Refinance and loan modification opportunities

Under the Making Home Affordable (MHA) Program, part of the Obama Administration's broad, comprehensive strategy to get the economy and the housing market back on track, there are two very important programs for Texas homeowners to be aware of.

The Making Home Affordable Program offers numerous potential solutions for borrowers: refinancing mortgage loans, through the Home Affordable Refinance Program (HARP), modifying mortgage loans, through the Home Affordable Modification Program (HAMP). In addition, there are 2nd lien, FHA, and VA refinance programs as well as the FannieMae HomeSaver Advance Loan available to assist homeowners. However, should a borrower find that the sale of the home is the best solution there is a short-sale program, Home Affordable Foreclosure Alternatives Program (HAFA).

Home Affordable Refinance Program (HARP)

Eligible borrowers who are current on their mortgages but have been unable to take advantage of todays lower interest rates because their homes have decreased in value, may now have the opportunity to refinance. Through a refinance under HARP, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they own or that they guaranteed in mortgage backed securities. This program expires on 6/10/2010.

Making Home Affordable Refinance (HARP)

  • Gives borrowers who may not be delinquent, the chance to refinance into a more affordable loan at a lower rate.
  • Only available to borrowers with Fannie Mae or Freddie Mac loans, an estimated 4-5 million borrowers nationally
  • Borrowers can determine their eligibility at www.makinghomeaffordable.gov
  • For 1-4 unit owner-occupied properties
  • Borrower must be current on the first mortgage with only one 30 day late payment permitted in the 12 months.
  • No minimum credit score, but the borrower must have sufficient income to support the new payment
  • Amount owed on the first mortgage cannot be more than 125% of the property's current value
  • Program set to expire on June 10, 1020

Home Affordable Modifications (HAMP)

The Making Home Affordable Program can help borrowers even if their loan is not owned or guaranteed by Fannie Mae or Freddie Mac. The Program helps borrowers who are struggling to keep their loans current or who are already behind on their mortgage payments. By providing mortgage loan servicers with financial incentives to modify existing first lien mortgages, the Treasury hopes to help homeowners avoid foreclosure regardless of who owns or guarantees the mortgage. HAMP expires on December 31, 2012. Your trial modification must be in place by that date.

Making Home Affordable Modification Program (HAMP)

  • Modifies loans of qualifying "at risk" borrowers to more achievable payments. "At risk" borrowers can be delinquent borrowers or borrowers current on their mortgage but facing either an increase in their mortgage payment or a loss of income that will make paying their mortgage very difficult
  • For 1-4 unit owner-occupied properties, the first mortgage amount must be less than $729,250
  • Mortgage must have been originated on or before January 1, 2009
  • To qualify, the borrower enters into three month trial period. Once the trial is completed successfully, the permanent modification follows. The trial rate will remain in place for five years and then increases 1% yearly until it reaches market rate at the time of modification.
  • Taxes and insurance must be escrowed, there is no loan modification fee involved.
  • Counseling is recommended, but required if the back-end debt-to-income qualifying ratio is greater than 5%
  • A list of the servicers participating with the HAMP can be found at www.makinghomeaffordable.gov
  • In July 2009, HUD announced a modification program (FHA-HAMP) for eligible FHA borrowers effective August 15.

To apply for a modification under HAMP, you must:

  • Be the owner-occupant of a one to four unit home;
  • Have an unpaid principal balance that is equal to or less than:
    • 1 Unit: $729,750
    • 2 Units: $934,200
    • 3 Units: $1,129,250
    • 4 Units: $1,403,400;
    • Have a first lien mortgage that was originated on or before January 1, 2009;
    • Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31 percent of your monthly gross (pre-tax) income; and
    • Have a mortgage payment that is not affordable due to a financial hardship that can be documented.

If you answered YES to all of these questions, you may be eligible for a modification under HAMP. Only your servicer will be able to tell you if you qualify. (See list of Participating Servicers)

You do NOT need to be behind on your mortgage payments to be eligible for a modification under HAMP.

Responsible borrowers who are struggling to remain current on their mortgage payments are eligible if they are at risk of imminent default. An example of imminent default might be that the borrower had or will have a significant increase in their mortgage payment that they cannot afford. If you have had or anticipate a significant increase in your mortgage payment or if you have had a significant reduction in income or have experienced some other hardship that makes it impossible to pay your mortgage, contact your servicer. You will be required to document your income and expenses and provide evidence of the hardship or change in your circumstances. When you apply for a modification under HAMP, your servicer will analyze your monthly debts, including the amount you will owe on the new mortgage payment after it is modified, as well as payments on a second mortgage, car loans, credit cards or child support. If the sum of all of these recurring monthly expenses is equal to or more than 55 percent of your gross monthly income, you must agree to participate in housing counseling provided by a HUD-approved housing counselor as a condition of getting a modification under HAMP.

The Second Lien Program will work in tandem with first lien modifications offered under the Home Affordable Modification Program to deliver a comprehensive affordability solution for struggling borrowers. Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified. It is estimated that up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien. Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program can automatically reduce payments on the associated second lien according to a pre-set protocol. Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by Treasury, allowing servicers to target principal extinguishment to the borrowers where extinguishment is most appropriate.

FHA-Home Affordable Modification Program (FHA-HAMP)

The FHA-HAMP authority allows the use of a partial claim up to 30 percent of the unpaid principal balance as of the date of default combined with a loan modification. The objective of FHA-HAMP is to assist FHA mortgagors who are in default to modify their mortgage to an affordable payment. According to Mortgagee Letter 2000-05 and subsequent guidance, disposition options (pre-foreclosure sales and deeds-in lieu of foreclosure) are available immediately upon default, if the cause of the default is incurable, i.e. the borrower has no realistic opportunity to replace the lost income or reduce expenses sufficiently to meet the mortgage obligation.

To confirm if the mortgagor is capable of making the new FHA-HAMP payment, the mortgagor must successfully complete a trial payment plan. The trial payment plan shall be for a three month period and the mortgagor must make each scheduled payment on time. The mortgagor's monthly payment required during the trial payment plan must be the amount of the future modified mortgage payment. The Mortgagee must service the mortgage during the trial period in the same manner as it would service a mortgage in forbearance. If the mortgagor does not successfully complete the trial payment plan by making the three payments on time, the mortgagor is no longer eligible for FHA-HAMP. Prior to proceeding to foreclosure, the Mortgagee must re-examine and re-evaluate the borrower's financial condition and confirm that none of FHA's other Loss Mitigation options could assist the mortgagor.

VA-HAMP - VA has a longstanding policy of encouraging servicers to work with veteran borrowers to explore all reasonable options to help them retain their homes, or when that is not feasible, to mitigate losses by pursuing alternatives to foreclosure.

Before considering VA HAMP, servicers must first evaluate defaulted mortgages for traditional loss mitigation actions cited in Title 38, Code of Federal Regulations, section 36.4819 (38 CFR 36.4819); i.e., repayment plans, special forbearances, traditional loan modifications. If the payments are affordable, then the traditional loss mitigation option will be used to help the veteran retain the home and avoid foreclosure. If none of the traditional home retention loss mitigation options provide an affordable payment, the servicer must evaluate the loan for a VA HAMP modification prior to deciding that the default is insoluble and exploring alternatives to foreclosure. The recent circular provides servicers with temporary authority to modify VA-guaranteed loans in a manner similar to HAMP. This VA HAMP authority can be utilized only if the following three requirements are met: 1) borrower does not qualify for traditional home retention loss mitigation, 2) the property is the borrower's primary residence, and 3) the VA HAMP modification is agreed upon by December 31, 2012 (current HAMP expiration date). The VA guaranty amount on a HAMP modification will be calculated pursuant to 38 CFR 36.4815, which could increase the maximum guaranty amount on the modified loan.

IRRRL Facts for Veterans -IRRRL stands for Interest Rate Reduction Refinancing Loan. You may see it referred to as a "Streamline" or a "VA to VA." Except when refinancing an existing VA guaranteed adjustable rate mortgage (ARM) to a fixed rate, it must result in a lower interest rate. When refinancing from an existing VA ARM loan to a fixed rate, the interest rate may increase.

No appraisal or credit underwriting package is required by VA. You should be aware, however, that lenders may require an appraisal and credit report anyway. A certificate of eligibility is not required.

An IRRRL may be done with "no money out of pocket" by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs. (Remember: The interest rate on the new loan must be lower than the rate on the old loan unless you refinance an ARM to a fixed rate mortgage). No lender is required to make you an IRRRL; however, any lender of your choice may process your application for an IRRRL. While it might be the best place to start shopping for an IRRRL, you do not have to go to the lender you make your payments to now or to the lender from whom you originally obtained your VA Loan. Veterans are strongly urged to contact several lenders. There may be big differences in the terms offered by the various lenders you contact.

Some lenders may contact you suggesting that they are the only lender with authority to make IRRRLs. Remember - Any lender may make you an IRRRL. Some lenders may say that VA requires certain closing costs to be charged and included in the loan. Remember - The only cost required by VA is a funding fee of one-half of one percent of the loan amount which may be paid in cash or included in the loan.

Fannie Mae HomeSaver Advance (HSA) An unsecured personal loan designed to help eligible borrowers cure their first lien mortgage loan delinquencies. The loan is intended to provide funds to cure arrearages of principal, interest, taxes, and insurance (PITI), as well as other advances and fees. The borrower signs a 15 year note at a 5% fixed rate with no payments or interest accrual for the first six months. Other conditions apply.

Determine if you are eligible for a Home Affordable Modification by using the simple tool on this website. www.makinghomeaffordable.gov/eligibility.html

Helpful Links from MakingHomeAffordable.Gov

If you are eligible, you can request a Home Affordable Modification by completing the easy steps below. If you need assistance completing the forms or have questions about the process, free help is available by calling the Homeowner's HOPE Hotline at 1-888-995-HOPE (4673) and asking for MHA HELP.

Step 1 — Complete the Request Form (Request for Modification and Affidavit)

The Request Form provides information to your mortgage servicer about your home and financial situation. You can download an instruction guide for completing the Request Form here. After you have completed the form, print two copies—one for your records and one to send to your mortgage servicer. All of the borrowers on the mortgage must sign the Request Form.

Step 2 — Complete the Tax Authorization (IRS 4506T-EZ Form)

The Tax Form gives permission to your mortgage servicer to request a copy of the most recent tax return you have filed with the Internal Revenue Service (IRS). Click here for instructions on completing the form. After you have completed the form, print two copies—one for your records and one to send to your mortgage servicer. Only one taxpayer is required to sign the Tax Form.

Step 3 — Gather Proof of Income

Your mortgage servicer is required to verify your income to ensure that the modified mortgage payments will be affordable for you. The type of documentation you need to provide depends on the source of your income. The simple Proof of Income Checklist will tell you what documents you need to collect if you are a wage earner, self-employed, or receive retirement income. Be sure to make copies of your income documentation and keep the originals for your records.

Making Home Affordable - Proof of Income Checklist

For each borrower who receives a salary or hourly wages:

  • Copy of your two most recent pay stubs that show year-to-date earnings.

For each borrower who is self-employed:

  • Most recent quarterly or year-to-date profit/loss statement.

For each borrower who has income such as social security, disability or death benefits, pension, adoption assistance, public assistance, or unemployment:

  • Copy of benefits statement or letter from the provider that states the amount, frequency and duration of the benefit, and
  • Two most recent bank statements showing receipt of such payment.

For each borrower who is relying on alimony or child support as qualifying income*:

  • Copy of divorce or other court decree; or separation agreement or other written agreement filed with the court that states the amount and period of time over which it will be received, and
  • Two most recent bank statement showing receipt of such payment.

* You are not required to disclose Child Support, Alimony or Separation Maintenance income, unless you choose to have it considered by your servicer.

For borrowers who are current on their mortgage payments:

  • Copies of the most recently filed and signed federal tax return with all schedules, including Schedule E—Supplemental Income and Loss.

If you have other types of income, cannot locate the required documents, or have questions about the paperwork required, please call 1-888-995 HOPE and ask for MHA HELP

Step 4 — Send the Documents to Your Mortgage Servicer

After you complete, print, and sign the Request Form and Tax Form, send these documents, along with your proof of income, to your mortgage servicer. See the list of servicers to find the correct mailing address and fax number. (See List of Participating Servicers)

Learn more about the Home Affordable Modification Trial Period:

www.makinghomeaffordable.gov/requestmod.shtml

Making Home Affordable - Borrower FAQ www.makinghomeaffordable.gov/borrower-faqs.html

How do I know if my loan is owned or has been guaranteed by Fannie Mae or Freddie Mac?

You should call your mortgage lender or servicer (the organization to whom you make your monthly mortgage payments) and ask about the program.

Both Fannie Mae and Freddie Mac have established toll-free telephone numbers and web submission processes to make this data available. Borrowers can enter information to determine if either agency owns or guaranteed the loan. This information is not a guarantee of eligibility for a refinance under HARP, as other qualifying criteria must also be met.

For Fannie Mae

Freddie Mac