Which Type of Mortgage Modification is Right for You?
Many people facing foreclosure may wrongfully believe that they have no options but to lose their home or commercial property. Fortunately, there are solutions to fight against a foreclosure and even to prevent a foreclosure action from even being filed in the first place. One of the most common alternatives to giving up your home in foreclosure is to get approved for a modification of your mortgage.
Mortgage modifications can change certain terms of your mortgage to lower your payment and allow you to get out of default and prevent a foreclosure action from being filed. An experienced attorney can help you negotiate with your mortgage lender to help you obtain a modification of your loan. Not all mortgage modifications are equal, however, and different struggling homeowners should consider the best option for their individual situation. If you do not select the right type of modification or do not negotiate the best possible terms, you can find yourself back in default and facing foreclosure in the near future. The advice and counsel of an experienced mortgage modification attorney is critical throughout this process.
What is HAMP?
In response to the growing foreclosure crisis, the government created the Making Home Affordable (MHA)1 program as part of the Emergency Economic Stabilization Act of 2008.2 As part of the efforts of MHA, the Home Affordable Modification Program (HAMP)3 was developed to give homeowners the option to apply for a mortgage loan modification. In order to qualify for HAMP, you must meet certain criteria and you must accurately complete the application process. There are also different types of modifications available under HAMP, so you need to ensure that you select the right one for you.
HAMP has strict criteria for a homeowner to meet to be eligible for consideration. Some general requirements include the following:
-You can demonstrate that you have financial hardship that prevents you from easily making your mortgage payments.
-You have either become delinquent on your mortgage payments or the serious risks of delinquency exists.
-Your mortgage was obtained before or on January 1, 2009.
-You owe a maximum of $729,750 if your home is a primary residence or a one-unit rental property. --The maximum allowable balance can be higher for multiple unit properties.
-The government has not condemned your home or building.
-Your mortgage lender participates in HAMP.
There are two different tiers of HAMP loans: Tier 1 and Tier 2. Tier 1 was the only option for modification until Tier 2 was created in 2012 to try to help homeowners who were not eligible for a HAMP 1 modification. The following is some information regarding the differences between the two tiers of modifications.
HAMP 1 is the original type of government-assisted mortgage loan modification and consists of different steps, referred to as the “waterfall,” that can lead to a long-term modification if successful. The goal of the process is to reduce the monthly mortgage payment to 31 percent of the owner’s income each month. If one step does not achieve this goal, the lender will move to the next steps. The waterfall steps are as follows:
-Capitalizing the amount in arrears;
-Reducing the interest rate in increments;
-Extending the term of the loan;
There may be an extra step of forgiveness of part of the principal balance if the loan-to-value (LTV) is higher than 115 percent.
As of 2012, homeowners who did not qualify for HAMP 1 have another option under HAMP Tier 2. Examples of owners who may qualify for HAMP 2 modifications include:
-Owners whose debt-to-income ratio regarding their mortgage payment is already less than 31 percent.
-Owners who need a modification of a rental property.
Previously received either a trial modification or permanent modification under HAMP 1 but defaulted on their payments.
HAMP 2 gives struggling homeowners a second chance to try a modification as a solution to their mortgage problems. Tier 2 also has waterfall steps but also has several other benefits, as well. For instance, HAMP 2 allows homeowners to modify multiple mortgages while Tier 1 modifications can only apply to one loan. HAMP 2 allows unemployed homeowners to have up to 12 months of forbearance assistance as well as possible help from the Home Affordable Unemployment Program (UP).4 There is also a revised debt-to-income requirement that expands it to between 25 percent and 42 percent.
HAMP v. Traditional Modifications
Many people may assume that because HAMP is a government-sponsored program, that it provides the best options for loan modifications. However, this is not always the case for several reasons. According to statistics published by the U.S. Treasury Department,5 more than 1.25 million people were denied a modification and did not even receive a temporary trial modification. In addition, the following statistics are true:
-185,000 homeowners missed payments during their trial, effectively ending the modification.
-Nearly 531,000 owners had their trials canceled for reasons other than non-payment.
-Just over 525,000 received a permanent HAMP modification.
-About 53,000 missed payments and ended their modifications.
-Only 748 homeowners paid off their mortgage loans after receiving a HAMP modification.
Only one in five applicants for HAMP loan modifications actually receive a modification. That leaves millions of people wondering about their non-HAMP modification options.
Fortunately, if you are denied assistance through HAMP, your mortgage lender may be willing to work with you separately and agree to a traditional loan modification. These proprietary modifications involve negotiations directly with your lender outside of any government eligibility criteria. Because lenders are not limited by strict requirements, a much greater number of homeowners may be able to obtain modifications that can help them keep their homes. In addition, they do not have to adhere to the specific waterfall steps so the terms of the modification may be more flexible and, therefore, beneficial.
It is extremely helpful to have an experienced modification lawyer handling your negotiations for you. A lawyer can evaluate whether a modification will actually help your situation and can fight for better terms through either foreclosure mediation or traditional negotiations.
Discuss Your Options with a New York Mortgage Modification Attorney Today
If you need assistance comparing HAMP 1 and HAMP 2 with traditional modifications, you should not delay in discussing a possible modification with an experienced foreclosure and mortgage modification attorney. HAMP is not an indefinite program and, while it keeps being extended, the current deadline for application is December 31, 2016. If, for some reason, it is not again extended, you should begin the application process with an attorney as soon as possible. A skilled lawyer can also assess your situation and advise whether HAMP is the better option for you or not. If you pursue a traditional modification, we can help to negotiate with your mortgage lender, prove hardship, and get you a modification with the most favorable terms possible.