This week, amid groundbreaking health care legislation, many missed the Obama administration’s other big news: a major reworking of its troubled $75 billion foreclosure prevention plan. In an attempt to help those hardest hit by the housing crisis, the newly revamped program targets homeowners who are unemployed or underwater in their mortgages (owing more on their loans than their homes are worth). While only 170,000 homeowners have completed loan modifications under the President’s plan thus far—out of 1.1 million who began the government's Home Affordable Modification Program last year—the current effort is designed to help 3 million to 4 million homeowners avoid foreclosure by the end of 2012. Because of HAMP's track record thus far, the new provisions are to be taken with a grain of salt. However, here's a basic overview of the new HAMP guidelines. Borrowers Get Aid in Three Ways In the coming months, (1) the unemployed can qualify for up to a six month stay on their mortgage payments; (2) in turn, participating banks will receive financial incentives to reduce mortgage balances for underwater homeowners; and (3) lenders can refinance mortgage loans secured by the Federal Housing Administration. A Reprieve Specifically for Unemployed Homeowners In order to give unemployed homeowners more time to find a job, under the new plan if you are jobless and live in their home, have a mortgage of below $729,750 and qualify for unemployment benefits, you will not be required to spend over 31 percent of their monthly income on your mortgage for up to six months. If you find a job during that time, you may qualify for a loan modification that could permanently reduce your payments. If you cannot find a job in that time, lenders will encourage a short sale or deed-in lieu of foreclosure. Keep in mind, however, a short sale or deed-in lieu almost always results in the borrower owing more money after the transaction. If you are faced with a short sale or deed-in lieu as your only option, it's best to simply file for bankruptcy and surrender the property. This is the only way to truly wash your hands clean of the leftover debt. Bankruptcy is also less headache-inducing than a short sale. If you couldn't get your lender to agree to a modification that would pay the lender the full amount of the loan, how hard do you think it will be to get the same lender to accept a lesser amount through a short sale? It's simply not worth your time to bend over backward for a mortgage lender- call a bankruptcy attorney instead. Possible Assistance for Underwater Homeowners While any assistance for underwater homeowners under this plan depends largely on the willingness of mortgage companies to participate, over the next three years, the program will offer expanded incentives to lenders who reduce mortgage payments for borrowers who have mortgage of less than $729,750, owe at least 15 percent more than their home's current value, but who have also missed no payments and can show they are in financial trouble. Again, this is a carrot with no stick. Lenders have already shown a general unwillingness (or inability) to voluntarily modify loans. We remain skeptical that this additional incentive will really increase any voluntary loan modification. Doing What You Can to Qualify To assure you can qualify for government assistance in your time of need, try to adhere to a few basic tenets.
- First, homeowners must not have missed any payments on their home loans. Largely these modifications anrefinancing agreements are based on the premise that you have not yet defaulted on your mortgage. This good faith effort to stay afloat in your mortgage—even if you’re underwater—might be just what you need to keep your home, and your financial head, above water, in the months and years to come.
- Second, you must live in their home as a primary residence. These programs are for those men and women trying to hold on to a source of shelter; not a vacation or rental property.
- Third, you must provide proof of income (even when you don’t have one). This program targets American citizens who are truly in need of financial assistance (i.e., people struggling because of a lost job or a mortgage that is slowly (or quickly) depleting their monthly income). Proof that you can’t afford your mortgage (i.e., that you’re in financial trouble) is often required before these changes can take place.
While we are hopeful that the foreclosure crisis can be stopped, the reality of the situation is that the government's program makes lender participation voluntary. That means your lender doesn't have to work with you! However, a recent decision from the Durham bankruptcy court held that under the current bankruptcy code, some mortgages CAN be modified by the bankruptcy court. To find out if your mortgage might be eligible,contact The Law Firm of John T. Orcutt for a totally FREE consultation at +1-919-646-2654.