Benefits for delinquent home owners while reducing foreclosures

by Dan Krell © 2010

Additional assistance for financially challenged home owners was announced last Friday (March 26th) by the U. S. Treasury (ustreas.gov). To assist struggling home owners keep their homes and lessen the number of foreclosures, the expansion of the Home Affordable Modification Program (HAMP) will address unemployed home owners, negative equity, second mortgages, and “premature” foreclosures.

Unemployed home owners take heart. You may be afforded a mortgage forbearance period of at least three months (not to exceed six). Once you find employment you will be considered for a permanent HAMP mortgage modification if you stay current on your forbearance payments and your monthly mortgage payment is more than 31% of your monthly income. You will have to provide proof of income and the modification must meet the standard net present value (NPV) test (The NPV test compares the cash flow of a modified mortgage to the cash flow of an unmodified mortgage). However, if you do not find employment during the mortgage forbearance period, you will be considered for the Home Affordable Foreclosure Alternatives program.

If you are looking to regain some of your home’s equity, you may now have a vehicle to do so through a HAMP mortgage principal write down. Participating lenders will be offered additional incentives to provide onetime mortgage principal write downs when mortgage balances exceed 115% of the home’s value. An alternative principal reduction plan will be combined with a HAMP mortgage modification and may be permanent as long as modification payments are timely for three years.

If you’re seeking to refinance your HAMP eligible mortgage but your loan balance exceeds 115% of your home’s value, you may qualify for a FHA refinance in conjunction with a lender mortgage principal write down. The new loan may not exceed 97.5% of the value of the home (current FHA borrowers are not eligible). The refinance may also qualify to consolidate a first and a second loan under these circumstances.

If a second mortgage is giving you trouble, it may now be eligible for a modification if your first mortgage was already modified through HAMP and your lender participates in the Second Lien Modification Program.

Finally, further protections have been added to assist you if you are pursuing a HAMP modification or seeking bankruptcy protection. In an effort to prevent “premature” foreclosure sales while home owners are seeking modifications, lenders are advised to increase communication with home owners (through telephone and mail) as well as requiring a written certification that the home owner is not HAMP eligible prior to conducting a foreclosure sale. Additionally, home owners who have pursued bankruptcy protection will no longer be excluded from HAMP programs.

Although the HAMP enhancements will not be up and running immediately, the full program is expected to be available by the fall (with pieces implemented gradually). Additionally, mortgage principal write down programs may take some time to implement; however some lenders may already have similar programs in place.

To qualify for these new programs, home owners must be HAMP eligible (and meet other specific requirements). Unfortunately, reports of these programs on the internet and other media outlets are sometimes incomplete, incorrect and/or exaggerated; it is highly recommended that you check the fact sheets on the Making Home Affordable (www.makinghomeaffordable.gov) website as well as talking to a Making Home Affordable counselor.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 29, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell