Underwater Mortgages

Unemployed and Own a Home?

2011-01-26T08:50:00.000-08:00

Obama Administration announces additional support to help homeowners struggling with unemployment through two targeted foreclosure-prevention programs.

The Hardest Hit Fund provides $7.6 billion in targeted aid to homeowners in 18 states plus the District of Columbia, all hit hard by the economic downturn.
The Emergency Homeowners Loan Program (EHLP) provides $1 billion to help unemployed homeowners make their mortgage payments.

Emergency Homeowners Loan Program
The US Department of Housing and Urban Development (HUD) has announced the $1 billion Emergency Homeowners Loan Program (EHLP) designed to complement Treasury’s Hardest Hit Fund by providing assistance to unemployed homeowners outside the states benefitting from Hardest Hit Funds. EHLP will work through a variety of state and non-profit entities to offer a zero-interest “bridge loan” of up to $50,000 to help eligible homeowners make their mortgage payments for up to 24 months.
Homeowners in the following states may be eligible to receive EHLP funds:

Alaska
Arkansas
Colorado
Connecticut
Delaware
Hawaii
Idaho
Iowa
Kansas
Louisiana
Maine
Maryland
Massachusetts
Minnesota
Missouri
Montana
Nebraska
New Hampshire
New Mexico
New York
North Dakota
Oklahoma
Pennsylvania
Puerto Rico
South Dakota
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming

Mortgages and the Government

2011-01-26T08:46:00.000-08:00

The government programs were announced in February of 2009 and are part of the Homeowner Affordability and Stability Plan. This plan is complicated and can be difficult to understand. The reason is because there has been a lot of press conference, there are many programs that sound the same, and there are a lot of cryptic acronyms.

To help you make sense of it all, we have put together this helpful article which will explain the mortgage assistance programs. You can see if you’re eligible for these programs by clicking on the links in this article. We’ll begin by providing you some background information.

On February 18, 2009 mortgage assistance was announced by President Obama when he unveiled theHomeowner Affordability and Stability Plan. The program will provide about $75 billion in assistance to struggling homeowners.

This government mortgage assistant program is designed to accomplish two goals. First, it will help some homeowners avoid foreclosures this year and for years to come. Second, it will help current homeowners refinance their mortgages so they make less payment every month by using fixed-rate loans. So this program helps people modify existing mortgages and refinance their homes.

The above picture demonstrates that if you qualify for any program, how you’re paying your current program shows which program you’ll be able to use. The first option is for people who have not been able to keep up with their monthly mortgage payments. The second option is for people who are current on their monthly mortgage payments.

This article will provide in depth information about both options.

First Option – Loan Modification

This option is designed to help if you haven’t been able to keep payments current on your existing mortgage. You should also consider this option if you think you’re going to have problems meeting mortgage obligations in the near future. Here is some more information.

If you are not able to keep up with your monthly mortgage payments, you might be able to work with a lender to get the terms of your mortgage changed.
Your lender should be able to reduce how much money you’re expected to pay every month, helping you avoid foreclosure. This benefits the lender as well as you. You get to keep your home and the lender avoids having to go through the foreclosure process.
Your monthly mortgage payments would only be about 31% of your gross monthly income. Most of the time this is accomplished by reducing the interest rate, allowing you to pay off more of the principal.
Your decrease in monthly payments would only last a certain length of time. Most of the time, it will be five years. After the time period is over, the monthly mortgage payments would slowly increase to be equal what it was at the time the mortgage was modified.
Homeowners and lenders both have motivation to participate in this government mortgage modification program. If you are able to make your monthly payments on time, you may be eligible for a reduction in your principal balance. Over the 5-year modification period, you could cut $5,000 from the amount you owe on your home. Lenders benefit by qualifying for incentive payments for each loan they successfully modify.

In order to be eligible to take advantage of this program, the amount of money left owing on your house without interest needs to be less than $729,750.
The program is designed to help people who have their homes as the primary place where they live. Speculators and investors will not benefit from the plan.
After December of 2012, nobody will be able to become eligible for this part of the mortgage assistance program.

What is my next step? Contact your lender to see is they are participating in this mortgage assistance program. Go to the government website at Financial Stability.gov for more information.

Second Option – Mortgage Refinance

Suppose you are able to make your monthly mortgage payments, but you can’t refinance because the value of your home has gone down. In that case, you could get help under the mortgage refinance option of the mortgage assistance program. Here is some more information.

This part of the government mortgage assistance program opens the door so more people can take advantage of refinancing their homes. It will mostly help people who have lost a lot of their home’s value.
Under normal circumstances, you would need at least 20% equity to be eligible for a refinance. This program helps people with no equity and even those who have a negative equity qualify for refinance loans.
In order to be eligible for mortgage refinance, you current loan must be owned by either Freddie Mac or Fannie Mae. We have included some links to help you determine if you qualify, or you can just ask your current lender.
If the value of your property has plummeted too low, you may not qualify for this part of the mortgage assistance program. This has unfortunately has been the case in many areas, especially California. To qualify, you cannot be underwater by more than 5 percent. Even a tiny bit of equity increases your chances of qualifying.
To qualify for this refinance program, you must be consistently making your monthly mortgage payments. For the past year, you must have been making your monthly mortgage payments within 30 days of the due date.

If your loan is more than $417,000 then odds are you will not qualify for refinancing. This is what is called a jumbo loan.
However, if you live in an area with higher property values such as New York, then you may qualify even if the loan is more than $417,000. The loan in this case is called a “conforming” loan instead of a jumbo loan. If you are not sure whether you qualify for assistance, be sure and ask. Click on one of the links we provide underneath this article to find out more.
In June of 2010, the mortgage refinance option is scheduled to expire.

What is my next step? Find out if your loan is owned by Fannie Mae or Freddie Mac. Ask your current lender or use the resources provided by the Fannie Website and the Freddie website. Go to the government website at Financial Stability.gov for more information.

If you’re having trouble meeting your mortgage obligations, hopefully this article provided you some useful information. As the government plans or changes are made to it, I will update this information. If you have questions about government mortgage assistance programs or other types of homeowner assistance,including assistance with mortgage payments please feel free to contact us through the contact us page.

How Those With Underwater Mortgages Can Stay Afloat!

2011-01-25T09:26:00.000-08:00

There’s hardly a homeowner out there who doesn't cringe at the thought of how far their home's value has sunk over the past year. But for those who find that they owe their mortgage lender more than their home is actually worth, things can get especially painful.

Folks with these "underwater" mortgages who are already having trouble making their payments may feel as if they have nowhere to turn. Pending mortgage rate resets, mounting debt and eventual foreclosure seems inevitable.

That's largely because despite well-publicized efforts on both the federal and, in some cases, state level to help homeowners facing mortgage rate resets, no aid is being extended to those whose homes have negative equity.

But while conventional "exit" options — selling the home or refinancing into an affordable mortgage — seem difficult or downright impossible when you're "underwater" on your mortgage, many banks are now offering solutions that help homeowners do just that.

The exact number of folks with negative equity is hard to determine, but the figure could easily exceed one million. A study by FirstAmerican CoreLogic, a real estate data analysis firm, estimates that 11% of homes purchased between 2004 and 2006 (not only the peak of the housing market, but also the period during which most no-money-down loans were issued) are currently underwater. Needless to say, that percentage will only grow larger should housing values continue to fall.

The good news is that lenders are becoming increasingly willing to help these homeowners avoid foreclosure. That should continue to be the case, as long as the high number of foreclosures continues to leave banks with a glut of repossessed homes, which is an expensive proposition: Not only do the lenders suffer losses on the loans for these homes, but they have to maintain and market them to potential buyers, as well.

"You'll see more and more lenders helping people stay in their homes over the long run," says Todd Mark, a vice president of education at Consumer Credit Counseling Service of Greater Dallas, a HUD-approved housing counseling organization.

What exactly is an Underwater Mortgage?

2011-01-25T09:20:00.001-08:00

Underwater mortgages are mortgage arrangements that effectively leave the owner with more debt on the property than the current market value. Generally, an underwater mortgage situation does not arise when a buyer takes out a first mortgage. The condition tends to arise when a second or third mortgage is taken out, or if factors within the area cause the property to depreciate in value unexpectedly.
One of the most common ways of getting into an underwater mortgage situation is when a property owner chooses to refinance an existing mortgage. Lenders may offer the option of borrowing on the existing equity in the property. In some instances, this can be a workable option, assuming there is a large amount of equity built up. However, if the amount of equity is relatively small, this solution can quickly lead to a level of debt on the property that exceeds the current market value. When this takes place, the property owner is essentially in an underwater mortgage situation.
Another common way that mortgages take on an underwater aspect is shifts in property values. When rezoning or other changes in the area take place, there is the possibility that the market value for the property will drop below the total of the current outstanding mortgages. This essentially creates a situation where the owner would not be able to sell the property for enough revenue to pay off all the current indebtedness.
In some instances, an underwater mortgage situation takes place because the homeowner chooses to overextend the borrowing against the property. For example, there are many lenders who will extend a third mortgage on the basis of the credit historyand job security of the applicant. However, if the owner loses his or her job and is unable to keep up the payments on all outstanding mortgages, the third mortgage effectively places the finances of the owner into an underwater situation.
A housing crunch can also create an underwater mortgage situation. When there is a demand for living space that exceeds the number of units available in the area, prices for any homes will rise significantly. The end result is that the market values temporarily rise, and mortgages are taken out to meet current prices. When the crunch is over and market values drop, owners are left owing more on their homes than the property is actually worth. At this point, the owner will find it virtually impossible to sell the property for enough to cover the cost of the mortgage, and may be more likely to default.