| Wednesday, November 25, 2009 |
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New Hope and Help for Struggling HomeownersWhen the housing bubble burst in 2006-2007, observers attributed the jump in foreclosures to subprime and exotic mortgages. Those loans, which typically required small initial monthly payments that climbed out of reach, enabled millions of buyers to purchase homes they couldn't have afforded with a traditional mortgage. A year or two later, when the loan payments adjusted upward—on properties that had lost value instead of gaining it—borrowers had no way to avoid foreclosure. Despite lenders having largely abandoned subprime and exotic loan products, the housing landscape doesn't look much improved today. According to RealtyTrac, Irvine, Calif., a real estate Web site and online marketplace for foreclosure properties, foreclosure filings in the first quarter of 2009 were up 9% from the previous quarter, and nearly 24% from the same period in 2008. What has changed is the reason behind the foreclosures: unemployment. Statistics reflect a sharp increase in defaults on traditional, fixed-rate loans, a sign that the foreclosure problem now is more the result of a bad economy than bad loans. In response, the Obama Administration, in March 2009, launched a $75 billion plan that would keep an estimated seven to nine million homeowners out of foreclosure over the next few years. The program focuses on making monthly mortgage payments more affordable. So, whether you're still holding on to a subprime or exotic mortgage or you're one of the millions of workers who has lost work, there's new hope for saving your home. Keep in mind, too, that another potential option is to refinance a loan from another source at your credit union, if you qualify. That avoids many of the issues that resulted in mortgage problems in the first place. Multipronged effort addresses mortgage affordabilityThe Administration's Making Home Affordable (MHA) program consists of two remedies for homeowners in trouble:
The Second Lien program reduces payments on a second mortgage when the first is modified under the Home Affordable Modification program. Or, in some cases, the second loan will be eliminated through a lump-sum buyout by the government. This addresses the issue of unaffordable "seconds," which often complicate or prevent modification of the "first." To be eligible for a Home Affordable Refinance:
To be eligible for a Home Affordable Modification:
Visit MakingHomeAffordable.gov to determine your eligibility for either a refinance loan or a modification and to find out if your servicer is participating in the program. Servicers given tools, motivation to help borrowersBefore the launch of the Making Home Affordable program, many past-due borrowers complained that servicers were not as committed to making loan modifications as they claimed to be. Rick Harper, housing director and vice president of Consumer Credit Counseling Service of San Francisco, a HUD-certified housing counseling agency, says the reason previous foreclosure prevention efforts were not as effective as they needed to be is because they were largely voluntary, often complicated, and sometimes expensive. Servicers also lacked clear and consistent guidelines for making modifications. Under the MHA program, servicers now have the tools and the rules they need to make loans affordable. They also are receiving financial incentives from the government for each borrower they keep out of foreclosure. The reason behind the foreclosures now is unemployment.
Borrowers, too, will be rewarded for success. Homeowners who keep up with their new, modified payments are eligible to receive an annual $1,000 reduction in principal on their first mortgage for up to five years. They can receive an additional $250 per year if they keep up payments on a modified second mortgage. That's up to $6,250 of principal forgiven on your first mortgage over five years! Patience requiredSome of the first borrowers to contact their servicers about the MHA program have complained of long waits and unresponsiveness. Program officials and housing counselors are asking homeowners to be patient as servicers roll out the new program. "We're beginning to see a few [loan modifications] that have worked their way through the process," says Harper. But, he says, at this early stage it could take 90 days or longer from application to modification. Regardless of delays, Harper says you should contact your servicer now if you're struggling. Harper also reassures borrowers that the foreclosure process will be suspended once you've contacted your servicer and it's been determined you meet the minimum eligibility criteria for the program, even if the modification can't be finalized for a while. However, he says, if you are not accepted after the full eligibility evaluation is completed, the foreclosure process will pick up where it left off. Borrowers are encouraged to use the delay to check eligibility requirements, gather documentation, and come to the conversation prepared. If you don't qualify for the Making Home Affordable program"The Making Home Affordable program has specific requirements some borrowers won't be able to fulfill," says Harper. "But other options may exist with the lender." These other options include:
While not every lender offers all these options, and some, such as the Federal Housing Administration (FHA) and Veterans Administration (VA), may offer different or additional ones, virtually all reputable lenders—especially at your credit union—have some tools to help borrowers in a bind. You and the representative you speak with will determine together which, if any, of the lender's programs will get you back on track. The key is contacting the lender sooner rather than later. A housing counselor can help you narrow your options and weigh the pros and cons of each one.
"You're doing yourself a service by calling [the lender] to let them know about your situation as soon as you foresee missing a payment," says Harper. You can find contact information for your lender or the servicer, which collects mortgage payments on behalf of the lender, on your monthly billing statement or in your payment coupon book. To ensure your conversation with the lender representative is as productive as possible, prepare for the call by answering these questions:
Harper advises going into the call also knowing how much equity you have in the home and what your monthly income and expenses look like. The lender will need your financial information to devise a realistic solution. If your situation isn't easily resolved during your initial call or soon after, ask the lender about the foreclosure timeline in your state—when would the foreclosure sale take place and what is the last day you could stop the sale? During the process, keep a log of all communications. Follow up any requests you make by phone with a letter, and make sure all agreements are put in writing. And stay in the property—you may not qualify for certain types of assistance if you move out. Housing counselors play important roleHousing counseling agencies approved by the U.S. Department of Housing and Urban Development (HUD) to provide default or delinquency counseling are another source of help for homeowners. A housing counselor can help you narrow your options and weigh the pros and cons of each one. He or she might also make the MHA process more comfortable for you if you don't want to deal directly with your lender or if you're having trouble navigating the system. Harper, whose agency counsels thousands of homeowners each year, sees firsthand how a housing counselor, as a disinterested third party, can help lenders and borrowers succeed. "As counselors, we aren't asking for the money, and that alone separates us from the lender," says Harper. You're doing yourself a service by calling the lender sooner rather than later if you foresee missing a payment.
Housing counseling agencies that are nonprofit credit counseling services also can provide budget and debt counseling. Depending on your situation, a counselor may be able to enroll you in an agency-administered debt management plan that could reduce your monthly payments to other creditors, which may be enough to keep you current on your mortgage payments without ever having to contact your lender. Borrowers with a debt-to-income ratio of 55% or more who modify their loan through the MHA program must meet with an approved counselor to design a plan for eliminating non-housing debt, reducing expenses, increasing income, and building savings. Find an accredited, nonprofit credit counseling agency through the National Foundation for Credit Counseling's (NFCC) Web site, or call 800-388-2227 to search by phone. If you need housing counseling as well, choose an agency that provides both types of counseling. Or contact HOPE NOW, an alliance of housing counseling agencies, mortgage companies, and others that provide free foreclosure prevention assistance, at 888-995-HOPE or hopenow.com. 
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