postpone foreclosure sales on all mortgages that meet the minimum eligibility criteria for a Home Affordable Modification until those loans can be fully evaluated.
Q: Who is my “loan servicer”? Is that the same as my lender or investor?
A: Your loan servicer is the institution that collects your monthly payments and has responsibility for the management and accounting of your loan. Your servicer may also be your lender, but many loans are actually owned by groups of investors.
Q: Why does my loan servicer have to ask the investor if they can do a loan modification?
A: In many cases, there is a pooling and servicing agreement (PSA) between the servicer and investor that states what actions the servicer is allowed to take. This PSA gives the servicer some leeway to make modification decisions, so long as the modification provides a better financial outcome for the investor than not modifying the loan. Otherwise, your servicer may need to get permission from the owner or investor.
Q: What should I do if my servicer tells me that the investor is not participating in Making Home Affordable?
A: A list of participants in the program is posted at www.makinghomeaffordable.gov. You should check this site first. If your servicer or investor is not participating in the program, ask your servicer or housing counselor about what other workout options may be available.
WARNING: Beware of Foreclosure Rescue Scams – Help is Free!
- There should never be a fee for assistance with or information about the Making Home Affordable Program.
- Beware of anyone that asks you to pay an upfront fee for counseling or modification service
- Beware of anyone asking you to sign or transfer over the deed to you house in order to “save” your home.
- Never make mortgage payments to anyone other than your mortgage company without their approval.
The Making Home Affordable Program terms and requirements may have changed since this post was originally written, see: www.makinghomeaffordable.gov or the most current information.
Should you have any questions or need further information,
please don’t hesitate to contact me, (775) 220-1630
Or visit my blog at www.SellingNorthernNV.com
Joshua Talayka
Chase International
Office: 775 850 5900
Toll Free: 877 922 5900
Cell: 775 220 1630
Fax: 775 850 5901
985 Damonte Ranch Pkwy, Ste. 110
Reno, Nevada (NV) 89521
About The Author
[...] your loan. Even if you are upside down on your mortgage, it may be possible to refinance under the Making Home Affordable Refinance [...]