Philip J. Outhier, Attorney at Law

 

With the recent downturn in the economy, more lenders are turning to loan modification and restructuring when borrowers are faced with financial hardship and foreclosure. While the modification varies by lender, it generally involves a change in mortgage rate, term and monthly payment of the loan with past due sums being rolled into a new balance and reamateurized loan.

In February 2009 the Federal government unveiled the, “Making Home Affordable Program” which includes two main programs: one for loan modifications and one for loan refinance. The loan modification portion is called the, “Home Affordable Modification Program” (HAMP). It is designed to reduce mortgage payments of struggling homeowners. The refinanced plan is known as the, “Home Affordable Refinance Program” (HARP). According to the specifics of the HAMP Plan the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than thirty-eight percent (38%) of his income. Next, the initiative would match further reductions in interest payments dollar for dollar with the lender to bring that ratio down to thirty-one percent (31%). Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage. Borrowers will be put on a trial modification at the new interest rate and payment for three (3) months. If they make all of their payments on time, the modification will be implemented at the new rate and be fixed for a five (5) year term. Under the HAMP, loan modification will be standardized with Uniform Loan Modification Guidelines used by Fannie and Freddie Mac and they will be implemented throughout the entire mortgage industry. To qualify for HAMP, you must have originated your mortgage before January 1, 2009, be an owner occupant, have an unpaid balance equal to or less than $729,750.00, have trouble paying your mortgage due to a financial hardship and your monthly mortgage payment must be more than thirty-one percent (31%) of your gross pre-tax monthly income.

To commence your loan modification you should first gather certain information including your gross monthly income, your tax returns, information about all of your assets, information about all of the mortgages, including second mortgages, account balances and minimum monthly payments due on all credit cards, account balances and monthly payments on all other debts, such as student loans and automobile loans, and a letter describing the circumstances that caused your income to be reduced or expenses to be increased. Next, call your mortgage servicer and ask to be considered for the Home Affordable Modification Plan or “HAMP”. Your mortgage servicer will assess your financial state to determine whether you qualify for a loan modification. Then, depending on the direness of your financial difficulty, you should retain good legal counsel. Lastly, work with your legal counsel to locate a loan modification representative to assist you.

A loan modification is usually a win/win situation: the lender receives payment on the loan and the borrower is granted an opportunity to pay their mortgage at a reduced cost. Under the “HAMP” plan there are incentives granted to both the lender and the borrower. Among the incentives, servicers will receive bonuses for each eligible modification meeting certain Federal guidelines including the borrower staying current for a period of three (3) years. To provide an extra incentive to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as the borrower stays current on his or her loan, he or she can receive up to $1,000.00 each year for a five (5) year period to keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive is paid to servicers for working with and modifying “at risk” loans before a borrower falls behind. To encourage lenders to modify more mortgages and enable more families to keep their homes, the FDIC has developed a partial guarantee initiative designed to discourage lenders from opting to foreclose on mortgages that could viably be restructured.

Borrowers who find themselves in financial distress with their home mortgage should look further into the concept of mortgage modification. A number of our clients have benefited already.

 

For questions on this matter, contact Philip J. Outhier at Outhier & Caruthers PLLC, by phone at 580-234-6300 or email pouthier@enidoklawyers.com

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