Each year, many people are denied mortgage refinancing and loan modifications. The sad truth is that many people receive incorrect information when it comes to their mortgages and homes. It’s really important to know your options when trying to refinance or modify your loan.
Approximately 80% of all loan modifications are not eligible for the Home Affordable Modification Program (HAMP), according to an article published in the Huffington Post on January 9, 2012. Most HAMP modification requests are denied because they simply do not meet the HAMP requirements. For a loan to qualify for the HAMP program, all loans must meet the following criteria:
* Homes must be occupied by the primary borrower.
* Loan must have been originated on or before January 1, 2009.
* Mortgages must be in default or at risk of default.
* The mortgage could not have been previously modified under HAMP
* Your current mortgage payment must exceed 31% of your gross monthly income.
* Must have a documentable difficulty.
* Applicants must document all income.
* Loan balances must not exceed $729,750
* Properties must not be vacant.
* Loan must be owned by Fannie Mae or Freddie Mac
* Personal financial situations must pass the Net Present Value Test.
If your loan does not meet these main requirements, a HAMPloan modification will not be granted. HAMP guidelines require that all loans meet specific debt and housing ratios before they can qualify for the HAMP program. So, in essence, the main reason most loan modification applications are not approved is because they are not structured correctly or do not meet investor guidelines.
Many loan modifications are denied because the income and expense ratios do not meet investor guidelines. HAMP requires that the housing payment equal 31 percent of household income. There is a very narrow band of housing and debt ratios and if your income deviates too much from these perimeters, your loan will not be modified.
Borrowers can add relatives or income from other family members to qualify. Other times, there’s too much income and the lender won’t see enough reason for a hardship. Every borrower must understand that loan modifications must make sense to the investor.
Banks just can’t give everyone modifications because their home lost value. The modification has to be the most favorable choice for the investor. If a homeowner has significant equity, he will not qualify for a modification, no matter what the hardship. This is because the owner can simply sell the house and eliminate the now excessive mortgage payment.
Many people in the Chicago area have had their property taxes increased and their properties have fallen in value. This puts the homeowner in a bad position because now they can’t sell the house or refinance. There may be options for this type of person. , which is quite common.
Regardless of what you’ve read, banks don’t want your house. They also don’t mind foreclosing on their house. The foreclosure process is expensive and there are certain procedures lenders must follow in every state. This complicates things for large lenders because not all states have the same laws. Troubled homeowners can use this to their advantage to get a loan modification and stop the foreclosure process altogether.
For those whose loans do not meet the HAMP guidelines, they can request an external modification. Most lenders will provide external modifications, but you must request them. With an outside modification, investors sometimes provide loan modifications comparable to HAMP, even if the loans don’t meet the criteria. They offer it again to protect their interest in the property and their shareholders.
It’s important for homeowners to understand exactly what banks are looking for when making modifications. If their modification was denied, homeowners should ask their banks if they offer any third-party modification programs. Borrowers must also assess whether or not their loan meets the criteria for a modification. Some loans may also qualify for the Home Affordable Refinance Program if they are underwater.
The bottom line is that homeowners really need to know what their options really are. Sometimes a real estate agent will try to encourage an owner to sell the property. Homeowners must make a decision whether they want to keep their homes or not. Sometimes it makes sense to sell, many times it makes sense to keep your home if you could get a loan modification. Not knowing your options could end up costing you your home.