In order to assist up to four million U.S. homeowners who are current with their mortgage payments but who owe more than their home is worth, the federal government recently made revisions to two programs designed to assist struggling homeowners: the Federal Housing Administration (FHA) program and the Home Affordable Modification Program (HAMP). These program adjustments are intended to provide equity to homeowners who are "under water" and who may be tempted to walk away from their homes or who may default in the future.
Previous federal mortgage relief programs offered a reduction in the mortgage rate for qualified homeowners. The new guidance provides for reducing the amount of principal owed on a primary residence so that the new mortgage is an accurate reflection of the current market value of the home. Because refinancing means a loss for the lender, the federal government will insure the new loan with assets from the Troubled Asset Relief Program (TARP).
Who is eligible for principal reduction?
The revised HAMP principal reduction program is designed specifically for the approximately four million U.S. homeowners who are responsible borrowers with reasonable mortgages. It does not offer protection for people holding million-dollar mortgages, speculators, and owners of vacation homes. It is recognized that some foreclosures are inevitable for those who simply bought a more expensive house than they could afford. Homeowners who intend to apply for a HAMP loan modification must meet several qualifications:
You must be able to demonstrate financial hardship
You must live in the home
The home must consist of no more than four units
Your mortgage balance must be less than $729,750 for a one-unit home. If the home has more than one unit, this cutoff amount increases
You must have taken out your first-lien mortgage on or before January 1, 2009
Your monthly mortgage payments must be greater than thirty-one percent of your income
The home must be worth at least fifteen percent less than the amount of your first mortgage
Unemployed homeowners may qualify to have their monthly mortgage payments reduced or eliminated for three to six months while they look for work. To qualify they must:
Submit proof that they are receiving state unemployment insurance benefits
Within the first ninety days of mortgage delinquency the homeowner must request temporary assistance
Meet HAMP eligibility guidelines, including being under the loan balance maximum and the owner occupying the house
When the temporary assistance period ends, homeowners whose mortgage payment is more than thirty-one percent of their monthly income and have found employment are eligible for a HAMP loan modification. The modified loan must pass a net present value test, and the homeowner must verify qualifying income and be up to date on their forbearance plan payments.
If the borrower or the borrower's bankruptcy counsel asks for help, the new guidance requires servicers to consider a borrower in bankruptcy for HAMP principal reduction.
What should homeowners do?
If you believe that you qualify for a HAMP loan modification because your primary residence is worth less than your mortgage and you are experiencing financial hardship, contact your lender immediately. You should be aware that lender participation is voluntary; except for servicers of loans owned or guaranteed by Fannie Mae and Freddie Mac, your lender is not required to participate. If you are not sure if your loan servicer is a participant, check the federal government list at makinghomeaffordable.com/contact_servicer.html. If your lender or servicer is not part of the program, ask them about other options that may be available.
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