Home Affordable Mortgage Program Fannie Mae, Freddie Mac, and FHA Loan Modification

Government sponsored program designed to help those home-owners with reducing their mortgage payments

In order to qualify for this program, you must currently have a Fannie Mae or Freddie Mac mortgage. The Lender must also agree to participate in this program. The program is not mandatory and therefore Lenders can choose whether or not to participate.

HAMP Highlights:

Your current first mortgage payment must be more than 31% of your monthly gross income. For example, based on your earning $1000.00 per month, your current monthly mortgage payment including monthly property tax, home-owner insurance and association dues (if applicable) must be more than $310 per month.

Your house cannot be a rental, must be within Fannie Mae or Freddie Mac loan limits (a single family home, town home or condominium is qualified if your mortgage loan amount is less than $730,000) and you must prove to be faced with a valid hardship.

If you qualify, your modified mortgage payment will be reduced to 31% of your gross monthly income. Referring to the information above, if your current monthly mortgage payment including property tax, home-owner insurance and association dues (if applicable) is $500 per month, your monthly mortgage payment would be reduced to $310 per month for a period of up to 5 years. After the 5th year, your interest rate would be increased by 1% every 12 months up to 5.00%.

Facts about Making Home Affordable Program

If everything sounds great to you so far, then it is time to look at some facts.

1. What you owe on your house, even if it is far more than what your house is worth, will not be reduced. In fact, you may find yourself with a rather high balloon payment at the end

2. Qualifying is not easy nor is it fast. It is a time consuming process and could take 5 months or longer. You would be expected to make your monthly mortgage payment as the Lender is allowed to proceed with alternative remedies (like foreclosure)

3. If the Lender had to pay for property taxes or home-owner insurance that you should have paid because it was not included in the monthly mortgage payment, you will need to repay this amount over a period of 5 years. For example, if the Lender paid $12000 for delinquent property taxes and/or home-owner insurance premiums, you would have $200 of your modified monthly mortgage payment go towards the $12000 until it is paid off. This amount is included in the 31% calculation though, so it is not added on top of your modified mortgage payment

4. If the mortgage payment currently includes a mortgage insurance coverage premium, it will not go away and it will be added on top of your modified mortgage payment

5. If your current mortgage is on an interest-only mortgage, you will loose this option and you will convert to a principal-and-interest mortgage. Because of this, you may not see a large relief in your monthly mortgage payment

6. If the current mortgage payment does include property taxes and home-owner insurance deductions, then the modified mortgage payment will include these amounts. These amounts are not added on top of the modified monthly mortgage payment

FHA Home Affordable Modification Program

FHA is now allowing its loans to be modified under the Home Affordable Modification Program with slight variations. The qualifiers are the same, however the Borrower must be delinquent at least 30 days for consideration. Principal forbearance is allowed, however only to a maximum of 30% (i.e. $100000 loan amount that requires a principal forbearance in order for the Borrower to qualify, cannot be lower than $700000 as this will cause a denial). Foremost, the maximum back-end debt ratio allowed is 55% (excludes household expenses. Includes mortgage obligation(s), credit cards and installment loans). If the back-end debt ratio exceeds 55%, the modification request will be denied.

Considerations

A lower mortgage payment may sound good. But, you need to consider that fact that you could be paying toward a mortgage that is much higher than what your property is worth. Also, the program is not necessarily a long-term solution but rather a short-term solution as the monthly payment will increase every 12 months and then arrive at a maximum amount for the remainder of the mortgage term.

Successfully navigating through the Lender approval process is lengthy and requires that all documentation is correctly submitted. An incorrect submission will only lead to delays and possibly denial. Do it right from the beginning. Use Casi Mod Loan modification software.