Current Housing Market Status:
In the last 3 or 4 years, a
large number of homeowners have been trying to complete a “loan workout”
with their current mortgage lender to lower the interest rate and
improve the terms of their loan. Many lenders have chosen not to accept
any new terms, rather, let the property go into foreclosure.
lenders have an overwhelming number of properties in foreclosure, they
are starting to accept loan modifications via their loss mitigation
departments. The time is ripe for consumers (who own homes) to take
action and request that their loans be modified towards better terms and
a lower interest rate they can afford, if they have high interest rate
sub-prime loans or are at risk for foreclosure.
Since, the rate of
foreclosures is increasing, everyday, the federal government, congress
and the president have approved and signed a new bill which will allow
homeowners to take advantage of a new “FHA – Hope for Homeowners
Program” designed to save more than 400,000 homeowners from foreclosure.
This program will go “live” on October 1st, 2008.
The new FHA
loan program will assist homeowners who are currently in foreclosure,
close to foreclosure or those who have high interest rate mortgage loans
like those called sub-prime loans. The program is different than a loan
modification in several ways.
The following is a bulleted layout
of the deference’s between completing a loan modification and getting
approved to do a FHA -Hope for Homeowners program.
You can recast your current loan into different terms, with the hope to
benefit from a lower interest rate, which is fixed rather than an
adjustable interest rate.
2. The costs of the loan modification are rolled on the “back-end” of the loan, which will increase the amount of money you owe.
The loss mitigation department may choose to keep the amount (that you
own on your loan) higher than your current home value. Or they may
choose to lower that amount, some, but not as much as it could be to
make your new payment comfortable in the long term. This could mean that
you may be in financial jeopardy, in the future.
4. It’s a fact,
what cause your current lender to be interested in keeping your loan on
their books are the servicing rights. They make money servicing your
loan over the term of the amortization schedule. The problem is that
many lenders have filed for bankruptcy or just got out of the business
(due to poor credits markets) and the servicing rights have been sold to
other investors. This often causes a strain, since; the servicer does
not actually have your loan documents at their facility, so they rely on
others to get your original loan information to them for review. This
process can cause the loan modification workout to be slow, in many
cases. Timing is very important, since, homeowners are not knowledgeable
in the process and they often wait to late to get the loan modification
process started. It is important to communicate with your current
lender and get the loan modification process stated, months before your
home goes to foreclosure sale.
5. If your request for a loan
modification is rejected, you may want to try it again in a few months,
since; some lenders don’t document the loan modification attempt you
made. They are often motivated by changes in the housing market and
their intent changes as more and more loans go into default. It does not
hurt to try again. It is smart to work with a loan modification
specialist, a seasoned loan officer or an attorney who specializes in
real estate, mortgage lending and loan modifications. They understand
how to speak to loss mitigation department, personnel and can get a
general idea of the mood and trends of your lenders loss mitigation
6. Many loan modification specialist work together
with attorney firms to get the loss mitigation departments to act in a
timely manner. Those same attorney firms work with the loan modification
specialist to make sure the original loan documents are not fraud
ridden. This is a good approach, yet it can cost the homeowner
additional money, since both the loan modification specialist and the
attorney need to be paid for their services.
7. Homeowners are
required to pay the loan modification specialists and attorneys for the
services, provided. Many homeowners think that the cost will be included
in the new loan amount, but this is not the case. Logically, lenders
are already losing money when they agree to modify the loan terms and
conditions for the homeowner, so, you can bet that they will not agree
to “package” the costs of doing the loan modification into the new loan.
That cost is paid by the homeowner, directly to the loan modification
specialist and/or the attorney. The cost can range between $995.00 and
$, 5000.00; as an average. Many loan modification specialist, senior
loan officers and attorney firms can work out a payment plan, yet, many
require at least 1/2 upfront before they start the loan workout.
Understand, there is no guarantee that your loan modification or loan
workout will be accepted. You will still have to pay your representation
your agreed amount. A large percentage of loan modifications and
workouts are accepted. So, it’s a good bet, since, most people do not
want to loose their homes to foreclosure.
8. Loss mitigation
representatives, (most often) do not require you to pay for a new
appraisal. Instead, they have your representative provide census track
data, a BPO (broker price opinion) or a print out of valuation from
title company market sales data. 9. If you are in foreclosure and costs
have been incurred from posting your foreclosure sales data, attorney
fees, title costs or other costs; you could be liable for those costs,
if our current lender requires it (as a requirement to the loan
10. Loss mitigation departments may choose to
approve you for a new loan which is (another adjustable or tiered -fixed
loan). Be careful. Do your homework or “talk-it-over” with your
FHA- Hope for Homeowners Program:
federal housing administration (FHA) has required that all homeowners
who become approved for this program accept a 30 year fixed rate
program. No other loan types will be accepted. You can only qualify for
2. FHA will loan up to 90% of the current value of
your property. This means that if you purchased your property for a
higher purchase price and currently have a loan amount higher than what
the value of the property is presently, you can become approved to do a
loan amount at 90% of what your current house is worth.
3. If you
have more than a 1st trust deed lien (subordinate liens) on your
property and your property value has severely, diminished; your current
lenders may take the loss when you get approved under the “Hope for
Homeowners Program”. Usually, the subordinate lenders loose, unless they
purchase the primary lien. Most do not purchase the 1st trust deed
lien. So, the subordinate lender takes a loose on their investment.
FHA’s goal is to keep as many homeowners in their homes. They
understand that it would be better to do a loan for a homeowner rather
than have that property go into foreclosure, be place into the retail
real estate marketplace, causing a further degrading of the housing
5. The FHA underwriting guidelines are currently more
liberal than any other loan guidelines in the current market. FHA is
more forgiving in their approach to mortgage lending.
6. The FHA underwriting guidelines have not been
disclosed. As October, 1st, 2008 approaches, lenders, processors and
underwriters will have a more clear idea as to what is required to get a
7. Homeowners will (probably) be required to pay
for a new FHA appraisal, as a condition for loan approval and closing.
Underwriting guidelines will determine if this is true. The average
costs for an FHA appraisal is ranges, $300 - $450.
8. Income to
debt ratios will be determined and posted in the underwriting
guidelines. Consult your loan modification specialist or loan officer.
The loan servicing companies that service, sub-prime loans will
(probably) be more inclined to accept a loan modification, since they
will want to transfer the lien to FHA, rather than keep it on their
books. They have taken huge losses and have an overwhelming desire to
get rid if their current problems. Have patience with these lenders,
since, they do not keep your actual loan documents at their facilities.
They will have to request them. Many loss mitigation personnel are
stressed and will want to make a determination as to your file, fast.
This is an advantage to you! Work closely with your loan officer to get
the items needed for loan submission.
10. If you live in a heavily
populated area like Los Angeles, Orange County, San Francisco, Seattle,
Portland, Denver, Miami, etc., you will more than likely have a higher
percentage of success with a loss mitigation department. This is because
there are more homes in foreclosure in concentrated housing areas.
Even though we have not seen the FHA underwriter guidelines, (since
they have not been delivered to the underwriters) they will be available
on or before October, 1st, 2008. We can expect that the guidelines will
probably focus on a person ability to make the new housing payment and
not the persons credit score. We call this "ability to pay"!
If you're, FHA -"Hope for Homeowners Program" loan application is
accepted by FHA; your current lender will still have to accept the
condition which FHA places on the loan. This means that your current
lender may to take a loss in equity by accepting the FHA loan buyout,
13. The good news is that your current lender (already)
understands that they will take a loss in equity, if the property goes
into foreclosure. If they don't accept the FHA buyout, they may have to
place your foreclosed property into the retail sales marketplace. This
means that they may have to pay a Realtor up to 6% commission, wait for
the property to be purchased, incur additional holding cost, pay a
gardener, electricity and water bills. All the while, they realize that
the property will probably be reduced in value even more as additional
foreclosure properties come on to the marketplace. This is not a rosy
situation for them, so, most will realize that it would be better to
sell the loan to FHA and take less of a financial loss.
main benefit to your current lender in accepting the terms of a FHA
buyout is that under the FHA guidelines, they can benefit from a portion
of any equity gain in the property for up to 5 years, at the time FHA
buys the loan. If the homeowner chooses to sell the home within the 5
year period after the close of the new FHA loan; the lender can
participate in a percentage of any equity gain. This single condition
will cause many lenders to accept the FHA loan buyout. Ask your loan
officer for information regarding lender participation in an equity
15. Many lenders are fully; "FHA approved lenders" and will
require that your loan be recast within the FHA loan department of your
current lender. Therefore, ask your loan officer if your current lender
(note holder) is FHA licensed. This will save you time and headaches,
since; many loan officers will try to do the loan on your behalf without
determining if your current lender wants the new FHA loan on their own
books. This may be a condition for an FHA loan approval, by your current
lender. If our current lender is already an approved lender, they might
as well sell the loan to FHA, direct, correct?
16. Third party
cost like, attorney fees, loss mitigation fees, foreclosure posting
fees, etc., will be absorbed by your current lender under the FHA - Hope
for Homeowners Program. You will not incur these fees under the
program. The lender will take this loss, too.
17. As part of the
Foreclosure Prevention Act of 2008, 1st time homebuyers are encouraged
to purchase homes between April, 2008 and July 2009. They can receive up
to $7500 dollars in tax credits from the federal government. This
program has been established to speed up the housing recovery by getting
people to purchase homes. Additionally, it will cause home sellers to
purchase homes, as well, since they are often "move up" buyers. This
program is part of the overall attempt to correct the bad housing
18. Credit Score vs. Your Ability to Make the Payment:
These two factors will be outlined in the underwriting guidelines. I
would expect that the ability to pay will override the credit score
issue, since, most people having problems making their housing payments,
already, have degraded credit scores. Consult your loan officer for
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 to
give your self time to use one or both options.
modification is a good option for many, if your have proper
representation and get a favorable deal. 2. You will have to pay the
costs for this type of loan modification. 3. You will not have to pay
for an appraisal, in most cases.
Visit this site for more information: http://www.LoanModificationContacts.com
FHA - Hope for Homeowners Program:
This program may be a better deal for you, if your lender is no longer
in business (sub-prime lenders and prime lenders). It can still be a
great benefit to you if your lender is still in business and wants to
remove some bad assets from their books (understanding) you might become
one of those bad assets. Your loan officer can provide this information
2. Since, FHA will go to 90% of the current value of
your property; you can be the real winner. This simple fact means that
you will have a better opportunity to qualify under a 30 year fixed loan
and your housing payment will be more affordable, then what you are
3. You will most likely, be required to pay for
an appraisal. Ask your loan officer about this, since; the underwriting
guidelines have not come out, yet.
4. You may or may not have to
pay for the closing cost to procure the loan. It has not been
determined, who actually pays for the closing costs. It will be in the
underwriting guidelines, when they come out. Ask your loan officer.
Credit Score vs. Ability to Pay: Underwriting guidelines will determine
these two factors. FHA underwriters will probably be more forgiving and
weight their approval on your ability to make the monthly housing
payment. We will have to wait for the underwriting guidelines. Ask your
loan officer about these two factors.