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Q: I am several months behind on my home mortgage. The interest rate is 6.5 percent, which was great at the time, but is not so good now. I’ve applied to the bank for a cut in interest rate, but so far they’ve turned me down. I want to stay in my home, but can’t afford my current payment. Do you have any ideas? Thomas in Rio Rancho
A: You are not alone in facing this challenge. Many local homeowners have told us about their experiences in applying for a loan modification under the HAMP (Home Affordable Modification Program) or HARP (Home Affordable Refinance Program). The program guidelines can be so specific that they almost exclude more borrowers than they include.
After spending months complying with a lender’s requests for financial documentation, filling out forms and waiting for feedback, to get turned down for a seemingly arbitrary reason or perhaps hardly any reason at all is very frustrating. We assume that you have discussed any other possibilities with your lender, including forbearance or a repayment plan, and that none of those options will work for you.
There might be another possibility for you… If your mortgage is backed by Fannie Mae or Freddie Mac (over 50 percent of all home mortgages are), a new loan modification program for their borrowers was announced at the end of March by the FHFA, the federal agency overseeing Fannie and Freddie. The new program is called the Streamlined Modification Initiative. The concept is that all those pesky financial documentation requirements of the other loan mod programs were getting in the way of people getting approved, so they’re just doing away with them!
Of course, this is exactly the opposite of every other recent mortgage lending regulation, but what the heck, it may actually help some people… This program is similar to HARP and HAMP in that the lender can grant an interest rate reduction and a reinstatement to current status, but here they can also extend the repayment period so payments can be smaller. Here are the details:
- Your loan must be more than 12 months old and must be a first lien mortgage (not a second or third);
- Your loan-to-value ratio must be over 80 percent (you must have less than 20 percent equity in your home);
- You must be at least three months and no more than 24 months delinquent in your payments; and
- You may not have had two or more previous loan mods. You will not be required to submit financial information or to document a hardship.
Starting July 1, mortgage servicers will be required to evaluate their borrowers and send out offer letters to those who qualify. The new interest rate will be a half-percentage point above current conventional mortgage interest rates. If the current rate is 3.5 percent, your new rate would be at 4 percent, fixed. Your payment period could be extended to 40 years, and if your home is upside down (your mortgage balance is more than the value of your home), they may even eliminate principal payments on a portion of your balance.
All you will have to do to qualify for this new deal is to make the required payment for a three-month trial modification period. If you do that, they will send you a letter to sign, making it permanent. Second homes and investment properties are also eligible for this program.
Here’s an example of the difference this could make in your mortgage. If your original mortgage was $175,000, with a 30-year term and a fixed interest rate of 6.5 percent, your monthly principal and interest payment would be $1,106.12. Under this program, with a 4-percent rate and a 40-year amortization, your payment would be reduced to $731.39. If you are upside down, with principal forbearance the payment might be even less.
Now, we know what some of you are thinking about now… “Maybe I should just stop making my payment for 90 days and I’ll be rewarded with a lower interest rate.” Don’t do it! First, not making your mortgage payment for three months will really hurt your credit score, plus Fannie Mae and Freddie Mac have screening measures in place to keep “strategic defaulters” from taking advantage.
To find out if your mortgage is owned by Fannie Mae, visit the following website: knowyouroptions.com/loanlookup. To check if your mortgage is owned by Freddie Mac, visit: freddiemac.com/mymortgage.
Just to be clear, the HAMP or HARP programs might actually be better for you, but if their requirements exclude you, the Streamlined Modification Initiative might be the way to stay in your home. If you think that you may qualify for this program, contact your loan servicer and ask him or her to put you at the top of their list to review after July 1.
Good luck.
(Mark & Sheila are Realtors in Rio Rancho. Their column appears every 2-3 weeks. They welcome reader questions at Questions@MarkandSheilaTeam.com.)
