Loan Modification

Loan Modifications

Loan Modifications can help homeowners owing to a process called mortgage modification where the contract terms agreed to by lender & borrower can be modified from the original terms of the Mortgage. A program called HAMP or Home Affordable Modification Program which is part of the Making Home Affordable Program made by the Financial Stability Act Of 2009 has been implemented to help 7-8 million struggling homeowners who are at risk of foreclosure. The Programs (HAMP) purpose is to make standard Loan Modification guidelines for services such as banks, credit unions, VA, FHA, USDA & Centralized Housing Finance Agency, when evaluating a borrower for a potential Home Loan Modification to take into consideration numerous key factors.

There are particular eligibility requirements for the HAMP Loan Modification program.

• Loans originated on or before January 1, 2009

• First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750

• Higher limits allowed for owner-occupied properties with 2-4 units

• All borrowers must fully document income, including signed IRS 4506-T, proof of income (i.e. pay stubs or tax returns), and must sign an affidavit of financial hardship

• Property owner occupancy status will be verified owing to borrower credit report and other documentation; no investor-owned, vacant, or condemned properties

• Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default

• Modifications can start from now until December 31, 2012; loans can be modified only once under the program

Terms and procedures

• Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation.

• Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive: meaning that the net present value of expected cash flow is stuck-up in the modification scenario: the servicer must modify absent fraud or a contract prohibition.

• Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation assumptions, foreclosure expenditure and time lines, and borrower cure and redefault rate assumptions.

• Servicers will follow a individual sequence of steps in order to reduce the monthly payment to no more than 31% of yucky monthly income (DTI).

• The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.

• The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.

• Servicers must enter into the program agreements with Treasury’s financial agent on or before December 31, 2009

Loan Modification can help homeowners save their Home from foreclosure and can have many benefits as well. Some key benefits are reducing the principal amount, saving tens of thousands of dollars by lower interest rates, reduction of penalties and late fees, capping monthly payment based on percentage of household income. Loan Modification can include participants that are current, late,
in default, liquidation or foreclosure and may vary from program to program.

Resource: Wikipedia HAMP

Home Mortgage Loan Tips After Bankruptcy

When a bankruptcy is discharged, most lenders will offer you a Home Loan. In many situations, these lenders will not require new lines of credit or a high credit rating. Purchasing a home with good or fair credit has its advantages. These individuals likely obtain better mortgage rates and qualify for a range of home loans. Here are a few tips on ways to increase your credit rating prior to applying for a Home Mortgage Loan.

Timely Payment

The practice of paying creditors on time will have a positive effect on your credit report. If bills are regularly paid on time, your score will increase, but paying a bill even one day late might decrease your credit score by as much as 10 points. Whenever possible, pay bills a couple of days before the due date. Procrastinating until the due date to pay credit card bills, utility bills and any other bills that are credit worthy may not have a negative effect on your score although, you may gain some extra points with the habit of early payments. If at all possible making double payments for your bills will greatly reduce your interest rate and will also reflect well within your credit report.

Maintain Low Credit Card Balances

Following a bankruptcy, it is beneficial to open a new line of credit in the form of a credit card, gas card, retail store card, etc. If applying for a new credit card, avoid high balances. Ideally, consumers should keep credit cards at approximately 25% of the limit or less. Maintaining a high available credit limit will show creditors that you are not in a desperate situation, on the other hand, a consistently high balance on your available credit will lower your credit score.

Avoid Unnecessary Credit Inquiries

Sometimes credit inquiries are can’t be helped, especially when working on re-establishing credit, avoid applying for too many credit accounts. Many consumers are unaware of the damage such inquiries can cause. One inquiry can decrease your credit score by 10-12 points. Normally your credit score is already low after a bankruptcy, it is very important to keep inquiries to a bare minimum.

Monitor Your Credit Report

While attempting to increase your credit rating, it is important to monitor your credit reports consistently. Home buyers wanting to get approved for a low mortgage rate will need a decent credit score to make this happen. Following a bankruptcy, it takes a considerable amount of time to achieve a higher credit rating. If you take immediate steps to Increase your credit rating, it is possible to get approved for a lower mortgage rate within 2 years of bankruptcy, when trying to get a Home Mortgage Loan.