San Diego Loan Modifications & Principal Reductions

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Implemented in February 2009 HAMP has only helped 933,000 homeowners nationwide reported by the Departments of Treasury and Housing and Urban Development.

Housing and Urban Development Secretary Shaun Donovan, Assistant Treasury Secretary Tim Massad, and White House National Economic Council Director Gene Sperling recently held a press conference announcing the Obama administration is expanding the foreclosure prevention program.

HAMP changes include:

The incentive to servicers has tripled to 18-63 cents for every dollar written down. Previously it was 6-21 cents for every dollar.
Fannie Mae and Freddie Mac were offered principal reduction incentives by the treasury if they agree to write down principal. Currently neither Fannie nor Freddie offer principal reductions. Previously, the government had only private lenders and banks incentives to reduce principal.
Expand to allow for non owner occupied rental properties when it is occupied by a tenant. Previously HAMP was only allowed for owner occupied homeowners.
Deadline extended through December 31st 2013
Change in eligibility criteria for more flexibility on debt to income ratios. Currently the loan modification was intended to bring down the front end ratio (housing ratio including principal, interest, taxes, insurance, homeowners association) to 31%. Previously if after a modification your front end housing ratio was below 31% you did not qualify.

You won’t be able to apply until the end of April.

Please keep in mind the following considerations:

Your loan principal cannot be higher than $729,750
Your loan must have been originated on or before January 2009
You must have a financial hardship it cannot be strategic
You must be EMPLOYED
Any principal reduction that you do not want to owe taxes on must occur by December 31st 2012 due to the Mortgage Debt Relief Forgiveness Act expiring. If your principal is reduced after December 31st 2012 you will owe taxes on the write off amount as income.
The adjusted term is fixed BUT for 5 years not indefinitely
While in the trial mode you must make payments and could be denied in the future on the permanent modification. If inevitably you end up short selling or foreclosing you just lost valuable money.
You can’t make too much or too little. If your back end ratio including car payments, credit cards, student loans is too high you will be denied. If you had another household member now your front end (housing ratio) may be too low. Once you’ve disclosed you cannot undisclose.
You must have sufficient DOCUMENTABLE income. If you aren’t claiming it on your tax returns it is not documentable.

Having said that why may a loan modification be downright a bad decision?

First and foremost you are still upside down. Even with principal reduction incentives most of the servicers will end up providing forbearances with a final balloon payment. You are continuing to invest your hard earned dollars into an over leveradged unperforming asset.

The trial modification is often extended multiple times never permanently modifying the homeowner. Instead the servicer gives false hope to homeowners while collecting their monthly payments. After your first 3 month trial period you will be notified that they will now review your application and to pay for another 90 days. After the 6 month time frame has passed in the majority of cases, “You are denied a permanent modification.” Departments of Treasury and Housing and Urban Development reports 1.8 million homeowners were granted a trial modification and only 933,000 received a permanent modification. Of the 933,000 permanent loan modifications 170,000 fell out leaving 762,839 active permanent modifications.

You must be late to get a loan modification, in most cases 90 days late damaging your credit. You will not be able to be approved for another mortgage loan for a vacation home or investment property at the time of having a loan modification outstanding. It is in most lenders considered just as negatively as a short sale or foreclosure. Bottom line you did not fulfill the terms you originally agreed to when you signed your mortgage paperwork.

The majority of loan modifications fail after reperforming because the payment is not modified enough to manage with the rest of their debts. 23 percent of all mortgages permanently modified modified under HAMP have gone back into delinquency within 18 months.

Loan modification approvals average 9-12 months. If you were to receive a principal reduction it would most likely not be in time to meet the looming December 31st 2012 Mortgage Debt Relief Forgiveness Act expiration.

US Treasury statistics show the average monthly payment savings is $530 per month. I meet with homeowners everyday who are hoping for upwards of $1,000-$4,000 in monthly payment reduction. It’s not going to happen.

The mortgage banker’s association reported an estimated 4.6 million delinquencies nationwide. January 10th 2012 the US Department of Treasury estimates 890,000 homeowners will be eligible for HAMP. The percentage is startling.

Reviewing HAMPs past dismal performance do you believe the new changes will really be implemented to the full extent by your mortgage servicer?

Conclusion set aside the emotion and reconsider throwing good money after bad. Contact me for your own customized Loan Modification vs Short Sale analysis. It calculates your net equity position, monthly cost of housing after deductions, and the effective cost of housing after offset by net equity.

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Joy Bender knows the intricacies of the luxury real estate market of San Diego and it’s most premier neighborhoods while offering an unparalleled degree of personalized attention to her discerning clientele. She specializes in highly confidential representation of both buyers and sellers who lead a demanding lifestyle. With her extensive experience in San Diego waterfront estates and luxury properties, Joy offers her clients invaluable market knowledge, superior negotiation, and legendary customer service. Joy has helped over 1,000 clients in the past 12 years with their real estate needs.

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