Perhaps a little light?  New refinance options will soon be available to underwater homeowners who are current on their mortgage.  Beginning on September 7, 2010 FHA will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage the opportunity to qualify for a new FHA-insured mortgage.

Criteria for eligibility: 

1.  Credit score higher than 500 and must meet all current underwriting qualifications
2. Home must be the borrowers primary residence
3. Borrower must be up to date on payments
4. Borrower must owe more than what the home is worth
5. Borrower’s existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower’s combined loan-to-value ratio to no greater than 115%.
6. The existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75%

Contact the Walker Derby Team for more information!

In the height on the real estate downturn one would think that a bank would much rather see consistent payments with a renegotiated interest rate rather than foreclosing on a home but one would be surprised!  Studies now show that less than 5% of struggling homeowners will be approved for HAMP Modified Home Loans.  Time Magazine reported in December 2009 that less than 1% of probationary loan modifications become permanent; the actual number was 0.3% !  Yes, try absorbing that number:  0.3% were approved!

The Congressional Oversight Panel who evaluated the HAMP program concluded October 2009 that “It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now”.  To meet HAMP guidelines, the monthly payment cannot exceed 31% of monthly income.  The program is not equipped to deal with a homeowner without a steady stream of income so commissioned and unemployed homeowners will most likely be out of luck.

Of the very few homeowners who will receive permanent Loan Modifications, they will find their home sinking further underwater.  The HAMP program does not work towards lowering principal balance as only 0.01% received lower balances in their Loan Mods.  This one I am not complaining about, I don’t think a homeowner should have their principal reduced when their neighbor cannot.

The most important aspect to acknowledge is that the HAFA program is nothing but loopholes for banks to deny Loan Modifications for the people who need it most!  As a short sale expert who speaks with homeowners every day, I have heard horror story after horror story with the same outcome:  3 month “trial loan mod” equals to the 4^th month’s payment being HIGHER than when they started!  The first three months of a mortgage modification are a probation period for homeowners. While the probation period set forth by HAMP appears to be a time where homeowners can prove to their mortgage servicers they can handle the new loan terms, the probation period is really an escape clause for banks who can opt out of helping a distressed homeowner.

According to the Demott Real Estate blog:

I have been in the loan modification trial period since December 2009. I made all 3 monthly payments that IndyMac Bank required me to. Then by the 4th month they still told me they had no information on whether I was approved or not. I made a payment on March 1st and called and asked again if our plan was approved. I was again told it was in review and just to stick with the same modified payment amount. Now it’s April 10th, I called again to find out my status. I was told that our plan was denied on March 30th because we did not submit another profit and loss statement. I was never asked for another profit and loss, I was never notified that they needed one, I was never notified that we were denied. IndyMac said they weren’t required to send anything saying we were denied. So now they tell me I’m 60 days late on our loan, my case is closed for the modification app, and my credit is ruined because every month of the plan they report us delinquent. How exactly is this helping anyone? And who can I contact to raise enough hell to someone that the banks will actually have to help out the homeowners?  Comment by: Heidi Gallegos on April 10, 2010 @1:50 pm

Why is more profitable for banks to turn a blind eye than to reach out to consumers with Loan Mods?  When a loan is created, the money loaned does not come out of Wells Fargo or BOA’s reserves, rather they are just an extension to the Federal Reserve.  “Fractional Reserve Spending” can be defined as: Every dollar a commercial bank holds in its reserves from depositors, roughly nine times that amount can be used for consumer loans, including mortgages.  So in essence your lender is collecting interest on money they really didn’t loan out of their reserves.  Banks find it is a waste of money and manpower to help struggling homeowners modify their loans, they make out better foreclosing and reselling.

Perhaps one day our government will enact a plan that actually makes sense, until then…