Mortgage Modification Programs

Struggling homeowners cannot refinance due to plunging property values resulting in upside down mortgages, and even when they find a buyer for their property there is the challenge of not be able to sell for enough to repay the outstanding balance.

According to the data from the Mortgage Bankers Association (MBA) 11% of the nation’s home mortgages were delinquent by at least one payment, already in foreclosure or entering foreclosure. 7% of mortgage were at least 1 month past due and 3% of the nation’s mortgages are currently in the foreclosure process. MBA estimated that a total of 2.2 million homes went into foreclosure in 2008, a number the group expects will grow significantly in 2009 as unemployment rises while the home values continue to plunge.

The quarterly survey published by the Federal Reserve, called the Flow of Funds Report, shows the movement of funds between households, businesses, the government, and financial institutions. It also shows whether debt levels increased or decreased and what the savings rate is. According to the report, the total value of all home mortgages in the U.S. was $11.2 trillion through the third quarter of 2008, which ended in September. Theses figures in combination with other hardships American’s are facing paint an uncertain picture with a continually shrinking list of options.

There are several plans already underway lead by Federal Housing agencies & the Treasury, which may be expanded. Two plans that are receiving a lot of attention are being presented by the Federal Housing Administration (FHA) and the Federal Deposit Insurance Corporation (FDIC).

The largest plan, known as “Hope for Homeowners” offered by the Federal Housing Administration (FHA) allows lenders to refinance borrowers into an FHA-insured fixed rate mortgage, if the lender writes down the existing mortgage balance and pays an up-front insurance premium. Borrowers participating in the plan must share any future appreciation of the home’s value with the federal government. The biggest challenge to face this plan is the resistance of banks and current mortgage holders to agree to write down a mortgage’s principal thus reducing the value of the loan.

The plan run by the Federal Deposit Insurance Corporation (FDIC) and used during that agency’s conservatorship of IndyMac last year, lets individual borrowers and lenders re-work a mortgage themselves, but commits the government to share in 50 percent of the losses, should the borrower re-default. This plan has not received as much attention as the FDA plan, and it seems that every week that goes by another plan is introduced to a sour reception.

The Mortgage Bankers Association’s most recent report shows delinquency and foreclosure statistics are likely less than market reality. It appears that some larger banks have halted all foreclosures while other banks have stopped keeping track of how far behind borrowers are while they work with those borrowers on modifying their mortgages.

In fact, according to MBA, almost every state had an increase in mortgages that were more than 90 days past due but were not in foreclosure. Normally, a mortgage that is more than 90 days past due is foreclosed on.

Any proposed plan faces a daunting task, given the massive numbers of mortgages in foreclosure and the staggering value of the mortgage market itself however there is hope. Working with your lender to find a mutually acceptable agreement to modify your mortgage seems to be the next step in approaching the end of this painful market normalization.

Many of homeowners have questions regarding the President Barack Obama’s Housing Plan. A lot of Americans are in various stages of foreclosure and the help can not come soon enough. So who is eligible?

The program is expected to help those who are in danger of not making their monthly payments. The applicants do not have to be behind, but may be asked to demonstrate that they may be short on making their monthly payments. The program’s eligibility is determined by whether the monthly mortgage payment is above 31% of applicant’s gross income. Jumbo loans (the loans over $417,000) are not eligible and neither are second mortgages.

The lenders and loan servicers are encouraged to participate in the program by receiving subsidies and various incentives from the government but are not otherwise required to participate. Servicers receive $1000 per loan modification and will continue receiving $1000 each year for three years if the borrower continues being current on the loan.

Watch an interview with Early Show’s financial adviser Ray Martin, who answers some of the questions.

Housing Plan HASP

While the plan which is scheduled to begin on March 4th 2009 is estimated to help 9 million homeowners, there are certain groups that are unfortunately outside of the plan’s reach. Here are the five most important things you Must know about the HASP:

1. Homeowners with conforming mortgages (mortgages under $417,000) may qualify to refinance at a lower rate. Some homeowners may be able to qualify even if they have never been seriously behind on their mortgages.

2. Homeowners with subprime or so-called “exotic” loans may qualify
to modify their current loans to make the payments more affordable.

3. Both of the above groups may be able to qualify even if their property is worth as much as they owe.

4. Homeowners who’s loan amounts are much higher than the value of their property most likely are outside of the scope of the proposed plan. This unfortunately will affect the markets where real estate prices have taken the steepest declines, such as California, Florida, Nevada and Arizona.

5. Homeowners who’s loans were not securitized by Fannie Mae or Freddie Mac may find it difficult to refinance or adjust their rates. Most homeowners may not know or realize that unless they have specifically asked their lenders.

“It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans. It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell,” Obama said Wednesday. “It will not reward folks who bought homes they knew from the beginning they would never be able to afford.”

Video by Associated Press