Loan Modifications

When facing foreclosure, many homeowners become desperate to find any solution to stay in their homes.  Unfortunately, with this desperation, homeowners can fall victim to companies trying to take advantage of them or flat out scam them.

NeighborWorks America has launched a national public education campaign to protect homeowners from these scams.

It was actually created by Congress and is a nonprofit organization that provides monetary support, training  and technical assistance for community-based revitalization efforts.

You may have heard about the recent changes to the Home Affordable Refinance Program aka HARP 2.0, which is expected to assist more than 1 million borrowers to refinance their mortgages at current interest rates.

Demand has been rising significantly for HARP 2.0 refinancing based on reports from major lenders.  Bank of America, JPMorgan Chase, and Wells Fargo are all adding staff to keep up with this rising demand.  The Mortgage Bankers Association reported that more than 20% of home loan refinance applications for the week ending February 24, 2012, were for HARP loans.  This is compared to 10% in the month prior.

The Mortgage Forgiveness Debt Relief Act (“Act”) was enacted in 2007 to help qualified homeowners avoid taxation on debt forgiveness on their mortgages as a result of loan modifications, foreclosures, or short sales.

The problem is that the Act is set to expire at the end of this year on December 31, 2012. If the Act is not extended, homeowners that have debt forgiven on their mortgages after this date could face significant tax bills due to the increase in their taxable income.

You may have heard the recent news that 5 banks will pay a total of $25 billion over three years in loan write-offs and civil penalties for alleged foreclosure abuses.  These banks include Ally Financial (GMAC), Bank of America, Citibank, JPMorgan Chase and Wells Fargo.

According to Bloomberg Businessweek, this settlement will only affect a small portion of borrowers (7.3%) because the deal does not include loans owned or guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae.

You may be anticipating having a problem with making your future mortgage payments, and want to know the eligibility requirements for the HAMP program.  According to makinghomeaffordable.gov, which runs the federal government’s program to help homeowners, the minimum requirements for eligiblity are (these are the bare minimum as there are other factors your lender will consider) :

• 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

You may be aware of the code “modified under federal government plan” that lenders use to report loans modified under HAMP (lenders can still use other codes if you are not current with your payments prior to and during the loan modification).

Previously, lenders were reporting the modification payments under HAMP as partial payments, which was hurting borrower’s credit scores.  The new code was created by the Consumer Data Industry Association in cooperation with the Treasury Department to help alleviate this issue.

But does the new code have an effect on a borrower’s credit score.

You may have heard the name NACA, but who is this company and how do they relate to loan modifications?

The Neighborhood Assistance Corporation of America, more commonly referred to as NACA, is a non-profit organization started in 1988, that provides counseling to homeowners, and helps them receive loan modifications with much better terms in order to avoid foreclosure.

NACA was founded by Bruce Marks who has been described as a pit bull and a strong advocate for the little guy.  Marks is a former Federal Reserve Bank of New York official.

Well, it’s finally here- some demographics and data on who is getting approved for loan modifications under HAMP given to us by the Obama administration.

The administration released its Making Home Affordable Data File, which contains characteristics of participants in the program up until now, such as  income information, mortgage information prior to and after starting HAMP, performance under HAMP, and race/ethnicity statistics.  You can even see credit scores of participants.

Some interesting facts are:

• The median gross annual income of a homeowner who entered into a HAMP trial modification was $46,344, and was $46,196 for a homeowner in an active permanent HAMP modification.

The net present value test (NPV) under HAMP is a test used by servicers to determine the eligibility of borrowers to receive loan modifications.  It is not the only consideration though.

Its purpose is to figure out whether the lender is better off granting a loan modification or in allowing the home to go into foreclosure if the borrower is in default.

For a long period of time, the numbers that the lenders used in calculating the NPV were not provided to borrowers leaving them frustrated and not able to object to the calculations.

With almost 620,000 trial modifications having been canceled since spring 2009 under HAMP, homeowners are beginning to bring more lawsuits against banks over denying permanent modifications after the homeowners have made all of their trial modification payments under the Trial Period Plan.

The Trial Period Plan, otherwise known as TPP, requires a borrower to make modification payments before actually receiving a permanent HAMP modification. During this time period, a borrower must make trial payments and submit necessary forms and documents.