Obama's Loan Modification Program Rules
First let me say that the rules are not easy to follow at and times seem ambiguous because there is not just one set of rules. The systems of loan modification qualifications are all over the map and go something like this.
The federal government has issued the highest level guidelines, yet Fannie Mae and Freddie Mac have their own specific rules and guidelines that they follow. Furthermore, individual lenders, loan servicing company's, and mortgage insurance company's usually have a set of requirements which they want met and which may be completely different from each other and different than Freddie's or Fannie's guidelines. Confused yet?
The reason for this has a lot to do with the lender and who they answer to. For example the original program the way I understand it was intended to apply to mortgages held or secured in some manner by Fannie and Freddie yet if other servicers choose to, they may also be able to qualify for the program.
The way it was originally intended to work was that you the homeowners were to call your loan servicers to discuss your hardship in order to get the lender to have mercy and modify the terms of the loan for them. But since they are over their head in phone calls they ask that you be patient – even if foreclosure is looming.
The financial requirements and hardships:
- BE VERY CAREFUL AS FOCLOSURE LAWS ARE - SUBJECT TO STATE LAW – If your mortgage is in foreclosure you are eligible, according to Fannie Mae and Freddie Mac guidelines. Foreclosure will be stayed on loans owned or secured by Fannie Mae or Freddie Mac during the loan modification process. Please remember that is only IF STATE LAW ALLOWS FOR IT. So unless you are a lawyer or know the state laws, you should consult a real estate attorney to find out what your state laws are regarding a stay of foreclosure while your loan is being modified
- Here is a catalyst for bad behavior of a rule: You must have missed a mortgage payment to qualify. WOW! This part is a better though – or you may qualify if you are at risk of imminent default because of a significant increase in the payment or other household expenses, a significant reduction in income, or another type of hardship that makes your mortgage payment unaffordable
- If you are currently in Bankruptcy, you may be eligible.
- Finally, if you are doing it by yourself without counsel, you should be warned that misrepresenting your qualifications is a Federal Crime. I'm not sure what the punishment is, but personally I would get a lawyer for something like this. And is doesn't stop here.
- You must document your income and expenses and provide (what the lender can subjectively determine) evidence of hardship or a major unfortunate negative change to your financial circumstances. The "Evidence" is not subjected to legal review by a judge in a court of law but rather, it is what ever the lender decides it to be. Again, I would use a lawyer for this. Just my opinion though as I know many of you may be much smarter than I am.
- While Freddie and Fannie require a credit report, I'm not sure about the independents. However, I read that there is no minimum or maximum credit score to disqualify you from receiving a loan modification.
- You will personally have to sign the hardship letter, the loan modification agreement and other misc. documents.
Your Property must also qualify.
- There are many homes that qualify for a Home Loan Modification and they consist of a detached home, duplex, triplex or four-unit residential property. While it varies from lender to lender, Fannie Mae and Freddie Mac guidelines allow condominiums, cooperatives and manufactured housing units.
- You, the owner, must occupy the home and both Freddie and Fannie are going to want documented proof of it being occupied as your primary residence. I was rather tired while reading the entire qualification piece, but I got the distinct impression that second homes, be they rentals or vacation homes DID NOT QUALIFY.
- An appraisal of the property is necessary to see if the modification makes sense to the lender. In other word's and this is my opinion, if the lender can make more money by kicking you out and reselling it, then that is what will happen. So having a home that fell in value, where you didn't put a big down payment on it can end up being a positive towards getting a Home Loan Modification approved.
Finally you must pass the percentage test.
- When you add up your monthly payments including mortgage, property taxes, homeowners insurance, homeowners association dues – everything that consists of paying your house monthly – that figure must be greater that 31% of your pre-tax income. Now I've heard that it can't be greater than 38%, but I couldn't find that anywhere.
- You cannot owe more than $729,720 on your single family detached home.
- The origination date of your purchase must have been before 1/1/2009
All in all the lenders would like you to contact them without an attorney and tell you that it is free, why use legal representation. Personally, I do not think that would be in your best interest, but you can make your own decisions. As an analogy, I know that if I went to court for a $200,000+ lawsuit, I wouldn't want to represent myself.