Home Loan Advice

President Barack Obama recently signed the Helping Families Save Their Homes Act in law. This measure is designed to help homeowners facing foreclosure to have a second chance by encouraging home loan companies to adjust mortgage payments and terms as long as the homeowner agrees to pay an insurance premium.

This act expands on a previous one, Hope for Homeowners, that essentially failed to help distressed homeowners. Because of the many administrative problems and stringent requirements only very few homeowners were about to refinance high-interest rate home loans for a 30-year fixed loan that was backed by the Federal Housing Administration. The previous law was intended to assist around 400,000 American homeowners but failed to do so. This new piece of legislation eases the previously tough eligibility requirements. It also promises to lower the cost of loan modification for both borrowers and lenders. It is hoped that these improvements will help the housing market, weighted down by foreclosures and distressed home sales, recover over the next 2 years

There is still a lot of red tape to deal with when seeking to negotiate a new home loan with a lender, especially when one is behind on payments or significantly ‘underwater’, meaning that the homeowner owes more on a mortgage than the home is currently worth on the housing market. Many people who’re seeking a loan modification due to being stuck with unaffordable house payments have reported considerable backlogs and confusing submission rules. Will the Helping Families Save Their Homes Act improve this situation? It’s too early to tell at this point. One bright point though is the related Making Home Affordable program which has been able help around 50,000 homeowners obtain more affordable terms for their mortgages.

It is hoped that these improvements in home loans will help slow the supply of foreclosed homes since this, in turn, tends to lower prices on everyone’s home. This year may see as many as 2.5 million foreclosures and could potentially negatively impact as many 20% of all US homeowners within the next 2 years if improvements in the market don’t occur quickly. It is hoped that this new program will kick in quickly and reverse this trend.

The bill failed to include a measure that would have allowed bankruptcy judges to modify the terms of a home loan to reduce a homeowner’s monthly payments should they go into bankruptcy. Industry pressure prevented this part of the measure. However, the Helping Families Save Their Homes Act does include a provision to protect renters when their landlord is foreclosed on. Under this new law, renter’s leases must still be honored and, should they be on a month-to-month basis, the law requires that they be given a minimum of 90 days notice. Another key provision of the law is that loan servicing companies are protected from investor lawsuits, aka a “safe harbor”, when they modify loans to prevent foreclosure under the government loan modification guidelines.

If you are seeking a mortgage modification for yourself, make sure that you pick the best option for you. There are scams out there so be careful. Also be aware that some modification programs simply add missed payments to the principle of the loan, ultimately making the home loan less afforable. Some homeowners who have had this kind of modification found themselves once again facing foreclosure when new, higher, house payments kicked in a year or so later. Make sure that you work with a HUD-approved credit counselor in this difficult process.

Another common problem is that loan service companies are swamped with loan modification requests from distressed homeowners seeking help. Many do not have the staff to handle the volume of requests and either don’t answer phones or use cheap outsourced labor from outside the US. Also, since it usually requires several calls to get a loan modification processed, this often means starting over from scratch several times. While this is frustrating, make sure that you are prepared to assist the customer service representative get up to speed quickly on your case. Don’t assume that they have everything they need handy.

If you need help in adjusting your mortgage I encourage you to investigate your options under the Helping Families Save Their Homes Act. It may just help you in your foreclosure prevention efforts.

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