Mortgage modification future

CoreLogic’s (corlogic.com) latest monthly foreclosure report indicated a continued downward trend.  In fact, July’s national foreclosure inventory rate of 0.91% was the 57th consecutive month (almost 5 years) with a lower number of foreclosures nationwide.  Even the current 2.9% national rate of home owners considered “seriously delinquent” is also lower from last July.  (Maryland’s foreclosure inventory and seriously delinquent rates are higher than the national average at 1.2% and 4.1% respectively.) All thanks to mortgage modification and foreclosure alternatives.

Frank Nothaft, chief economist at CoreLogic, contributed the decline of foreclosure inventory to a combination of loan modification, foreclosures, and a strong housing market.  Additionally, he stated that “The U.S. Treasury’s making home affordable program has contributed to the decline through permanent modifications, forbearance and foreclosure alternatives which have assisted 2.5 million home owners with first mortgages at risk since 2009.”

In the immediate aftershock of the foreclosure and subsequent financial crises, which began almost nine years ago, the government stepped in to help out at risk home owners.  The rollout of HAFA, HARP, and HAMP was bumpy and it took time for the programs to work efficiently.  Of course, these programs were not intended to continue on forever, and in fact were supposed to end several years ago.  Fortunately, Congress, the Treasury and the FHFA have recognized the need for continued assistance and extended the programs.  Providing foreclosure alternatives and mortgage modification reduces vacant homes, bolsters communities, and helps maintain a healthy housing market.

Although these mortgage assistance programs were intended to be temporary, it’s clear that a permanent solution is necessary.  The notion that a foreclosure crisis won’t or can’t happen again is naïve.  Historically, housing downturns and recessions are cyclical.  And when an economic decline occurs, a home owner assistance program should be available to provide borrowers with alternatives to foreclosure.

The Federal Housing Finance Agency (FHFA.gov) announced in an August 25th press release that HARP will be extended through September 2017.  But that will be the end of Home Affordable Refinance Program (HARP) as we know it, because a new program is slated to begin October 2017.  The new program is to be a streamlined version that will also allow those whose mortgages exceed Fannie and Freddie’s loan limits to refinance.

FHFA stated that specifics for the HARP replacement will be released as the rollout date approaches.  However, it is anticipated that the program will not require a minimum credit score; will not place limits on the borrower’s debt-to-income ratio; nor will it limit the mortgage to a maximum loan-to-value.  And unlike many refinance programs, an appraisal may not be required.  And improving from the HARP program, there won’t be cut off dates, and borrowers can use the program multiple times.

The Home Affordable Modification Program (HAMP) unfortunately is slated to conclude at the end of the year without a viable replacement.  However, the Mortgage Bankers Association have stepped in to create a streamlined solution to fill the gap.  A September 23rd press release (MBA.org) announced its successor to HAMP: “One Mod: Principles for Post-HAMP Loan Modifications.”

J. David Motley, CMB Vice-Chairman of the Mortgage Bankers Association, stated, “With Treasury’s HAMP program soon coming to an end, we all recognized that investors, borrowers, and servicers need a replacement program that provides clarity and simplicity to homeowners experiencing difficulty maintaining their mortgage paymentsOne Mod could meet that challenge by providing affordable and sustainable payment structures that improve the likelihood of success for participating borrowers.

Original published at https://dankrell.com/blog/2016/09/30/mortgage-modification-future/

By Dan Krell
Copyright © 2016

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

The Short Refi program for underwater homeowners

by Dan Krell © 2010
Homeowners
Beginning September 7th, a FHA program to assist “under water” home owners will be available as part of the multi-faceted approach under the Making Home Affordable program (which provides home owners relief opportunities). Many home owners who owe more than the value of their homes have eagerly awaited the announcement of the official start of the FHA “short refinance” program that was originally unveiled on March 26th of this year by HUD and the Department of the Treasury.

Somewhat akin to a short sale, the short refinance is a mortgage refinance when the home’s value is less than the existing mortgage principal balance. Much like the short sale, when the mortgage lender writes down the principal balance to allow the sale to occur, the short refinance depends on the existing mortgage lender to write down the existing loan balance to allow the refinance to be approved.

Although the home owner must qualify for a standard FHA refinance mortgage, other eligibility requirements for the short refinance program include (but are not limited to): the home owner must be in a negative equity position, must be current on the existing mortgage, and occupy the subject property as a primary residence; the existing loan must not be a FHA mortgage; the existing lien holder must write off at least 10% of the existing mortgage principal balance; and any subordinate loans that are not eliminated must subordinate to the new mortgage and cannot exceed a combined loan to value ratio of 115% (although the new FHA mortgage cannot exceed a loan to value ratio of 97.75%).

Home owners who obtained a loan modification may be eligible for this FHA refinance. If the loan modification was obtained through HAMP (Home Affordable Mortgage Program), the loan may be approved after the loan modification is made. If the loan modification is a non-HAMP loan, then the short refinance may be eligible after the home owner has made at least three on-time payments and the loan is current.

HomesSince loss coverage for these loans will originate from funds made available from the Emergency Economic Stabilization Act of 2008 (EESA), the FHA short refinance mortgage program must comply with The Dodd-Frank Wall Street Reform and Consumer Protection Act (which became law July 21, 2010). Home owners applying for this refinance program must certify that they are eligible for the program and have not been convicted in the last ten years of (in connection with a mortgage or real estate transaction) felony, larceny, theft, fraud, forgery, money laundering, and/or tax evasion (SEC. 1481 (d)).

HUD is advising that home owners applying for this program should be counseled about the affects of the program on their credit history and score as well as consulting their tax advisors regarding the cancellation of debt and possible tax consequences.

Although HUD’s analysis predicts that between 500,000 and 1,500,000 home owners will take advantage of the program, critics have stated their doubts and point to the lackluster performance and high rates of recidivism from similar MHA and HAMP programs. Additional criticism on the short refinance program is that although lender involvement is voluntary, success of the program relies on the existing lenders’ participation.

Additional information on the FHA short refinance program can be obtained from the Making Home Affordable program (www.makinghomeaffordable.gov; 888-995-HOPE), as well as participating FHA lenders.

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 September 6, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.