Is Loan Modification for You? | Calgary, AB
Loan modification is a good first step for homeowners in financial trouble who want to keep their homes. In the housing boom from 2004-2006, many people bought homes they could afford at the time with creative mortgages that offered low introductory rates or were adjustable every few years. When the rates were reset, the mortgage payments made the home unaffordable. When the housing market tanked and sent housing prices spiraling downward, the homes became worth much less than the amount of the mortgage. This limited the ability of many people to refinance.
Homeowners with the ability to pay the mortgage they agreed to when they got the loan are one intended audience for the Making Home Affordable plan set in place by President Obama in February, 2009. Borrowers with Fannie Mae or Freddie Mac-backed loans held by participating lenders can qualify for loan modifications that hold payments to 31% of incomes.
How the President’s Plan Works
For someone whose payment has risen to 45% of their income, the lender must absorb the loss to reduce the payment to 38%; the government will pay the difference between 38% and 31%. To reach this goal, the interest rate can be reduced to as low as 2% for five years. Participants are encouraged to work with HUD counselors to assess their housing situation. The program is free.
Lenders receive incentives when they successfully complete a loan modification, but lenders are so understaffed in their departments that they are slow to respond to eligible homeowners. At this point 360,165 trial modifications have been started and 571,354 offers made; this represents about 12% of the 3-4 million eligible homeowners expected to be helped. In July, President Obama chided the lenders and asked them to increase hiring to assure that at least 500,000 trial modification are in place by November, 2009.
The original plan was limited to mortgages that were 105% of the value of the home; but this was increased to 125% in July. In hard hit areas of the country like Nevada, California, and Florida, where percentages of “underwater” mortgages are high, many are disqualified from participating in the program. Critics allege that, because the program does not mandate principle reduction and because lenders have been slow to respond, the program will fall short of its goal of how many people it will help. The President admonished lenders and loan servicers to increase hiring to assure that 500,000 modifications are in progress by November, 2009.
Loan Modification Won’t Work for Some
Unfortunately, during the housing boom, some homeowners bought homes that are too expensive for them, perhaps by overstating their incomes. Lured by easy credit terms during the housing boom, these homeowners now find themselves in homes too expensive to heat, maintain, and insure, as well as pay for. Others have lost their jobs in this period of high unemployment and may not be able to predict when they will be working again or if their salaries will remain the same.
A loan modification, especially one that doesn’t significantly reduce the payment, can only prolong the agony of foreclosure in these cases. For people in this condition, as well as for people who don’t want to keep the home, there are better alternatives than loan modification to prevent foreclosure.
Alberta Buyers offers one solution to people who aren’t candidates for loan modification but feel trapped with a high mortgage. We will buy your home fast – most sales close within two weeks of your accepting our offer. Since we buy the home directly from you, you do not have to list your home with a real estate agent or deal with banks or lawyer to negotiate a settlement for you. We even offer you a $2,500 cash advance to help you move to new housing.