PREDICTION: 6.5 million U.S. foreclosures by end of 2012.
-Credit Suisse Research Report 04/2008
SOLUTION: Federal Bailout to help 400,000 homeowners by Sept 2011.
-U.S. Government
Let's assume this prediction is accurate. To put things into clearer perspective, 6.5 million is the equivalent to 12.7 percent of all U.S. homes with mortgages. So let's also assume that this massive federal housing bailout will be the government's last, since there's only so much money they can print. Now let's do some simple math: 400000/6500000=6.15%. This means roughly 6% of the total foreclosure victims in the United States will obtain federal aid once the The Housing and Economic Recovery Act of 2008 takes effect in October of this year.
6% of Americans facing foreclosure within the next 3-4 years can *possibly* benefit from this Federal aid, named the "Hope for Homeowners Program." This financial housing assistance will come in the form of a new FHA (Federal Housing Administration) refinance to get delinquent borrowers out of loans they cannot afford and into permanently fixed interest rate loans they CAN AFFORD. Most mortgage brokers refer to this as an FHA "short refinance" because the existing lender will have to accept a short payoff (for less than what is owed) in order to make this work. ALL HOMEOWNERS THAT CAN QUALIFY FOR THIS FEDERAL HOUSING AID SHOULD NOT HESITATE TO APPLY. The benefits far outweigh what you must agree to in exchange.
How do you know if you could be one of the lucky 6%? You can narrow down the possibility by finding out how one would even qualify for the Hope for Homeowners Program. Let's take a minute to review some of its key highlights.
The Hope for Homeowners Program will give you:
- A permanently fixed 30yr FHA loan
- 10% of renewed equity back into your home
- What more can you ask for? It's a fresh start and you can call your home a true investment once again.
In order to qualify for the Hope for Homeowners Program you must:
- Live in and own your ONLY HOME. Anyone holding investment property or a 2nd home is automatically disqualified. *If this is you, please read below for alternative relief.
- Be able to prove ON PAPER that you can afford the new principal and interest payment, plus monthly mortgage insurance, property taxes and hazard insurance. *Find out if you can income qualify now.
- Be late or in danger of foreclosure.
- Be willing to acknowledge that you did not intentionally go late in order to qualify for the program. Otherwise, fines and federal incarceration will apply.
- Be willing to share future equity with the federal government.
If you've made it this far, you must be able to convince your lender to:
- Write down the principal balance down to market value PLUS an additional 10%, which I would strongly advise against doing on your own. Here you've got only one shot at presenting your situation in such a way, where the lender agrees that a short payoff is better for them in the long run. Know that the pending legislation will in no way require or incentivize your lender to agree to take less money than you originally committed to pay. A professional loss mitigation agency can help you prove that it is in the lender's best interest to accept less. Remember only 400,000 homeowners will be helped and you want the best representation to make sure you are one of them.
Still think you can be one of the lucky 6%? Maybe that's why it was strategically called HOPE for Homeowners Program, because that's all it really is? Please don't misunderstand me. I applaud the U.S. government for stepping in to offer help, and in my opinion, this crisis housing situation was collectively brought about by us Americans pursuing the American Dream- to own a home no matter what the price. In retrospect, the government should have stepped in years sooner, but we the people would have despised the feds for interfering with the free market - which would have been very UNAmerican. Without putting the blame on any one group of people, agency, or bank, this is an unfortunate circumstance that must be dealt with. The Hope Program is great, but it's too restrictive and just not enough. Although some goverment assistance is clearly better than none, most of us simply cannot rely on the feds to bail us out. If you cannot qualify for federal assistance but your home will certainly fall victim of foreclosure if nothing is done, please take matters into your own hands and seek professional help.
Here are some home retention alternatives that are available today (in order of greatest net benefit to the homeowner):
SHORT REFINANCE (GREATEST)
A short refinance is where your existing lender agrees to a short payoff, by reducing your principal balance to market value PLUS enough to cover the new lender's equity requirements AND refinance closing costs. In many ways, this is exactly what the Hope for Homeowners Program offers. However, the key difference here is that successful short refinances now happen in cases where the borrower is NOT late - the reason being, you will not qualify for a traditional FHA refinance if you have been late on your mortgage within the past 12 months. *The exception is FHASecure, where the program grants exceptions to those borrowers who have gone late as a result of an interest rate increase. If you are successful with a short refinance, you will not have to share your equity with the government. In fact, all of the loss mitigation alternatives mentioned here will not require that. Why an FHA refinance and not a conventional or jumbo? FHA guaranteed loans are the only ones that will refinance up to 95% of a home's market value. Otherwise, your existing lender would have to write down enough to give you 10% equity to qualify for a conventional loan PLUS more to cover closing costs- and that's simply not going to happen.
SHORT MODIFICATION (GOOD)
A short modification is where your existing lender agrees to write down your principal balance to an amount you can afford and re-sets your loan terms to a 30yr fixed payment. Loss mitigation efforts that result in short modifications most often happen in cases where the borrower is seriously delinquent and cannot qualify for a new refinance loan. An example of a case, where a short modification might be considered, is in satisfying all of the qualifications for the Hope for Homeowners Program EXCEPT the requirement to own only one home. To explain why a short modification may be less desirable than a short refinance, in a short mod the principal balance may not be written all the way down to market value. It is possible that you may not afford a principal and interest payment at your present loan amount, but you could afford it if it were brought down partially lower (but perhaps not as low as market value). On the other hand, in a short modification there are no refinance closing costs due to the fact that your existing lender simply modifies the balance and terms of the original note.
TRADITIONAL LOAN MODIFICATION (OK)
A "traditional" loan modification is where your existing lender modifies the terms of the original loan agreement, without writing down the balance. Traditional loan modifications typically stop an interest rate from re-setting, where you could otherwise afford to pay. Traditional loan modifications are permanent solutions, with no future adjustments to the interest rate and payment after the new agreement is in place. This could be considered permanent financing without having to refinance into a new 30yr fixed loan.
SHORT-TERM MODIFICATION (ACCEPTABLE)
Now short-term modifications offer the LEAST benefit to the borrower, while giving the GREATEST net benefit to the lender (or their investors). Short-term modifications happen mostly in situations where a borrower attempts to work out a loan modification directly with their bank. This is a temporary solution that makes your payments more affordable until something else can be done. What that something else is, is simply more time. Because banks would rather keep the original loan terms intact, they can offer temporary relief in hopes that the market will recover OR you the borrower will soon make more money. For you this means your home will not foreclose now, but it will instead delay the process until your short-term mod agreement expires. At the time of expiration, your loan usually re-sets to the original terms that put your home in jeopardy in the first place. With all of that said, a short-term modification might be the only option the lender will offer, but you at least avoid foreclosure and remain in your home.
If you're like me, you've probably spent countless hours researching loan modification solutions for your home and family, and this is only one of the many articles you've read on the topic. But hopefully, I've been able to introduce some new possibilities here that you haven't yet come across. Remember, the idea of a lender to make a financial sacrifice for a borrower is a completely new concept for them, so it may take time for short refis and short mods to become more widely accepted. As is it now, it doesn't look like lenders have very much collateral to secure their debt. As their collateral continues to fall further and further down, they should start to accept short payoffs by the millions. Just be patient and don't lose HOPE.
Pre-Qualify for a Short Refi Now
by RANDY MIGUEL | Loan Modification Counselor
Equitas Capital, Los Gatos | Associate Broker
Morgan Financial, Granite Bay | Direct FHA Lender
Office. 408.216.7274
Fax. 866.876.8514
http://www.randymiguel.com
