It’s time, once again, for New Year’s resolutions and along with the promises you make to exercise more, eat less, and spend more time with loved ones, it might also be time to take charge of your financial health, starting with a mortgage overhaul.
Most homeowners agree that their house payment is not only their best investment, but also their largest monthly expense. With the recent instability in the market, it’s quite possible that your home loan may be less than optimal. The November Housing Scorecard, released by the U.S. Department of Housing and Urban Development (HUD), featured key data on the health of the housing market including:
• Since April 2009, record low interest rates have helped more than 8.3 million homeowners to refinance, resulting in more stable home prices and $15.2 billion in annual borrower savings.
• Home prices remained level in the past year after 33 straight months of decline and homeowners added $95 billion in home equity in the second quarter.
• More than 3.73 million modification arrangements were started between April 2009 and the end of August 2010 —more than double the number of foreclosure completions during that time. These modification arrangements included nearly 1.4 million trial Home Affordable Modification Program (HAMP) modification starts.
What is HAMP?
In a previous article I gave a brief overview of the different modification programs available to help homeowners under the Making Home Affordable program. The Home Affordable Modification Program (HAMP) is specifically designed to help existing homeowners modify the terms of their primary mortgages to reduce their monthly payments, even if the property is underwater.
Under this program your monthly payment will be adjusted to equal only 31% of your gross monthly income. This is done by reducing the interest rate on your mortgage to as low as 2%, or extending the life of your loan to 40 years. If the monthly payment is still not low enough, the loan servicer may reduce the principal amount you owe until the loan reaches maturity. You would still be responsible for payment of the principal, but the repayment is deferred.
To be eligible for HAMP, you must be the owner-occupant of a one-to-four unit home, have a first lien mortgage that was originated on or before January 1, 2009, have a monthly mortgage payment including taxes, insurance and HOA dues greater than 31% of your gross monthly income, and have a mortgage payment that is not affordable due to demonstrated financial hardship.
How Does It Work?
Once you meet the eligibility criteria and your servicer obtains permission to modify the terms of your loan, you will typically undertake a three month trial period to see if the new payment plan will work for you. The trial period provides immediate relief and prevents any possibility of foreclosure. During the trial period the actual terms and conditions of your original loan remain in effect. After you make all of the trial payments on time and send in all required documentation the loan can be officially modified.
If you are scheduled for foreclosure soon, contact your servicer immediately and ask to be considered for HAMP. Servicers participating in the HAMP program are not allowed to proceed with foreclosure until you have been evaluated for a loan modification.
What Does It Cost?
There is no fee to have a loan modified under HAMP. Many agencies have cropped up promising to work with your lenders to modify your loan, or to provide loan counseling, but these are not HUD-approved agencies. Certain costs, such as back taxes, can either be paid upfront or rolled into the loan modification.
Also, following a successful loan modification, homeowners who make timely payments will receive incentives—up to $1,000 per year to a maximum of $5,000 over five years—from the US Treasury applied directly to the loan principal.
How Long Do I Have to Apply for HAMP?
The HAMP program is set to expire on Decmeber 31, 2012 and your trial modification must be in place by that date. To obtain additional information, or for loan counseling, call the HOPE hotline at 888-995-HOPE (4673).
For more information about mortgages, contact Eli Weinberger, Bank of America Home Loans, at 310-228-5503 or [email protected].
If you are in the unfortunate position of having to short-sale or foreclose on your home, as certified HAFA (Home Affordable Foreclosure Alternatives), CREOLAS (Certified Real Estate Owned Listing Agent Specialist) and CSSPIFS (Certified Short-Sale & Properties In Forecolusre Specialiast), HeArt Realtors will work with you to obtain the best possible outcome. Please contact us with all your Real Estate questions or concerns at [email protected] or call 310-259-7419.