Are you late in paying your mortgage? Are you about to be? Is your home worth less than the mortgage balance?
If you answered yes to any of these questions, then you may be eligible for a new program that would reduce the principal balance owed on your mortgage under the Home Affordable Modification Program (HAMP).
The new principal reduction program divides your underwater mortgage into two pieces. The first loan would be for 100 percent of the current value of your property. The second loan would be a zero-interest loan that would be forgiven over a three-year period at a rate of one-third per year.
Sounds good, right? Don’t get your hopes up just yet.
There are a number of complicated rules and regulations that you’ll have to meet just to determine if you’re even eligible for the program.
Here are some of the new HAMP rules:
- FHA/VA, Fannie Mae, and Freddie Mac loans are ineligible. The principal reduction program excludes GSE loans plus FHA/VA loans. According to the government, Fannie Mae and Freddie Mac will offer their own principal reduction loan programs later in 2010. (Be sure to check back with the blog, as we’ll post updates to the program as they are announced.)
- You must be in default or in imminent danger of default. Lenders typically like to see that you’re thirty to ninety days late, although you do not technically have to be late on your payments to qualify.
- You must meet HAMP eligibility criteria. Your house payment (including taxes and insurance) must be more than 31 percent of your gross monthly income.
- Your loan must be 115 percent or more of the value of your home. The property’s current mark-to-market loan-to-value (MTMLTV) ratio must be greater than 115 percent.
- You’ll have to fill out new forms. The new HAMP rules require you to fill out the Request for Modification and Affidavit (RMA) form and IRS Form 4506-T or 4506T-EZ and provide evidence of income, including pay stubs that are not more than ninety days old.
The good news is that you’ll find out within thirty days whether you’re eligible for a loan modification. Up until these new rules went into effect, borrowers had been waiting months (or longer) to find out if they qualified for a trial loan modification and if that trial loan mod would be turned into a permanent loan modification. (Very few have been converted to permanent.)
The bad news is it doesn’t look like many homeowners who are applying for a principal reduction modification will qualify under the new rules.
Some lenders are creating their own principal reduction programs for homeowners who don’t qualify for the HAMP principal reduction program. Bank of America announced its own principal reduction program that offers principal balance forgiveness over five years instead of the three years required by the government program. Borrowers will be tested for both programs, bank officials said.
Ilyce Glink is a best-selling author, real estate columnist, and web series host. She is the founder and CEO of Think Glink Media and the managing editor of the Equifax Finance Blog. Follow her on Twitter: @Glink.
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