Mortgage Modifications

Refinance Or Reduce Your Mortgage Payments Under Obama's Plan, Meant To Slow Down Foreclosures.

The Homeowner Affordability and Stability Plan, signed into law in February 2009, should allow many more people to stay in their houses and avoid foreclosures. If your loan is owned or controlled by Freddie Mac or Fannie Mae, you have a decent shot at refinancing your mortgage into a fixed-rate, low-interest loan if you are current on your current mortgage and aren't too "upside down" on the property. And regardless of who owns your mortgage, if you are at risk of foreclosure and have suffered a change of circumstances beyond your control, you may be able to get your monthly mortgage payments reduced, and suspend any foreclosure proceedings during the process.

The Making Home Affordable Program under the Homeowner Affordability and Stability Plan has two components: a $400 billion refinance program and a $75 billion mortgage modification program.

The Mortgage Payment Reduction Program

The mortgage payment reduction component of the Homeowner Affordability and Stability Plan provides a workable way for all lenders to make mortgages more affordable in the short term by modifying the terms of the mortgage. It's too soon to tell whether or not the number of homeowners benefiting from this program, officially called the Home Affordable Modification Program, will be in the millions as predicted by the administration, but the total number is sure to be large.

You qualify for this program if all of the following are true:

  • Your loan is equal to or less than $729,751.
  • The mortgage is on your principal residence.
  • You are at risk of foreclosure, either because you have missed at least two payments or because your payments on your first mortgage exceed 31 percent of your gross income.
  • You've experienced a financial hardship caused by a change of circumstances, such as loss of a job, medical emergency, or interest-rate reset.
  • You can show (by way of a tax return and wage stubs) that you have enough steady income to make the payments under a modified loan.

Starting The Modification Process

Your mortgage servicer is supposed to contact you if you appear to be eligible for the program, though there is no guarantee this will happen. Before contacting your lender, it's a good idea to talk to a nonprofit housing counselor certified by the Department of Housing and Urban Development (HUD) about your options. To find a free counselor, call (888) 995-HOPE or go to www.hud.gov and click on Foreclosure Avoidance Counseling.

Don't Pay For Modification Assistance

Under no circumstances should you pay anyone to help you with your mortgage modification. According to promotional materials, a bevy of mortgage brokers are being retrained to negotiate mortgage modifications, charging $1,000 and up for the same services you can get for free from a HUD-certified housing counselor. Because laws in some states prohibit people from taking money up front to help rescue people from foreclosures, some of these modification companies are hiring lawyers -- who are authorized to accept up-front payments -- to be their pitch persons. Lawyers can be helpful in certain situations -- for instance, you may want to hire a lawyer to challenge a foreclosure in court or to help you file for bankruptcy -- but lawyers have no magic keys to the kingdom of mortgage modifications. Again, you and your wallet will be better off with a free HUD-certified counselor.

Weigh Your Options

Before signing off on any new mortgage terms, ask yourself whether you would be better off holding on to your house or walking away.

If you can get a lower payment under the new laws, you may be more inclined to keep your house, but it may depend on just how big a reduction you can get and whether your negative equity is so large that it makes more sense to use your state's foreclosure laws as a means to put away some money.

In other words, even if you qualify for a monthly reduction in payments of several hundred dollars, you might be better off allowing your house to be foreclosed on -- by not paying your mortgage altogether, you could save thousands of dollars during what is often a very slow foreclosure process.

If you decide that it's in your best interests to walk away from your mortgage, but you want to stay in the house as long as possible, payment free, the only effect the new laws are likely to have is to lengthen the time you can stay before you have to leave. That's because mortgage lenders must suspend foreclosure proceedings during the processing period (and because they will be busy negotiating modification terms with other homeowners, making them less efficient in bringing foreclosure actions).

The mortgage modification lawyers at Lynch Law Offices, P.C., in Lisle, can help you determine whether or not mortgage modification is in your best interests, and if not, can explain how bankruptcy would offer you a fresh start. We represent individuals in Naperville, Wheaton and throughout DuPage county who are experiencing financial hardships.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.