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Mortgage Loan Help: Government Unveils Plan B

by Karen Lawson
April 1st, 2010

With US home mortgage foreclosures expected to reach approximately 4 million this year, the government is revamping its Home Affordable Modification Program (HAMP) in hopes of assisting more than the 170,000 homeowners who’ve already received HAMP modifications. With many mortgage delinquencies caused by long term unemployment and fallen home values, the government is adding relief provisions in hopes of keeping more homeowners out of foreclosure. Here are some highlights:

Temporary Mortgage Loan Payment Reduction for Unemployed

Eligible unemployed homeowners may have their mortgage payments reduced to 31% or less of their monthly gross income for 3 to 6 months. If further assistance is needed, mortgage loans will be considered for permantent modification or other relief provisions as appropriate.  Eligibility requirements for unemployed borrowres include:

  • Borrowers must occupy the mortgaged home
  • Mortgage loans must be less than 90 days delinquent when assistance is requested
  • Mortgage loan balance must be $729,750 or less, and the mortgage loan must have been originated on or before January 1, 2009.

Borrowers whose original loan payments exceed 31% of their gross monthly income, and who remain unemployed after 6 months become eligible for a permanent modification under HAMP or foreclosure prevention alternatives including a short sale or deed in lieu of foreclosure.

HAMP Modification Program Requirements and Provisions Expanded

Under new guidelines, FHA loans will also be eligible for HAMP modifications. This is good news for  struggling FHA borrowers, who typically have less home equity and fall deeper into financial crisis as their homes values fall below their mortgage debt. In addition to making FHA loans eligible for modifications, the HAMP program is offering incentives to mortgage lenders and investors, and enhancing requirements for communication between lenders and homeowners. The goal is assisting borrowers before their mortgage payments become seriously delinquent.

Reducing Mortgage Balances for Underwater Homeowners

Borrowers whose homes are worth less than the mortgage amounts they owe don’t have much incentive to stay in their homes when they’re having financial problems. The revised HAMP modification program places reducing mortgage amounts for eligible homeowners who owe 115% or more of current home value. In the coming months, HAMP will announce complete details and effective dates.

Mortgage Lenders Made More Accountable

The relatively small number of permanent HAMP modifications has prompted revisions requiring lenders to make additional efforts to communicate with homeowners experiencing hardship. Borrowers must be advised of HAMP options prior to starting foreclosure, and borrowers who file bankruptcy must also be notified of modification options. Mortgage lenders and home equity lenders may also receive incentives from HAMP for completing modifications and writing down and extinguishing home equity loans.

Including FHA loans in HAMP efforts should help reduce the agency’s losses associated with mortgage foreclosures.

Getting Help: Contact HUD Approved Housing Counselors

HUD approved housing counseling services provide low to no cost evaluation of your finances and mortgage situation with the goal of finding the help you need. These agencies are typically non-profit counseling services that arrange payment based on your ability to pay.

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