Brent Bruce's Mortgage Insights

Also see http://www.dailybulletin.com/realestatenews/ci_14892384 for the publication of this article in 6 regional news papers.

By:Brent Bruce

Streamline Alternatives to Foreclosure

In February of 2009 President Obama introduces the Financial Stability Plan. A major part of this plan was the Making Home Affordable initiatives. Making Home Affordable launched loan modification programs and guidelines designed to streamline and simplify the process for troubled home owners with participating mortgage companies.

While these programs have been effective in many cases, there are thousands of homeowners who these loan modification plans have not been able to help. In the past, this left the struggling homeowner with few options. They could attempt to “short-sale” their property, where they ask their mortgage servicer to accept less than the full amount owed, they could request a “deed-in-lieu of foreclosure”, where they offer to simply sign the title of their home back over to the bank, or they could prepare themselves for the eminent foreclosure.

In all cases, the process is long and frustrating. Mortgage servicers, the companies who handle the mortgage billing, are overwhelmed and simply do not have the staff to respond to the amount of these requests. This is compounded by the lack of a uniform process for handling these requests as well.

Fortunately, we may soon see these processes greatly improve. April 5^th of this year launched the next step in the Making Home Affordable initiative, the Home Affordable Foreclosure Alternatives or HAFA.

HAFA is the next step for home owners who have tried all other means of saving their home. It is also the next step to the current Home Affordable Modification Program (HAMP) as well, which is the loan modification program that is currently being used under the Making Home Affordable initiative.

What HAFA does is streamline a uniform process for home owners who are facing eminent default. This program is for people who do not have the option of loan modification and simply cannot afford to stay in their home.

For many reasons HAFA is a beneficial program to all parties involved when foreclosure is eminent. Below is a brief explanation of the program and how it can help.

When HAFA is requested by the home owner, mortgage servicers who participate in the Making Home Affordable initiative will evaluate the existing loan and home owner for qualification of the program.

Some of the factors they are looking at are that:

- the current unpaid balance is equal to or less than $729,750

- the home owner’s total monthly payment is more than 31% of their gross monthly income

- the homeowner does not qualify for or does not accept other loan modification options

- the property is the owner’s principle residence

- the mortgage is a first lien and was obtained prior to January 1^st, 2009.

If the home owner qualifies for the HAFA program the mortgage servicer will notify the home owner of the options available to them. The home owner has 14 days to respond and request the terms of the program.

The mortgage servicer will evaluate the existing loan, the property value, late fees, closing costs and all other expenses associated with completing the short sale and/or deed-in-lieu of foreclosure.

The sales price or net proceeds necessary from the sale will be pre-determined, giving the home owner the approved sales price, before you list your home for sale. You are required to work with a licensed real estate broker or agent, and the agreement is valid for 120 days.

When a potential buyer offers to buy the home at the predetermined price, the home owner will submit the offer to their mortgage servicer. They are expected to approved or deny the offer within 10 business days. If the offer is accepted you will begin the standard escrow process which must be a minimum of 45 days.

Having the sales price predetermined allows the mortgage servicer to accept or deny the offer quickly, within 10 days, which is a major improvement to the process.

Should the house not sell within the 120 days, the home owner is agreeing to move forward with the deed-in-lieu of foreclosure process where they will sign the title of the home back to the bank and will be given no less than 30 days to move out.

As an incentive to use this program, the home owner who successfully completes either a HAFA short-sale or deed-in-lieu of foreclosure will receive a check for $3000 at the closing, to assist with moving expenses. In addition, when the existing mortgage servicer agrees to a HAFA program, they are agreeing that the payoff will be considered paid in full. The home owner will not be asked to sign a promissory note or be held liable for the amount that was not paid. If there is a second mortgage on the property the first mortgage can agree to pay up to 6% of the unpaid balance up to a maximum of $6000 as well. All of these benefits are a no cost to the home owner.

The main objective of HAFA is to assist struggling home owner to move on when that is the only option. While none of these options are enjoyable, with the help of HAFA, they may at least be less painful.

For more information on the Home Affordable Foreclosure Alternatives program, contact your mortgage servicer, visit www.makinghomeaffordable.com or call 1(888) 995-HOPE. You should also discuss any income tax effects these programs may have with your tax professional.

Brent C. Bruce

Branch Manager

Allied Home Mortgage Capital Corporation

8480 Red Oak Street

Rancho Cucamonga, CA 91790

Phone – 909-463-4750

Email – brentbruce@brentbruce.com

www.brentbruce.com

This Article was published in 6 Southern California newspapers an February 28th, 2010

By: Brent Bruce

One of the biggest questions that many homebuyers have is how much money they are going to need to have available in order to buy a house. This can be a difficult question to answer since there are so many different ways a home purchase can be structured.

There are three main factors that add up to the total amount of cash needed to buy a house.

First, there is the amount of the down payment. The down payment is going to depend on both the purchase price of the home, and the loan program that is being used. For instance, if someone is going to use an FHA, (Federal Housing Administration) insured loan, they would need to have a down payment of at least 3.5% of the purchase price. In this case, of you purchased a home for a price of $100,000, the down payment would be $3,500. Different loan programs require different down payments ranging from 0% down to more than 25% down.

Second are the closing costs. Closing costs are charges associated with buying a home. These are title insurance, escrow costs, lender fees, notary fees and appraisal fees, just to name a few. The key is that these are costs associated with buying a home.

Third are the prepaid items. Prepaid items are costs associated with owning a home that are being paid in advance. Prepaid items are, interest, taxes, and home owners insurance to name a few. You pay a portion of these items up front in order to establish all of the requirements of owning a home.

Down Payment, closing costs, and prepaid items are combined. This total becomes the amount of money you will need to have in order to buy a house for the specified price. This often is quite a surprise to a new home buyer, and may be more than they have available.

However, there are many ways in which an experienced loan officer can structure a home loan in order to greatly reduce these costs, and the amount needed to buy a home.

The most common way to reduce the amount of cash that the buyer needs is to ask for a credit from the seller of the home. When making an offer to buy a house your real estate agent can make a stipulation for the seller to credit an amount of money to the buyer. This is usually a percentage of the price of the home. For example, a credit of 2% of a purchase price of $100,000 would be a $2,000 credit. If the seller agrees to this credit, the buyer will need $2,000 less for their closing costs, and prepaid items.

Another way to reduce the costs is to structure a home loan that does not have lender fees. Home loans without lender fees have higher interest rates, but can reduce the closing costs dramatically.

In addition to the lender reducing or waiving the lender fees they can also give an additional credit to cover some of the other closing costs or prepaid items, further reducing the amount necessary from the home buyer. This will, again, have a higher interest rate, but can be a very useful tool when structuring a home loan.

Finally, there is the option of a gift from a family member. Most loan programs allow family members to gift as much as they would like towards a home purchase. The gift must be properly documented and transferred, and must be from an actual family member.

Please note that with most loan programs, the down payment must come from either the buyers own money, or from a family member gift. The down payment cannot be paid for by a seller or lender credit.

Each of these options can be used independently, or as a combination.

Here is an example of how these options can properly be used with a buyer buying a house for $100,000 with an FHA loan and 3.5% down. (These numbers are for example only)

Example 1

(Buyer paying all costs on their own)

Closing Costs $3,000

Prepaid Items $1,500

Down Payment $3,500

Total Amount Needed $8,000

Example 2

(No lender fee loan and 3% seller credit and family gift of $3,500)

Closing Costs $1,500

(Closing costs reduced due to no lender fees)

Prepaid Items $1,500

Down Payment $3,500

Seller credit of 3% -$3,000

Gift from family -$3,500

Total Amount from Buyer $0

In example 2 the home loan had reduced closing costs since it was a no lender fee loan. The seller also credited 3% of the purchase price which was $3000. The reduced lender fees and seller credit reduced the amount of money the buyer needed by $4,500. The remaining $3,500 was paid for by a gift from family, leaving the home buyer with nothing to pay.

This is just one example of how a home loan and purchase contract can be structured to reduce the cash needed to buy a home. The best way to structure a home buying plan, tailored to your needs, is to make an appointment to sit down with an experienced home loan officer in your area. It may be well worth your time.

Brent C. Bruce

Branch Manager

Allied Home Mortgage Capital Corporation

8480 Red Oak Street

Rancho Cucamonga, CA 91730

Phone (909) 463-4750

Email - bbruce@alliedhomenet.com

Website - brentbruce@brentbruce.com

Below is my recent article as published in 6 Southern California newspapers.

By Brent Bruce

Just this last Friday the 15^th of January, H.U.D (The Department of Housing and Urban Development) and the F.H.A (Federal Housing Administration) announced a waiver of a long time guideline that will be a great help for both home sellers and potential home buyers looking to use an F.H.A. insured home loan.

For many years now the F.H.A. prohibited a buyer who is using an F.H.A. loan from buying a property that had been owned by the seller for less than 91 days. This rule is commonly known as the “90 Day Anti-Flip Rule”.

The purpose of this rule was to prevent predatory practices by people who would buy homes for below market value through special relationships with sellers, and turn around and sell the home to unknowing buyers at inflated prices.

While this rule has its purpose, it can and has had a negative side effect for many real estate buyers and sellers.

Many real estate investors buy damaged homes at minimal prices by paying cash. Cash buyers often can buy homes for below market value when the home is in such bad condition that it cannot be financed. These investors then rehabilitate the home by replacing and repairing all damages. Bringing the home back to a good condition makes it now financeable by mortgage banks, and can be resold at fair market value.

As long as the investor can buy and repair the home for a low enough cost that when they sell the home they make a profit, it is a benefit for all involved. The seller, which is usually a bank that foreclosed on the home, is able to sell a damaged home and get it out of their inventory. The investor repairs the home which helps the value, not only of the home being repaired, but also the value of the neighborhood that the home is in, the investor employs the repair workers giving them work, the home is now in good condition for a new home buyer to enjoy, and the investor makes a tidy profit.

However, the 90 day anti-flip rule can throw a wrench into this system. In many cases the investor can complete the repairs in less than 90 days. In fact, many investors do not want to own the house for more than 30 days. If they hold the house for too long it eats into their profit and can cause the house to go from profitable to a loss. If investors do not buy and repair these houses, they may sit on the market for months, vacant and deteriorating.

This 90 flip rule also causes home buyers who are using the F.H.A home loans to lose some home buying opportunities, by not allowing them to act quickly on these newly rehabilitated homes. The selling investors do not want to wait the 90 days that is required so they may sell at a lower price to different cash buyer.

Over the last few years, the F.H.A. has seen these issues and has slowly removed the barrier.

In June of 2006, F.H.A. waived the rule for nonprofit organizations, HUD foreclosures and government agencies, as well as properties acquired through inheritance.

In June of 2008, they broadened the exemption to exclude properties that had been taken back by foreclosure. This meant that banks could sell their properties that the had foreclosed on without having to wait the 90 days.

In September of 2009, they again expanded the exemption to allow buyers using HUD’s Neighborhood Stabilization Program.

And finally, this past Friday the 15^th, they have waived the provision completely effective February 1^st, 2010 through February 1^st, 2011.

As always, there are some rules to this waiver.

If the property sells for 20% more than the original purchase price, the following conditions apply:

- The increase in value must be documented and justified. A second appraisal may be required as well and I would expect that this will be required in all cases by the lending bank.

- The lending bank must order an independent home inspection from a licensed home inspector. This inspection must verify that the property is structurally sound and does not have major repairs still needed.

- This waiver only applies to forward mortgages. Reverse mortgages do not qualify.

Keep in mind that while this is now approved by the F.H.A., the individual lending banks can make additional conditions, or choose to not offer the program at all.

Overall, this is a great move by the F.H.A. It will open the doors wider for both sellers and F.H.A. buyers, helping to spur home sales and ultimately grow our fragile economy.

Brent C. Bruce

Branch Manager

Allied Home Mortgage Capital Corp.

8480 Red Oak Street

Rancho Cucamonga, CA 91730

Phone (909) 463-4750

Email – bbruce@alliedhomenet.com

Website – brentbruce@brentbruce.com

As published in 6 Southern California regional news papers.

By Brent C. Bruce

http://www.dailybulletin.com/realestatenews/ci_14192314

The recent real estate and mortgage recession has been front and center in nearly all of our lives. Many of us, our friends and our neighbors have fallen behind on our mortgage payments and found our houses “upside down” with loan balances much higher than our home’s value. All too often this has resulted in the pains of foreclosure.

This mess that we now face begs the question as to how this all happened, and in many cases the finger is pointed to the mortgage industry and whether it was the fault of the mortgage banks or the mortgage brokers. I thought this would be a good time to shed some light on the differences and similarities between the two.

The fact of the matter is that they are not very different. Below I will describe the some of the advantages and disadvantages to both. I will also explain the mystery of how each of them makes their profit.

Advantages

- Broker – The advantage of the mortgage broker is service. The mortgage broker has the ability to shop for the best rates, fees and service levels of all of the banks that they work with. If one bank is taking two months to complete a loan, a broker can simply find another bank. Essentially they do the shopping for you. Mortgage brokers do not have the big bank name behind them, so they must have outstanding personal service to compensate.

- Banker – The advantage of the mortgage banker is control. The mortgage banker works directly with all of the parties involved in making loan decisions. They also do not work with any other banks. This gives them a very deep knowledge of their specific bank’s guidelines, processes and procedures.

Disadvantages

- Broker – Working with multiple banks can lead to a lack of deep understanding of the processes and procedures of each bank. The mortgage broker usually does not have as much control with the banks since they are not employees.

- Banker – When working with a mortgage banker, you have only one bank to deal with. They do not shop the service levels, pricing and fees of competitors so you have to do this yourself if you would like to compare.

Compensation

- Broker – The mortgage broker can be paid three ways. They can be paid by you as their client, by the bank as their agent or by both. You pay them through your loan fees such as origination points, processing fees and administrative fees. The bank pays them through what is called Yield Spread Premium or “YSP”. The higher the interest rate is, the more the mortgage broker is paid. For instance, they may be paid 1% of the loan amount for a 5% interest rate and 2% of the loan amount for a 6% interest rate. In most cases they are paid by both. This keeps the interest rate competitive and your loan fees low. This is to your benefit.

- Banker – The mortgage banker is compensated in a similar three ways. They can be paid by you through loan fees, by the loan buyer, who becomes the investor, or by both. (The investor is someone who buys mortgage loans in bulk and sells them on the bond market. You may be surprised to know that in nearly all cases the bank that gives you a loan will only have the loan for a matter of days before they sell it to an investor.) Again, it is most common for the mortgage banker to make their compensation from both the client, through fees, and the investor.

The key to getting a great mortgage is not whether you work with a mortgage banker or a mortgage broker, it is that you work with an ethical experienced mortgage professional. You must choose someone who has your best interests in mind, and who truly knows their business. An ethical mortgage professional will offer a fair interest rate with fair fees and provide excellent customer service. They will educate you on the loan process, be there to answer your questions and work hard to complete your home loan as quickly possible.

While integrity can be a company policy, it can only be a personal commitment.

These are the characteristics you should look for and demand when shopping for a home loan and they are available from both mortgage bankers and mortgage brokers.

When you are ready to finance a home, ask around. Talk to your friends and family and work with someone who has earned the recommendation of someone you trust.

Brent C. Bruce

Branch Manager

Allied Home Mortgage Capital Corp.

8480 Red Oak Street

Rancho Cucamonga, CA 91730

Phone (909) 463-4750

Email – bbruce@alliedhomenet.com

Website – brentbruce@brentbruce.com

This Blog was recently publised in 6 Southern California regional newspapers on December 18th, 19th, and 20th, of 2009

By Brent C. Bruce

The end of World War II brought a huge number of our military service men and women home from the front lines abroad. Peace had been restored and these young service people were anxious to begin building their lives back home. In 1944, under President Roosevelt, our government created a home loan program, as part of the GI Bill, to assist these veterans in buying a home for their families.

Today the VA home loan is still the best option for veterans and other service people looking to take advantage of our low price real estate market.

The most attractive feature of the VA home loan is that it does not require any money for a down payment. This program also allows for the home seller to pay for the buying veteran’s closing costs. This combination creates an opportunity for a veteran to be able to buy a new home with not one penny out of their pocket. In fact the VA home loan is often referred to as the “VA No-No”, meaning that, when it is properly structured, it requires “no down” and “no closing costs” to the veteran.

Another great feature of the VA home loan is that is does not require monthly mortgage insurance. Most other home loan products require expensive monthly mortgage insurance payments if you make a down payment of less than 20%. Not having this monthly mortgage insurance can not only keep your monthly mortgage payment lower, but also allows you to qualify for a more expensive home.

While this loan is called a Veterans Administration home loan it is not restricted to only post-service veterans. Those who are currently serving in our armed forces, including the National Guard and Reserves may also qualify. A surviving spouse of a veteran may be entitled to this VA benefit as well under certain circumstances.

The VA does require a minimal up front Funding Fee for this benefit, but it can be paid by the seller, or included in the new home loan if necessary. You must be buying the home as your new principle residence, and qualify under all other standard VA home loan guidelines as well. Overall, the VA home loan has quite liberal guidelines and they are written in a way that is to the benefit of our service men and women.

It’s also worth mentioning that, according to Retired U.S. Army General Erik Shinseki, who is now the Secretary of Veteran Affairs, over 90% of all VA home loans are made with no money for a down payment. Remarkably the VA home loan program has the lowest rate of foreclosures out of all loan products available. The American people support a great loan product, as a way to give back and our service people and veterans appreciate it.

For more information on this outstanding home loan, or to find out if you are eligible for a VA home loan, contact an experienced VA home loan lender in your area.

You can also find more information on the U.S. Department of Veteran Affairs website at www.homeloans.va.gov.

P.S.– If you are a member of our nations Army, Navy, Air Force, Marines, National Guard, Coast Guard or are in the Reserves, - Thank you for all that you do.

Brent C. Bruce

Branch Manager

Allied Home Mortgage Capital Corp.

8480 Red Oak Street

Rancho Cucamonga, CA 91730

Phone (909) 463-4750

Email – bbruce@alliedhomenet.com

Website – brentbruce@brentbruce.com

The following article was published in 6 Southern California regional newspapers on December 6th, 2009

By Brent C. Bruce

Big Loans – Little Down with F.H.A

Five years ago loans insured by the F.H.A (Federal Housing Administration) were all but extinct in Southern California. Alternate loan programs were easier and faster to qualify for. If you were interested in using an F.H.A. loan to buy a house, you would soon find that the maximum loan amount for the F.H.A. was really too low to buy anything in the area anyhow.

Then, the housing market crash and subsequent banking crisis of 2006 changed the world for banks and mortgage lenders. The federal government reacted by looking to the Federal Housing Administration. Within months they revised and improved the long lost F.H.A. loan and today it is gaining ground to become the most popular loan used by today’s home buyers, even in Southern California.

The biggest change to the F.H.A. program has been the increased maximum loan amounts. These new maximum loan amounts are surprisingly liberal and they vary by county and property type as well. Here is a current list of the maximum F.H.A. loan amounts by county.

*According to U.S. Dept. of Housing, Mortgagee Letter 09-50

These high loan amounts are a surprise to most potential homebuyers. To imagine buying a $500,000 home in San Bernardino County and only being required to make a 3.5% down payment is amazing. Conventional mortgages can require 10% or more for a down payment on a home at this price.

If you are interested in buying a property with multiple units, such as a duplex, it becomes even more beneficial. In Los Angeles County you can buy a duplex for over $900,000 and only be required to make a 3.5% down payment. A conventional mortgage to make this purchase would require 20% down or more.

The traditional advantages of F.H.A. loans still apply such as allowing a seller to credit a buyer up to 6% of the sale price to help pay for the closing costs, and relatively liberal qualification guidelines.

As I mentioned, these large loan amounts have not always been available through the F.H.A. home loan program. The maximum loan amounts have been adjusted higher and lower many times over the last few years. As of November 25^th of 2009, the Federal Housing Administration has extended these maximum loan amounts through December 31^st 2010, but keep in mind that they have made changes mid year before and very well may again.

As with all good things, there are some details. You must occupy the property as your primary residence. If you are buying a multiple unit property you must occupy one of the units, but you are allowed to rent the other units out for income.

Also, once the loan amount is over $417,000 it is considered to be an F.H.A. Jumbo Loan. As you would expect, the interest rates are slightly higher on the F.H.A. Jumbo Loans, but not by much. All other qualification factors for the F.H.A. Jumbo Loans are essentially the same as for the standard F.H.A. loan. As always, individual lenders guideline can vary.

For now these accommodating loan amounts are here. Talk to your mortgage professional about taking advantage of this outstanding opportunity to buy the big house with little down.

Brent C. Bruce

Branch Manager

Allied Home Mortgage Capital Corp.

8480 Red Oak Street

Rancho Cucamonga, CA 91730

Phone 909-463-4750

I recently wrote and article for six of our local newspapers on the FHA 203(K) streamline home loan.

Take a look......

http://www.dailybulletin.com/realestatenews/ci_13861855

Streamline loan widens access to FHA financing

Phone - 909-463-4750

 Brent C. Bruce
Branch Manager
Allied Home Mortgage Capital Corp.
8480 Red Oak Street
Rancho Cucamonga, CA 91730
Phone 909-463-4750
Fax 888-856-4657
Email - bbruce@alliedhomenet.com

I have had a few recent calls from Realtors asking how they should structure VA closing cost credits. We have all heard that the VA does not allow certain fees to be paid by the borrower / buyer and that is correct.

So how much should you ask for the seller to credit?

Well to clarify, here are the main fees that the seller CANNOT pay that are common in a California transaction. I have also included my general dollar figures for these fees.

- Processing Fee $595
- Admin Fee $395
- Underwriting Fee $750
- Escrow Fee ( any and all) $800 (per escrow company)
- Application Fee $0 (I do not charge this fee but some will charge $100+)

- TOTAL CREDIT NEEDED $2540

Now you may find some people who will argue the individual fees, but I want to be sure you do not run into trouble.

Keep in mind that some other fees ARE acceptable for the buyer / borrower to pay such as

- 1 origination point
- Bona Fide discount points
- Appraisal Fee
- Title Fees
- Hazard / Fire insurance costs
- VA Funding Fees
- Impound Reserves (taxes and insurance)

Please keep in mind that these fees can be paid by anyone in the transaction other than the Borrower / Buyer up to a 4% maximum.

Also remember that the credit amount mentioned above of $2540 will not give your client a 0 closing cost transaction.  These are only the costs that the VA will not allow the buyer / borrower to pay.  For a 0 closing cost loan call me so I can give you transaction specific numbers.

I am a VA Financing expert and have successfully closed many VA loans. In some cases the client has literally not paid 1c for the house at close.

While these numbers above will help, please remember that they are estimated.

Do not be afraid of VA. It is a great product offering;

- 0 down
- Possibly 0 closing costs
- 0 monthly mortgage insurance
- Great rates

For best results please give me a call and I will do all I can to get your VA transactions closed.

The Government has released several programs this year that are in fact beginning to help people.  I wanted to be sure that you have this information available.

Keep in mind that these are programs you will need to go back to your existing loan company for, but at least you will have some information on the program you are looking for. 

I hope this helps

-Brent Bruce

(READ THE BELOW FREQUENTLY ASKED QUESTIONS ON THE GOVERNMENT'S MAKING HOME AFFORDABLE PROGRAMS OR FOR A MORE READER FRIENDLY VERSION PLEASE CLICK ON THE LINK BELOW)

 Making Home Affordable FAQ

BORROWER FREQUENTLY ASKED QUESTIONS
UPDATED MARCH 18, 2009
What is “Making Home Affordable" all about?
Making Home Affordable is part of President Obama's comprehensive strategy to get the housing market back on track. Through the Making Home Affordable Program, up to 9 million American families may be eligible to refinance or modify their loans to a payment that is affordable now and into the future.
HOME AFFORDABLE REFINANCE
1.
I'm current on my mortgage. Will the Home Affordable Refinance help me?
Eligible borrowers who are current on their mortgages but have been unable to take advantage of today's lower interest rates because their homes have decreased in value, may now have the opportunity to refinance. Through the Home Affordable Refinance Program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they own or that they placed in mortgage backed securities.
2.
How do I know if I am eligible?
You may be eligible if:
•
You are the owner occupant of a one to four unit home,
•
The loan on your property is owned or securitized by Fannie Mae or Freddie Mac (Don't know? See below),
•
At the time you apply, you are current on your mortgage payments (current means that you haven’t 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),
•
You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house,
•
You have income sufficient to support the new mortgage payments, and
•
The refinance improves the long term affordability or stability of your loan.
3.
How do I know if the refinance will improve the long term affordability or stability of my loan?
Your lender will give you a “Good Faith Estimate” that includes your new interest rate, mortgage payment and the amount you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, refinancing may not be right for
you. Also consider that refinancing from an adjustable rate to a fixed rate loan or eliminating higher risk loan terms such as interest only payments or balloon payments may also provide long term stability.
4.
How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?
You should call your mortgage lender or servicer (the organization to whom you make your monthly mortgage payments) and ask about the program.
Both Fannie Mae and Freddie Mac have established toll-free telephone numbers and web submission processes to make this data available. Borrowers will provide or enter information to determine if either agency owns or securitized the loan. This information is not a guarantee of eligibility for the refinance program, as other qualifying criteria must also be met.
•
For Fannie Mae,
o
1-800-7FANNIE (8am to 8pm EST).
o
www.fanniemae.com/loanlookup
•
Freddie Mac
o
1-800-FREDDIE (8am to 8pm EST)
o
www.freddiemac.com/mymortgage
5.
I owe more than my property is worth. Do I still qualify to refinance under the Making Home Affordable Program?
Eligible loans will include those where the first mortgage will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less on your first mortgage you may qualify. The current value of your property will be determined after you apply to refinance.
6.
I have both a first and a second mortgage. Do I still qualify to refinance under Making Home Affordable?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible for a Home Affordable Refinance. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage remain in a second position, and on your ability to meet the new payment terms on the first mortgage.
7.
Will refinancing lower my payments?
The objective of the Home Affordable Refinance is to provide creditworthy borrowers who have shown a commitment to paying their mortgage, the opportunity to get into a mortgage with payments that are affordable today and sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the
2
current market rate should see an immediate reduction in their payments.
Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate and payment. These borrowers, however, could save a great deal over the life of the loan by avoiding future mortgage payment increases. When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.
8.
What are the interest rate and other terms of this refinance offer?
The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon payments.
9.
Will refinancing reduce the amount that I owe on my loan?
No. The objective of the Home Affordable Refinance is to help borrowers get into more affordable loans. Refinancing will not reduce the principal amount you owe to the first mortgage holder or any other debt you owe. However, refinancing should save you money by reducing the amount of interest that you pay over the life of the loan.
10.
Can I get cash out to pay other debts?
No. However, borrowers whose loans are owned or securitized by Fannie Mae may be eligible to finance all closing costs and obtain a small amount of cash (2% of the mortgage amount not to exceed $2,000) through the refinance if there is sufficient equity. For borrowers whose loans are owned or securitized by Freddie Mac, transaction costs (not to exceed $2,500) such as the cost of an appraisal or title report, may be included in the refinanced amount.
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How do I apply for a Home Affordable Refinance?
You should call your mortgage servicer or lender and ask about the Home Affordable Refinance application process. The number is on your monthly mortgage bill or coupon book. Please be patient. Lenders and servicers are implementing the program now and it may take time before they are ready to process all applications. In the meantime, it will help your lender and speed up the application process if you gather some information and documents before you call.
Additionally, beginning April 4, 2009, borrowers whose loans are owned or securitized by Fannie Mae may also apply through any Fannie Mae approved lender.
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Nearly all major banks and mortgage brokers are approved to work with Fannie Me. Ask the lender you choose if it is authorized to provide a Home Affordable Refinance.
12.
What documentation will I need?
It will help your lender if you gather some information and documents before you call. You will need:
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Information about the monthly gross (before tax) income of all the borrowers on your loan, including recent pay stubs if you receive them or documentation of income you receive from other sources.
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Your most recent income tax return.
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Information about any second mortgage on the house.
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Account balances and minimum monthly payments due on all of your credit cards.
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Account balances and monthly payments on all your other debts such as student loans and car loans.
13.
I am delinquent on my mortgage. Will I qualify for a Home Affordable Refinance?
No. Borrowers who are currently delinquent or have been 30 days overdue more than once during the past 12 months will not qualify. You should contact your servicer to see if a Home Affordable Modification is an option for you.
14.
Will I need mortgage insurance?
If your existing loan has private mortgage insurance, you will need the same amount of insurance coverage for the refinanced loan. If your existing loan does not have private mortgage insurance it will not be required as part of the Home Affordable Refinance.
15.
How long will the Home Affordable Refinance be available?
The program expires on June 10, 2010. Your refinance transaction must be closed and funded on or before that date.
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HOME AFFORDABLE MODIFICATIONS
1.
Can Making Home Affordable help me if my loan is not owned or securitized by Fannie Mae or Freddie Mac?
Yes. Making Home Affordable offers help to borrowers who are struggling to keep their loans current or who are already behind on their mortgage payments. By providing mortgage servicers with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.
2.
How do I know if I qualify for a Home Affordable Modification?
To apply for a Home Affordable Modification, you must:
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Be an owner-occupant in a one to four unit property,
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Have an unpaid principal balance that is equal to or less than $729,750 for one unit properties (there is a higher limit for two to four unit properties - consult your servicer),
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Have a loan that was originated on or before January 1, 2009,
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Have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31% of your gross (pre-tax) monthly income, and
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Have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.
If you answered YES to all of these questions, you may be eligible to apply for a Home Affordable Modification. Only your servicer will be able to tell you if you qualify.
3.
Do I need to be behind on my mortgage payments to be eligible for a Home Affordable Modification?
No. Responsible borrowers who are struggling to remain current on their mortgage payments are eligible if they are at risk of imminent default, for example, because their mortgage payment has recently increased to a level that is not affordable. If you have had or anticipate a significant increase in your mortgage payment or you have had a significant reduction in income or have experienced some other hardship that makes you unable to pay your mortgage, contact your servicer. You will be required to document your income and expenses and provide evidence of the hardship or change in your circumstances.
4.
I have a second mortgage. Am I still eligible?
Yes, but only the first mortgage is eligible for a modification.
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5.
How do I know if my servicer is participating? Are all servicers required to participate?
Servicer participation in the program is voluntary. However, the government is offering substantial incentives to servicers and investors, and it is expected that most major servicers will participate. Participating servicers will sign a contract with Treasury’s financial agent, through which they agree to review every potentially eligible borrower who calls or writes asking to be considered for the program.
As contracts are signed, a list of participating servicers will be available on the Internet at www.makinghomeaffordable.gov.
6.
What will my servicer do to determine if I qualify?
If you report a hardship, your servicer will:
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Determine whether your loan meets the minimum eligibility criteria (owner occupied, originated on or before January 1, 2009, unpaid principal balance equal to or less than $729,750). If yes
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Ask about current income, assets and expenses as well as the specific circumstances relating to the hardship to determine if you will be unable to make your mortgage payment. (Your servicer may initially accept verbal information about your income and expenses, but eventually you will need to provide proof in the form of tax returns, pay stubs and other evidence).
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Determine if your monthly first lien mortgage payment is more than 31% (approximately 1/3) of your gross or pre-tax monthly income. If yes:
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Add past due charges (interest, taxes, insurance and costs that your lender paid to other parties on your behalf – but not late fees, those must be waived) to the loan balance.
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Determine how much of an interest rate reduction will be required to get your first mortgage payment down to a point where it is no more than 31% of your gross monthly income.
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Apply a value test to determine if the cost of the modification (including the government’s incentive payments) is less costly for the investor than not modifying the loan (loans held by borrowers who have a lot of equity or whose incomes are very low in relation to the value of their homes probably will not pass this value test). If yes:
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Put you on a trial modification for three months at the new interest rate and payment level.
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If you successfully make the payments and are current at the end of the trial period, your servicer will execute a permanent modification agreement that will lower your interest rate to a fixed rate for five years, and then capped at a low rate for the remaining life of the loan.
NOTE: You will be required to sign the modification agreement and other documents
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and attest that all of the information you provided to your servicer was true and accurate. Misrepresenting any information required for the Home Affordable Modification is a violation of Federal Law and has serious consequences.
7.
What happens after five years?
If the modified interest rate is below the market rate, the modified rate will be fixed for a minimum of five years as specified in your modification agreement. Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the rate cap indicated in your modification agreement. The cap is equal to the prevailing market interest rate on the date the modification is finalized as published by Freddie Mac based on a survey of its customers. This cap means that your rate can never be higher than the market rate on the day your loan was modified. If the modified rate is at or above the prevailing market rate, as defined above, the modified rate will be fixed for the life of the loan.
8.
Will the modified loan include property taxes and homeowners insurance?
Yes. The modification payment will include a monthly amount to be set aside (escrowed) to pay taxes and insurance when they become due. This escrow is required even if your prior loan did not include an escrow.
9.
How low can my interest rate go?
Treasury is providing incentives to your investor to write the interest down to as low as 2%, if necessary to get to a payment that you can afford based on your income.
10.
What happens if that is not enough to get to an affordable payment?
If a 2% interest rate does not result in a payment that is affordable (no more than 31% of your gross monthly income), your servicer will:
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First try to extend your payment term. At the servicer’s option your payments could be extended out to 40 years.
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If that is still not sufficient your servicer may defer repayment on a portion of the amount you owe until a later time. This is called a principal forbearance.
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A portion of the debt could be also be forgiven. This is optional on the part of the investor. There is no requirement for principal forgiveness.
11.
Could I end up with a balloon payment?
Yes. If your servicer determines that a principal forbearance is required to get your monthly payment to an affordable level, the amount of the forbearance, say for example this was $20,000, would be subtracted from the amount used to calculate your monthly mortgage payment, but you would still owe the money. You would have a $20,000 balloon payment that had no interest and was not due until you paid off your loan,
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refinanced or sold your house.
12.
What happens if I am unable to make payments during the trial period?
Borrowers who are unable to make three payments by the end of the trial period are not eligible for a Home Affordable Modification. However, you may be eligible for other foreclosure prevention options offered by your servicer.
13.
How much will a modification cost me?
Borrowers who are behind on payments or at risk of imminent default often do not have cash to pay for the expenses of a loan modification. Borrowers who qualify for a Home Affordable Modification will never be required to pay a modification fee or pay past due late fees. If there are costs associated with the modification, such as payment of back taxes, your servicer will give you the option of adding them to the amount you owe on your mortgage or paying some or all of the expenses in advance. Paying these expenses in advance will reduce your new monthly payment and save interest costs over the life of your loan.
If you would like assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a counseling fee. Borrowers should beware of any organization that attempts to charge an upfront fee for housing counseling or modification of a delinquent loan, or any organization that claims to guarantee success.
14.
Is housing counseling required under this program?
Borrowers, especially delinquent borrowers, are strongly encouraged to contact a HUD-approved housing counselor to help them understand all of their financial options and to create a workable budget plan. These services are free. However, housing counseling is only required for borrowers whose total monthly debts are very high in relation their incomes. It is voluntary for other applicants.
When you apply for a Home Affordable Modification, your servicer will analyze your monthly debts, including the amount you will owe on the new mortgage payment after it is modified, as well as payments on a second mortgage, car loans, credit cards or child support. If the sum of all of these recurring monthly expenses is equal to or more than 55% of your gross monthly income, you must agree to participate in housing counseling provided by a HUD-approved housing counselor as a condition of getting the modification.
15.
I heard the government was providing a financial incentive to borrowers. Is that true?
Yes. Borrowers who make timely payments on their modified loans will receive success incentives. For every month you make a payment on time, Treasury will pay an incentive
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that reduces the principal balance on your loan. The incentive will be applied directly to your loan balance annually and over five years the total principal reduction could add up to $5,000. This contribution by the Treasury will help you build equity faster.
16.
I do not live in the house that secures the mortgage I’d like to modify. Is this mortgage eligible for a Home Affordable Modification?
No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage servicer will check to see if the dwelling is your primary residence. Misrepresenting your occupancy in order to qualify for this program is a violation of Federal law and may have serious consequences.
17.
I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?
Yes. Mortgages on two, three and four unit properties are eligible as long as you live in one unit as your primary residence.
18.
I owe more than my house is worth. Will a Home Affordable Modification reduce what I owe?
The primary objective of the Making Home Affordable Program is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Investors may, but are not required to, offer principal reductions. It is more likely that your servicer will use interest rate reductions in order to make your payment affordable.
19.
I have an FHA loan. Can it be modified under the making Home Affordable Program? Are all loans eligible?
Most conventional loans including prime, subprime and adjustable loans, loans owned by Fannie Mae, Freddie Mac and private lenders and most loans in mortgage backed securities are eligible for a Home Affordable Modification. The Administration is working with the Congress to enact legislation that will allow FHA and VA to offer modifications consistent with Making Home Affordable in the near future. Currently loans insured or guaranteed by these agencies are being modified under other programs that also enable borrowers to retain homeownership.
20.
How do I apply for a modification under the Making Home Affordable Plan?
If you meet the general eligibility criteria for the program, you should gather the financial documentation that your servicer will need to determine if you qualify. Once you have this information, you should call your mortgage servicer and ask to be considered for a
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Home Affordable Modification. The number is on your monthly mortgage bill or coupon book.
If your loan is current, please be patient as it may take some time before servicers are able to process all applications. However, servicers immediately can begin reviewing the eligibility of borrowers.
If you would like to speak to a housing counselor you can call 1-888-995-HOPE (4673). HUD-approved housing counselors can help you evaluate your income and expenses and understand your options. This counseling is FREE.
If you have already missed one or more mortgage payments and have not yet spoken to your servicer call them immediately.
21.
What information and documents will I need?
It will help your servicer and speed processing of your application if you gather some information and documents before you call. For all borrowers on your loan, you will need:
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Information about monthly gross income, including recent pay stubs if the borrowers are salaried and receive them and documentation of any income received from other sources.
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Most recent income tax return.
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Information about assets.
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Information about any second mortgage on the house.
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Account balances and minimum monthly payments due on all credit cards.
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Account balances and monthly payments on all other debts such as student loans and car loans.
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A letter describing why your mortgage is unaffordable (i.e. what caused your income(s) to be reduced or expenses to be increased).
22.
How long will the Home Affordable Modification Program be available?
The program expires on December 31, 2012. Your trial modification must be in place by that date.
23.
My loan is scheduled for foreclosure soon. What should I do?
Many servicers have made a commitment to postpone foreclosure sales on all mortgages that meet the minimum eligibility criteria for a Home Affordable Modification until those loans can be fully evaluated.
However, borrowers whose loans have been scheduled for foreclosure or any borrower that has missed one or more mortgage payments and has not yet spoken to their servicer should contact the servicer immediately. Borrowers may also contact a HUD-approved housing counselor by calling 1-888-995-HOPE (4673). 10
WHAT ELSE DO I NEED TO KNOW?
1. Who is my “loan servicer? Is that the same as my lender or investor?
Your loan servicer is the financial institution that collects your monthly mortgage payments and has responsibility for the management and accounting of your loan. Your servicer may also be your lender, which means they own your loan, however, many loans are owned by groups of investors.
Traditionally, banks used money deposited in customers’ savings accounts to make loans. They held the loans, earning the interest as borrowers repaid over time. Banks were thus limited in the number of loans they could make because they had to wait to make new ones until savings deposits grew or existing borrowers repaid their loans. Many families who wanted to own a home were unable to do so because there was not a steady supply of money to lend.
Over time, banks started to turn loans into cash by pooling large groups of loans together to create mortgage backed securities that could be sold to investors such as pension funds and hedge funds. The investors get the right to collect future payments and the bank gets cash that it can use to make more loans. Investors hire loan servicers to collect payments and interact with customers.
If you have questions about your loan or you are behind on your payments you should call your loan servicer at the number on your payment coupon or monthly mortgage statement.
2. Why does my loan servicer have to ask the investor if they can do a loan modification?
If the organization that services your loan does not own it, your servicer may need to get permission from the owner or investor before they can change any of the terms of your loan. Generally, there is a contract between the servicer and the investor that states what kind of actions the servicer is allowed to take. Most of these contracts, called pooling and servicing agreements (PSAs), give the servicer a lot of leeway to make modification decisions, so long as the modification provides a better financial outcome for the investor than not modifying the loan.
3. What should I do if my servicer tells me that the investor is not participating in Making Home Affordable?
As contracts with servicers and investors are signed, the list of participants will be posted at http://www.makinghomeaffordable.gov/. Borrowers should check first to see if their servicer is listed. If so, you should call your servicer back and ask to speak to a supervisor or you may contact a HUD-approved housing counselor for assistance. If your servicer or investor is not participating in the program, you should ask your servicer or a housing counselor about other workout options that may be available.
BEWARE OF FORECLOSURE RESCUE SCAMS – HELP IS FREE!
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There should never be a fee for assistance with or information about the Making Home Affordable Program.
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Beware of any person or organization that asks you to pay an upfront fee in exchange for a counseling service or modification of a delinquent loan. Do not pay – walk away!
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Beware of anyone who says they can “save” your home if you sign or transfer over the deed to your house. Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.
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Never make your mortgage payments to anyone other than your mortgage company without their approval.