Real Estate
Try a Loan Modification
Having trouble making mortgage payments? You can save your home without refinancing.
By Pat Mertz Esswein, Associate Editor
From Kiplinger's Personal Finance magazine, July 2009
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If you can't afford your monthly mortgage payment and you can't refinance, a loan modification may keep you in your home.
The Making Home Affordable program, announced by the Obama administration in March, aims to reduce borrowers' monthly payments to no more than 31% of their pretax income.
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However, only homeowners in very specific circumstances qualify. Candidates must live in their homes. They can already be behind in their payments or they must prove that they stand at the threshold of default because of financial hardship. The balance of their first mortgage can't exceed $729,750, and they must make their new payment for a three-month trial period in order to qualify.
For those who qualify, though, the savings can be dramatic. Say a homeowner has a $320,000 mortgage but can't make the monthly payment of $2,023 (excluding taxes and insurance). Home Affordable could cut the payment to $1,254, with an interest rate of 2%.
And there's an additional benefit: Although the program lasts for just five years, in each of those years the loan principal is reduced by $1,000 -- as long as the homeowner stays current on the payments. After the five years are up, the lender will increase the interest rate by one percentage point a year until it reaches the prevailing rate. (For details, visit www.makinghomeaffordable.gov.)
Homeowners who qualify must also deal with a lender that's both in the program and willing to help. (Lenders get financial incentives from the government to participate.) Participation is voluntary but you can probably expect that lenders or loan servicers that handle loans owned or guaranteed by Freddie Mac or Fannie Mae will participate. By early May, 14 lenders had formally announced their participation in the program; their names and phone numbers are listed on the Making Home Affordable Web site. The extent to which these lenders will offer loan modifications remains to be seen.
If you need a loan mod, don't wait for your lender to take action. Contact your lender and ask for the loss-mitigation or home-retention department. If you get the runaround, seek help elsewhere. Consumer advocate Ralph Roberts, in Detroit (www.keepmyhouse.com), advises clients to hire an advocate. A good option is to call a HUD-certified housing counselor for free help (call the Hope Now hotline at 888-995-4673 or visit www.hopenow.com). Roberts also warns that loan-modification assistance is the new gold rush and that scams abound (see Scams Exploit Hard Times).
You may want to hire an experienced real estate lawyer to negotiate on your behalf. The lawyer should also review your original loan documents for signs that you were a victim of mortgage fraud. If that proves to be the case, you should gain additional leverage over the lender, regardless of whether it's participating in the Obama plan. The leverage will help you modify or replace your loan, as well as forestall foreclosure. If paying legal fees is an issue, seek help from a legal-aid society or from lawyers doing pro-bono work.
Reader Comments (5)
Posted by: jp at 06/09/2009 04:36:58 PM
The best solution is contacting your bank directly and doing it on your own. With basic knowledge from guide you can have great results. Visit mortgageloanmodificationsecrets.com for more information
Posted by: douglas at 06/10/2009 12:26:10 PM
Going it alone is not a great option. Mortgage modification details are tricky, the mortgage market is tricky. having a free housing counselor that works for a HUD certified agency is the best route to take. Like the article said, beware of scammers posing as resources "for a fee."
Posted by: tk at 06/13/2009 08:43:52 PM
Why do so many articles suggest that you are better off tackling a Mortgage Modification without any professional help? I just don't get it. Home Loan Modification is a winner if you are successful in getting yours approved. Even here, they offer ways in which to do it yourself. What if you say something wrong? There are a minefield of wrong answers that may get your mortgage workout denied. IMHO, I must disagree - It is way too important and the rules and guidelines are so sophisticated that your chances of success can not be nearly as good as a Real Estate Lawyer that specializes in Home Mortgage Modification. I would use an expert Real Estate Attorney that specializes in Home Loan Modification to negotiate with my lender. Especially if it were to Stop Foreclosure to save my home. Those lenders are very bright people and they want to make a profit. I don't blame them for that, I am just saying to even the playing field I would use a professional. ...I wish you well if you can get it done by yourself, but to play it safe and use a Home Loan Modification Real Estate Attorney just sounds sounds prudent to me. How about you?
Posted by: veronicabenn at 06/15/2009 12:45:02 AM
Check out www.obamamortgage2009.blogspot.com or obamamortgage2009.blogspot.com There needs to be a program for the elderly but not quite to retirement age for mortgage modification when the have lost their job during this particular recession. I made a decent wage because I put my time into a company and now have no job. I am looking at $10 - to $12 hr jobs after working all my life. You can't make a mortgage payment on that kind of money. I will eventually lose my home.
Posted by: charles Willett at 06/16/2009 02:19:07 AM
If anyone has had any luck with any of these companies, could you please post it for the ones that cannot find one to work with you. We've almost lost once and just got a second chance that want last long so I need to get something done now, so if anyone knows the right number to call, i am sure a lot of people that hasn't found them would appreciate it but check out www.obamamortgage2009.blogspot.com or obamamortgage2009.blogspot.com