Newsday 3/13/2009: http://www.newsday.com/classified/realestate/ny-hocov6065842mar13,0,5601800.story
Be persistent
Most housing experts are hailing the merits of patience. Servicers and lenders are expected to be inundated by requests, and some details of the plan are not yet clear to lenders, finance and real estate experts say. (The federal government’s Web site is asking people to “be patient” because lenders might not be ready to start the program. As lenders sign contracts to participate, a list of them will be available at financialstability.gov, according to the site.)
But as homeowners move through the process of refinancing or modifying a loan, being persistent will be a key to success, says Lynn Law, director of education and counseling at the Long Island Housing Partnership, a Hauppauge-based nonprofit that gives affordable housing opportunities. Law provides mortgage counseling and has worked with servicers on behalf of borrowers seeking mortgage modifications.
THE POTENTIAL TRAP Timid borrowers might not press servicers about the status of their applications, Law says, adding that this might cause a delay in getting help.
ADVICE Make that second call – and a third and fourth, Law says. Do not assume the lender or servicer received documents sent through the mail. Call to confirm. Law adds that, although applying for a mortgage modification can be stressful, remaining polite can go a long way with busy servicers.
Get to know your finances
Homeowners should know how much debt they have, what their monthly budget looks like and what their mortgage payment is as a percentage of monthly gross income, mortgage counselors and brokers say. Obvious? Maybe. But tell that to Bob Moulton, president of broker Americana Mortgage Group in Manhasset. Moulton says he sees prospective borrowers or homeowners seeking mortgage refinances regularly who are not aware of their financial standing.
THE POTENTIAL TRAP Homeowners unaware of their finances make uneducated decisions about how to get help, say Moulton and counselors like Joan LaFemina, a program manager with the Community Development Corp. of Long Island, a nonprofit with offices in Freeport and Centereach that helps struggling homeowners seek modifications. Also, experts point out, unrealistic household budget projections are partly what led to the economic downturn, leading many to agree to monthly payments they could not consistently meet.
ADVICE Before calling your mortgage company, have copies of important financial documents that will be required, such as recent tax returns and monthly income statements (get a list of documents you will need to refinance or modify a loan at financialstability.gov). Without preparation, making an educated decision about refinancing or modifying a loan becomes, at least, more time-consuming, Moulton says.
Caution is a virtue
Most people are not experts in mortgage finance. But, the financial experts say, that’s no reason to be unsure about the terms of a loan you might need to live with for decades.
THE POTENTIAL TRAP Borrowers who lack financial savvy often rely too much on mortgage companies and may not understand, or even read, all the fine print of their loans, which can lead to long-term problems, says Lita Smith-Mines, a Commack-based real estate attorney. Under the government’s plan, for example, a lender may modify a loan into an ultralow interest rate (as low as 2 percent). But many modified rates will go back up over time, increasing monthly payment obligations. Also, reducing monthly payments today could mean extending the life of the loan from 30 years to 40 years, for example. That would ultimately increase the amount of money the borrower would owe over time.
ADVICE Know what you’re signing, Smith-Mines says. “I understand as well as anyone that when your May mortgage payment is due in 2009, you may not be thinking about 2012,” Smith-Mines says. “I just want people to consider the consequences of rearranging or postponing.”
Also, the government is cautioning homeowners to stay away from fee-based counselors who may be looking to prey on unsuspecting borrowers seeking help. Free mortgage counseling is available at nonprofits like the Community Development Corp. of Long Island (cdcli.org) and the Long Island Housing Partnership (lihp.org). (More HUD-approved counselors in Nassau and Suffolk are listed at http://www.hud.gov/offices /hsg/sfh/hcc/hcs.cfm, or call 877-HUD-1515.)
Think balance in writing a hardship letter
For homeowners looking to modify terms of their mortgages to make them more affordable and avoid foreclosure, writing a hardship letter is an essential part of the package, say mortgage counselors. Unlike all the other documents that will be required, the letter gives homeowners an opportunity to explain, in their own words, what went wrong. LaFemina suggests being brief, explaining what happened in two to three short paragraphs. In addition to your name and telephone number, be sure to date the letter and include the address of the property, the name of the mortgage servicer and the loan number. Law says proof of claims in the hardship letter, such as doctors’ notes, do not have to be attached. But borrowers should be able to prove their claims if requested, Law says.
In addition to the letter, mortgage servicers and lenders being asked to modify a mortgage will need monthly income statements, most recent tax returns and information regarding any other debt, such as student loans or credit card balances. (Again, get that complete list at financialstability.gov.)
THE POTENTIAL TRAP Letters written by struggling homeowners are often too heavy on anecdotal accounts and too light on the details mortgage companies are really looking for, says LaFemina of the Community Development Corp.
ADVICE What mortgage companies need are the specifics about why homeowners can’t meet monthly mortgage payments, LaFemina says. Did a car accident leave a primary earner out of work and without a stable income? List the date of the accident and the extent of the injuries in the letter. Has someone in the house lost a job during the economic downturn? Explain in detail how the layoff has affected the household’s budget, LaFemina says.
The ‘making home affordable’ plan
The refinancing component
SNAPSHOT Homeowners who couldn’t qualify for mortgage refinancing in the past because their houses have lost value may be eligible to refinance under the new plan to take advantage of low interest rates and get more affordable monthly payments.
WHO’S ELIGIBLE
Mortgages must be owned or guaranteed by Fannie Mae or Freddie Mac. (If you don’t know, call Fannie Mae at 800-7FANNIE or Freddie Mac at 800-FREDDIE.)
Home must be a primary residence.
Homeowners must be current on their mortgage payments, meaning they haven’t been 30 days late on a payment in the past year.
The first mortgage cannot exceed 105 percent of the value of the home. For a $300,000 home, for example, a homeowner who owes $315,000 or less may be eligible, but not anyone who owes more than that amount.
The modification component
SNAPSHOT Homeowners at risk of foreclosure may be eligible for a modification of their mortgage. Under the plan, mortgage servicers can reduce the interest rate on the loan (down to 2 percent), extend the life of the loan, and defer or reduce principal (there could be a balloon payment at maturity) to make payments more affordable.
WHO’S ELIGIBLE
Home must be a primary residence.
Mortgages modified under the plan must have been originated on or before Jan. 1, 2009.
Mortgage payments before modification must exceed 31 percent of a homeowner’s gross monthly income.
Mortgages for single-unit homes must have unpaid principal balances of $729,750 or less.
Mortgage must be unaffordable for the homeowner, maybe because of a job loss or illness.
What if you don’t qualify?
Inevitably, housing counselors say, some troubled homeowners will be left out of the mortgage rescue plan. But there are options for relief, they say.
WHO’S LEFT OUT Borrowers whose mortgage payments well exceed 38 percent of their monthly gross income and others without a steady paycheck may be among those who don’t qualify, says Jerry Coppola, coordinator of the foreclosure prevention program at the Economic Opportunity Council of Suffolk Inc. in Patchogue.
OTHER OPTIONS Coppola says companies may still be willing to modify loans for borrowers who do not qualify under the plan if they show an ability to make payments.
First step, Coppola says, is to call the servicer or lender and ask for relief. Banks may allow borrowers to enter a temporary forbearance plan in which payments could be reduced, he says. Next, Coppola recommends scheduling an appointment with a housing counselor certified by the U.S. Department of Housing and Urban Development to discuss longer-term options and ways to get the borrower’s budget in order.
For borrowers with no income who cannot make payments, options are bleaker. A homeowner can voluntarily transfer the deed before foreclosure, or do a short sale. Lenders may be willing to accept a smaller payoff if borrowers cannot sell the home for at least the amount owed on the mortgage.
– JONATHAN STARKEY
MORE INFORMATION
For “Making Home Affordable,” financial stability .gov. For a local counselor, 877-HUD-1515; Community Development Corp. of LI, 631-471-1215 or 516-867-7727; LI Housing Partnership, 631-435-4710. If urgent: Homeowner’s HOPE Hotline, 888-995-HOPE
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