Tuesday, April 13, 2010
Loan Modification Truths and Misconceptions
This past February marked the one year anniversary of the Obama Administration’s Home Affordable Modification Program (H.A.M.P.). As a plan to stabilize the housing market and help homeowners, it has evolved and changed to meet the challenges most Americans face in today’s tough economy. Recent changes have made the process of modifying a mortgage difficult to navigate. In addition, depending on the lender few people have had permanent success. Even though each homeowner’s situation is unique and should be reviewed individually, here are some of the things to keep in mind when looking towards modifying a mortgage.
Principle Reduction – One of the major recent changes to H.A.M.P. is the encouragement by the U.S. Treasury Department for principle write-downs for borrowers who owe more than 115% of the current value of their home. As part of a H.A.M.P. modification, lenders would run a Net Present Value assessment to assist in the qualifying of struggling homeowners. Many of these homeowners would not normally qualify towards a modification without a principle write-down. The write-down approach will include incentives for servicers and lenders to lower mortgage principle over time. As of today very few loans have had their principle reduced. We are monitoring how lenders respond to this enhancement in the coming months.
Improvements of Timeframes – To reach more borrowers who may be candidates for H.A.M.P., the U.S. Treasury has also asked lenders and servicers to make a ‘reasonable effort’ in contacting homeowners who have missed two or more payments. This includes minimum solicitation requirements notifying homeowners by mail and by phone. In addition, the lender or servicer must provide proof that a homeowner is not a candidate of the new Making Home Affordable enhancements prior to any major action. The lender or servicer is also limited in the scope of their foreclosure action and sale.
Who’s Your Lender – This is a great misconception for the majority of homeowners. When a homeowner is speaking with their bank it is more likely that they are simply talking to a servicer and not the entity that holds the homeowner’s mortgage. Many people believe that if they are making their payments to Bank of America/Wells Fargo/Citibank/Chase that Bank of America/Wells Fargo/Citibank/Chase owns their loan and they are the decision maker. More than likely they are not – they are simply a servicer. They are the equivalent of a property manager. They collect the homeowner’s payments, send them the appropriate notices when something changes, and answer their calls. The real owner of the loan pays the servicer to deal with the homeowner and service the loan. The homeowner’s loan was possibly sold to Fannie Mae, Freddie Mac or may just be part of some mortgage backed security.
Modifying a mortgage loan will damage a homeowner’s credit score – Unfortunately this may be the case. When the original terms of a note are modified for a lesser amount it is reflective on the borrower’s credit report and may have an impact on their credit score. If the homeowner is saving a considerable amount of money per month by modifying their mortgage payment their respective score may not be as important.
We are monitoring how each lender incorporates these new recommendations and how they will affect homeowners both in the short and long term. If you know someone who is having trouble making their mortgage payments or has questions about loan modifications they should contact a licensed Florida attorney for further assistance.
- Sam Wax, Yesner & Boss, P.L.