For months, thousands of homeowners have been awaiting Barrack Obama’s new administration because of the promised “Hope” and lengthy discussions regarding foreclosure prevention and mortgage relief. Of course their have been distressed homeowners who have reported better loan payments, but most are growing frustrated in a long line of borrowers awaiting a loan modification or a foreclosure. Foreclosure scams and fraudulent loan modification programs have been reported in an alarming fashion.
The new federal program to let people refinance or renegotiate their home loans is expected to help millions of Americans lower monthly payments and avoid foreclosure. So what strings are attached? Some homeowners have expressed concerns about the impact to their credit report or the tax implications from a short sale or loan modification. Other struggling borrowers who are still paying low teaser mortgage rates might fear their monthly mortgage payment skyrocketing. Here are some questions and answers on concerns homeowners might have about the Making Home Affordable program.
QUESTION- How will my credit report and score be affected?
ANSWER- According to Norm Magnuson of the Consumer Data Industry Association, a trade group based in Washington. In most cases, mortgage refinancing does not affect your score since it’s simply a rewritten mortgage, this is especially true of home refinance under a federal program like FHA since one of the terms of eligibility is that homeowners can’t have missed a payment in the past year. It is still unclear what impact a federal mortgage modification an adjustment to terms of an existing home loan, rather than a new one — will have on credit profiles, however, Magnuson said. Regulators haven’t yet determined how the loan modifications will be reported, if at all.
If you are considering submitting a new application for a loan workout or modification under Making Home Affordable, it means you’ve already missed payments and hurt your credit profile. A loan modification should improve your credit profile in the long-run since the idea is to get you on track for meeting payments. It might also free up money to pay off other debts. Credit repair has been increasing in popularity and this may be one of the factors.
QUESTION- Is it possible my payments will be higher?
ANSWER- If you’re still paying a low, introductory rate, it’s possible your monthly mortgage payment will increase slightly under the federal refinancing program. But the idea is to avoid the big interest rate spikes that typically come with variable rate mortgage loan. After submitting a request for the Making Home Affordable program, your current mortgage lender should give you a “good faith estimate” that includes your new interest rate, mortgage payment and the total cost of the loan. Compare the numbers with your current loan; you might decide that refinancing isn’t an improvement. You can also check out the payment reduction estimator on the government’s Web site at http://www.makinghomeaffordable.gov.
QUESTION- Should I wait to see if mortgage interest rates come down in a couple of months before applying?
ANSWER- Probably not, since mortgage rates are at historic lows. Last week, rates on thirty-year mortgage loans inched upward to nearly 4.9%, but that’s still close to the lowest level since the Great Depression. Ken Inadomi, director of the New York Mortgage Coalition said, “Waiting for mortgage rates to drop further would be irresponsible and could backfire.” Even low intro mortgage rates should not be that much lower than fixed interest rates these days and in some cases, they may even be higher. So it’s probably in your best interest to lock in now to a low rate refinance loan that you can afford. Remember, the Making Home Affordable program expires on June 10, 2010.
QUESTION- What are the tax implications?
ANSWER- Charges for refinancing a mortgage are tax deductible. The total cost should be evenly divided to be deducted over the life of the mortgage, Inadomi said. Other costs, such as attorney or appraisal fees, are not deductible.You will also have to adjust your mortgage interest deduction if you get a lower interest rate.
QUESTION- Can I try to refinance or renegotiate my mortgage on my own, without going through the program?
ANSWER- Working directly with a lender shouldn’t be a problem if you think you’re not eligible for the federal program. Just beware of getting a third party involved, especially if they ask for an upfront fee.
For the mortgage refinance program, only homeowners whose loans are held by Fannie Mae or Freddie Mac are eligible; they have until June 2010 to apply. Consumers should contact their loan servicing company that sends out their monthly bill to find out if their mortgage liens are held by Fannie or Freddie. The two mortgage finance companies own or guarantee almost 31 million home mortgages more than half of all U.S. home mortgage loans.
Mortgage lenders can reduce a borrower’s interest rate to as low as 1% for 3 years, 2% for five years. Mortgage interest rates would then rise to about 5% until the mortgage is paid back. If the loan workout plan works as proposed, it could be a big plus for borrowers like Nick Kavalary, a network cable installer who lives outside Milwaukee. Kavalary, 42, has been struggling with JPMorgan Chase & Co. to get a loan modification. He was finally approved for one this year, but it only lowers his mortgage rate from 10.75%. to 9.8%. Even at the lower mortgage rate, he said, making the loan payment is nearly impossible. “If I can’t pick up a 2nd job, I’m going to lose this home,” he said. “With the job market being the way it is, nobody’s hiring anybody.”
Meanwhile, action to put in place another part of Obama’s housing plan is expected soon on Capitol Hill. A few days ago, the House Democrats agreed to narrow proposed legislation that gives bankruptcy judges the power to change the terms of mortgage loans for borrowers distressed with debt. The latest version of the mortgage relief bill would have the court’s judges considering whether a homeowner had been offered a reasonable loan by the bank to restructure his or her home loan before seeking help in bankruptcy court. Borrowers also would have a responsibility to document that they had previously attempted to renegotiate their home mortgage.
Mortgage rates are beginning to show some positive results for rebuilding the mortgage industry. Record low mortgage rates have spurred a surge in homeowners wanting to refinance. According to a report from Mortgage Bankers Association, over 85% of new home loan activity involved refinancing applications.
Mortgage lenders are swamped by the giant wave of mortgage refinancing requests. Many have shed staff the past couple of years as the housing market slumped. Now they lack the manpower to quickly process refinancing requests. “Lenders aren’t prepared for the surge,” says Mark Zandi of Moody’s Economy.com. Some mortgage lenders are even hiring more people to accommodate the growing demand for refinancing. Read the complete article online. Mortgage Refinancing Activity Skyrockets.
By now most people understand that we have a significant foreclosure crisis evolving. Hundreds of thousands of people each month are receiving a notice of default that is the first step of the foreclosure process. The latest numbers from HUD are stunning: For the first 15 days of October only 49 homeowners with delinquent conventional loans were able to refinance with FHA home loans. That’s less than one per state.
Consider that the highly-anticipated new FHA loan program, Hope for Homeowners was going to cure the mortgage refinancing problems? HUD announced on October 2nd, “The Bush Administration today unveiled additional mortgage loan assistance for homeowners who may be at risk of foreclosure. The HOPE for Homeowners Program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new FHA loan insured by HUD’s Federal Housing Administration.”
In fact, the Bush Administration was vehemently opposed to the legislation and just days before it passed was threatening to veto the FHA Loan Reform bill which included the Hope for Homeowners package. But now FHA mortgage reform has become law. The mortgage law has been effective since July but very few borrowers were able to qualify FHA mortgage applicants. But this refinance program just doesn’t work well for delinquent borrowers because they typically have too many late payments.
HUD recently reports that for the first 15 days of October it had 42 home loan applications and they were unable to approve any of these applicants. Even though the FHA home loan program has a history of helping homeowners with bad credit, the Hope for Homeowner loan is providing very little hope for homeowners who are trying to prevent a foreclosure.
Diana Golobay wrote an article recently about wo-thirds of homeowners surveyed in September said they met criteria for a mortgage refinancing program available through the expanded FHA mortgage offerings available under the newly-enacted Hope for Homeowners program, according to a media statement issued Monday by the Consumer Credit Counseling Service of Greater Atlanta.
Homeowners at risk of foreclosure or home loan default who called CCCS of Greater Atlanta for foreclosure prevention counseling in July and August were polled by e-mail regarding the requirements. Of the 591 homeowners polled, 381 – or 64.6 % – indicated through their responses that they were eligible to refinance their current mortgage loans into new fixed-rate mortgage insured by the Federal Housing Administration, according to the CCCS of Greater Atlanta statement.
The Housing and Economic Recovery Act of 2008, which became law in July and took effect Oct. 1, created a mortgage refinancing program intended keep homeowners from foreclosure. To qualify, borrowers must indicate they residence in the at-risk home, their mortgage originated before January 2008 and have no existing home equity lines or other second mortgages. Candidates also needed to indicate they do not own another home and they spend 31 % of their gross monthly income on mortgage debt.
“Our survey results indicate this new FHA loan program holds the potential to help a large number of U.S. citizens struggling to pay their mortgage,” said CCCS of Greater Atlanta president Suzanne Boas in the press statement. “Not everyone will be able to meet the terms. But if someone meets the basic criteria laid out in the housing bill, it would be worth a phone call to their lender to ask about the FHA refinance program.” For the 35% of homeowners polled who indicated multiple loans or second mortgages on the at-risk property, eligibility for the refinance program must wait until all 2nd mortgages or home equity loans are paid off. “Loan modifications could be difficult if the 1st and 2nd mortgage are held by different lenders because only the primary mortgage qualifies for the FHA program,” CCCS of Greater Atlanta said.
