When the Obama Administration announced the guidelines for the Making Home Affordable Program for loan modification and refinance options for struggling homeowners, many of us in the real estate industry were not terribly optimistic for Las Vegas homeowners.  The reaction was primarily due to the initial understanding that the property could only be 125% upside down.  The grim reality for most Las Vegas homeowners is that property values  have plummeted  40-60%.

And now for some good news… We recently talked to two families in two different situations who successfully received a loan modification on their first mortgage under the Making Home Affordable Program.

Case Study 1

• Homeowners are owner-occupants and were behind 3 mortgage payments
• Financial Hardship due to reduced salary – their mortgage payment to gross monthly income ratio was approx 39% – the program stipulates  a ratio of 31% – some loan servicers are using up to 36%.
• They had to submit the request 3 times to finally get the process started and ultimately approved – which took about 60 days.
• The investor needed to verify that the homeowners would be able to sustain the new payment and not become a risk of default.
• Final result:  $500 reduction in payment for 5 years with all the standard stipulations of the program (outlined below and answered in detail on the MHAP website).  And, the 3 missed mortgage payments were added to the loan balance.

Case Study 2

• Owner-occupants are current on their payments – making payments with help of family members but at risk of “imminent default”
• Financial hardship – change in income, family unable to continue to provide financial support
• Mortgage payment to gross income ratio was over 70%
• This process went very smoothly – took approx 6 weeks to get an answer
• Final result: Monthly payment was reduced from $ 2,000/mth to $ 784 with these stipulations:
  • 3 month trial period to ensure they can make the payments on-time
  • Verification of all documents and financials
  • After the 3 month trial – the homeowners will execute a new loan agreement that will keep that payment for 5 years.  Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the market rate at the time the modification agreement is prepared.
  • Their loan servicer also explained that if they make on-time payments every month, they will receive a $1,000 incentive that will be applied as an annual principle reduction payment for each of the 5 years.

How is the program working so far nationally?  Here is a recent report card of sorts…

MHAP Public Report – July 2009 Making Home Affordable Program  – Servicer Performance Report through July 2009

Are You Eligible for a Loan Modification under the Making Home Affordable Program (MHAP)?

The MHAP website delineates two categories for possible eligibility:

1. Home Affordable Refinance Program (HARP)

   If you are a homeowner who is current on your mortgage payments but unable to refinance to a lower interest rate because your home value has decreased, you may be able to refinance.

   How do I know if I am eligible for a refinance under HARP?You may be eligible if:

   • The loan on your property is owned or guaranteed by Fannie Mae or Freddie Mac
   • At the time you apply, you are current on your mortgage payments (“current” generally means that you have not been more than 30 days late on your mortgage payment in the last 12 months, or, if you have had the loan for less than 12 months, you have never missed a payment);
   • The amount you owe on your first lien mortgage does not exceed 125 percent of the current market value of your property; (Unfortunately, this one requirement eliminates most Las Vegas homeowners – as the average homeowner is 40-60% underwater)
   • You have a reasonable ability to pay the new mortgage payments; and
   • The refinance improves the long term affordability or stability of your loan.

2. Home Affordable Modifications

   If you can no longer afford to make your monthly loan payments, you may qualify for a loan modification to make your monthly mortgage payment more affordable. Millions of borrowers who are current, but having difficulty making their payments and borrowers who have already missed one or more payments may be eligible.

How do I know if I am eligible for a modification under the Home Affordable Modification Program (HAMP)?

To apply for a modification under HAMP, you must:

• Be the owner-occupant of a one to four unit home;
• Have an unpaid principal balance that is equal to or less than:
  • 1 Unit: $729,750
  • 2 Units: $934,200
  • 3 Units: $1,129,250
  • 4 Units: $1,403,400;

• Have a first lien mortgage that was originated on or before January 1, 2009;Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31 percent of your monthly gross (pre-tax) income; and

• Have a mortgage payment that is not affordable due to a financial hardship that can be documented.

These two recent success stories for Loan Modifications fall into the second category and demonstrate that under those specific conditions, loan mods are happening.  To recap, you may be eligible for a loan modification if you are the owner-occupant, have a mortgage originated prior to 1-1-09, your monthly mortgage payment is greater than 31% of your gross monthly income (pre-tax) and you have a documentable financial hardship.

Other Useful Tools from MHAP site:

• Payment Reduction Estimator
• Modification Evaluator
• MHAP – Borrower FAQ Download this FAQ for detailed answers to common questions regarding how these programs work.

Contact Us Today to learn more about loan modifications and other pre-foreclosure alternatives.  There are solutions…call for a free consultation to discuss possible options.  Call Stephanie direct at 702 497-7705.