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Home Loan Modifications

Frequently Asked Questions (FAQs)

Many people  have questions regarding President Obama’s new home loan modification program (also known as the “Making Home Affordable“ plan) that  took effect on March 4, 2009.  Set out below are answers to some of the most common questions we’ve encountered.  Please note that these answers are not intended as legal advice – because every borrower and every situation is different.  If you have specific questions and would like to discuss the possibility of ALG representing you, please contact Kathleen McDermott at (703) 848-8318 or

kmcdermott@alliancelawgroup.com.

 

1.  Principal Forgiveness

Question:   I paid $325,000 for my home.  I currently owe $320,000 and my property is worth only $200,000 now.  I would like to modify my loan amount so it is line with my current property value.  Does the  government’s loan modification program require my lender to reduce the amount of my loan down to market value?

Answer:   No.  Although a lender is free to voluntarily reduce the principal amount of the loan at any time (subject to whatever restrictions may be contained in its agreement with the loan investors), the Making Home Affordable program does not require the lender to do so. The goal of the program is to help avoid foreclosures by reducing the monthly mortgage payments for qualifying borrowers for at least 5 years.   Under the government’s program, this can be done by: 

  • reducing the interest rate on the loan (either temporarily or permanently);
  • extending the repayment period on the loan to up to 40 years; 
  • temporarily reducing the principal amount of the loan (the regulations call this “forbearing”) or
  • permanently reducing the amount of the loan.  

The guidelines for the new program recognize that, from the lender’s perspective, a permanent reduction in the amount of the loan is the least likely – and the least preferred – alternative in achieving the goals of the new program.

 

2.  Multiple Property Loan Modifications

Question:  I moved out of my condo a few years ago and bought a single family residence. Instead of selling the condo, I rented it out. But  the rent does not cover the monthly mortgage payment on the condo. I am also having trouble paying the mortgage on my primary residence.  Can I use  the government’s new loan modification program to modify the loans for  for either or both of my properties?

Answer:  Under the government’s program, you can ask  your lender to modify the loan for your primary residence.  Any "negative net rental income" you have on the condo will be subtracted from your gross income in determining your “back-end”  debt to income (“DTI”) ratio.  Borrowers who will have a post-modification back-end DTI of 55% or more must certify that they will obtain credit counseling. 

Unfortunately, the Making Home Affordable program is not available for properties that are not owner-occupied.  However, many lenders are willing to renegotiate loans on investment properties, depending upon the circumstances. We would be happy to work with you to negotiate or to coordinate the negotiation of multiple loans for you.  And, if you would like to put your investment property on the market, we may be able to help negotiate with the lender a short sale or possibly a deed in lieu of foreclosure .  If you have multiple properties, we can also help you develop a strategy on what to sell and what to keep, and negotiate to get temporary help from your lender in the form of lower mortgage payments while your properties are on the market.  .  If you would like to discuss how we might assist you in renegotiating multiple loans, please contact Kathleen McDermott.

 

3. Job Loss

Question:   I recently lost my job and have no income at the moment. Do I qualify for the Making Home Affordable loan modification program?

Answer: Right now those with no verifiable income do not appear to be covered under the new program.  However, depending on the particular circumstances, some lenders may be  willing to negotiate a temporary forbearance or a temporary reduced payment while you are unemployed.  Please contact Kathleen for further information on this issue. 

 

4.  High Jumbo loan balances

Question:  I have a $740,000.00 balance on my jumbo loan. Can I modify it under the Making Home Affordable loan modification program?

Answer:    No. The plan does not apply to loans over $729,750.  However, this does not necessarily mean that a lender will refuse to modify your loan.  Please contact Kathleen McDermott for details on how we may be able to help negotiate better terms or a better rate for you if you fit into this “jumbo loan” category of home borrowers.

 

5.  Short Sales and deeds in lieu of foreclosure

Question:  I would like to sell my property and move into a less expensive area.  Will the government’s new program help me?

Answer:  Yes. Although the specific details have not yet been released, the guidelines for the Making Home Affordable program do say the government will give  lenders incentive payments for entering into short sales or deeds in lieu of foreclosure.  Please contact Kathleen McDermott for details on how we may assist you in trying to negotiate these alternatives to loan modification.

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