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  • Underwater mortgages create a huge problem for homeowners and lenders alike. When your home is worth much less than the balance on its mortgage it takes away much of the incentive for paying your monthly payments because most of us view our home as an investment not an expense.

    The government is trying to give homeowners an additional incentive to keep their homes by offering loan modifications and refinancing that improve the terms of their mortgages. There are four main ways to improve your mortgage’s terms: reducing your interest rate, changing from a variable rate to fixed rate, extending the term of your mortgage and reducing the amount you owe your lender.

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    Needless to say lenders are not in love with any of these options with the possible exception of extending the term of the mortgage, which reduces your mortgage payments but can increase the overall cost of your mortgage. However, the less popular mortgage rescue method for lenders is without a doubt the reduction of the mortgage balance. However, research shows that reducing the balance of a mortgage is the most effective way of reducing delinquent borrowers, which is good for both lenders and borrowers. For this reason the government is trying to get Freddie Mac and Fannie Mae to pressure lenders into reducing the mortgage balance of their underwater clients. Fannie Mae and Freddie Mac hold or insure 60 percent of all mortgages in the United States and therefore has the leverage with the large mortgage providers.

    Edward J. DeMarco, the regulator of Fannie Mae and Freddie Mac, does not believe write-downs are the panacea their supporters present them as. "There’s no free lunch" he is often quoted as saying when asked why he doesn’t support he Obama administration’s efforts to incentivize mortgage write-downs.

    Although DeMarco does not support write-downs he is planning to provide lenders with incentives such as increasing financial aid for those willing to improve the conditions of underwater mortgages. Learn more about these incentives in our next post.

    For the last four years, HAMP, the Home Affordable Modification Program has been one of the big sources of help for struggling homeowners. The government mortgage help program provides homeowners with a variety of options to save their mortgage. However, not everybody qualifies for the Home Affordable Modification Program. Fannie Mae introduced the Payment Reduction Plan, also known as PRP, as an alternative for those who could not qualify for HAMP. As of January 1st, 2012, this option is no longer available.

    Why has Fannie Mae cancelled this relief program? According to press releases from Fannie Mae, the volume of applications and existing homeowners in the program did not justify keeping it running. The Payment Reduction Plan started on October 26, 2009, and was first designed as a bridge program to help those who were trying to qualify for HAMP. It later developed into an alternative for homeowners who did not meet the criteria for the Home Affordable Modification Program. The main attraction of the PRP is it didn’t only reduce monthly payments, it reduced the mortgage principal and the mortgage interest rates, which provided “real” help to homeowners. For instance, a homeowner in the Payment Reduction Program could benefit from a reduction of 30 percent in monthly mortgage payments.

    This is in stark contrast of so-called modification programs that simply extend the term of the mortgage or attach late payments to the end of the mortgage. Unfortunately, the application process for the Payment Reduction Plan seems to have been less streamlined as its creators had intended and the volume of successful candidates has dropped in the last two years.

    Sadly, the Payment Reduction Plan was itself a downscaling of the previous “best mortgage rate reduction” in town: Fannie’s HomeSaver Forbearance Program. The HomeSaver Forbearance Program offered homeowners who were struggling with their mortgage payments a reduction of up to 50 percent for qualifying candidates. The argument Fanny Mae offered for the drop in mortgage reduction offered by their PRP program was that 30 percent was a more realistic and “permanent” reduction for mortgage servicers. It seems 30 percent is no longer a realistic or permanent solution either.

    Nevertheless, homeowners looking for government help for their mortgages still have options to consider. For instance, eligible applicants can apply for the Forbearance Relief program Fannie Mae plans to launch in March 2012. The Forbearance Relief program is designed, as the PRP was, to cater for homeowners who do not qualify for the mainstream modification programs, such as unemployed homeowners who have fallen behind on their mortgage payments.

    Up to now, homeowners who are struggling to pay their mortgages had four main options: selling, a mortgage refinance, a loan modification or a short sale. Fannie Mae is trying to give home owners who are struggling to make payments and need a little time to get back on their feet.

    The program is called the Forbearance Relief program and Fannie Mae is requiring all its approved servicers to offer it to unemployed borrowers starting from March 1, 2012.

    The Program

    What does this program offer? It doesn’t reduce the principal of the mortgage, it doesn’t reduce the interest rate. However, it does offer what many home owners need more than anything: time. In a nutshell it provides unemployed borrowers with 6 to 12 months of forbearance to allow homeowners time to get a job and put their finances in order. During the forbearance time lenders are not allowed to charge borrowers for late charges. In the event that a homeowners qualifies for a loan modification while in the forbearance period, the servicer must waive any unpaid late charges.

    This program will simplify the existing forbearance requirements and simplify the application procedure. Freddie Mac—the other Government subsidized second market corporation—will also offer this program, starting from February 1st.


    This is one of the strengths of this program. The Forbearance Relief program is open to most struggling homeowners. This includes delinquent borrowers, borrowers on the verge of delinquency and underwater mortgages. However, it is only open to principal residence homes. In other words, only borrowers who use the home in question as their main residence can apply. Second homes, vacation homes or investment properties cannot qualify for forbearance relief.

    MBS Mortgages

    Mortgages that have been pooled into mortgage-backed securities are a special case in the Forbearance Relief program of Fannie Mae and Freddie Mac. Homeowners whose mortgages have been included in MBS may qualify for up to six months of forbearance, but only if the pools were issued from June 1, 2007 to December 1, 2008. Longer forbearance plans may be offered, but only to mortgages pooled in to mortgage based securities before May 2007 or after January 2009.


    Once a mortgage is approved for the Forbearance Relief program, the homeowner must take steps to reinstate the mortgage payments by the end of the forbearance period. If a homeowner needs an extension, the application for the extension must be filed between day 120 and 135 of the forbearance plan (between month four and five). Note that eligibility for this program is determined on a monthly basis.

    The real estate collapse of the last three years has caused the federal government to come up with regulations designed to avoid this from happening again. Mortgage regulation rules are being presented under the Dodd-Frank Act of 2010. The Dodd-Frank Act is part of the far-reaching financial regulatory reform that sets out to promote financial stability and improve the accountability and transparency of the financial system as a whole. This was a reaction to the list of bail-outs of companies that were “too big to fail” and required on-going hand-outs from taxpayers to stay in business.

    One of the changes proposed under this Act is to force mortgage lenders to take 5 percent of the credit risk of mortgages pooled in securities if the mortgages do not meet certain requirements. These are mortgages that are put together as an investment unit and which can be bought or sold in a similar way to stocks in a company. One of these requirements, which is making mortgage lenders unhappy, is that borrowers must pay at least 20 percent of the home’s purchase price as down payment. The idea behind this rule is to stop borrowers from buying homes they can’t afford just because loans are available. According to some analysts, cheap and available loans were one of the reasons house prices increased artificially and later crashed when the market came to its senses and corrected itself. Canada has a similar down payment requirement as part of their comparatively stricter financial regulatory system, which may have had a lot to do with why Canada was not affected as seriously by the real estate driven recession of 2009.

    Critics of the 20 percent down payment rule claim this will price out many borrowers who can’t afford to come up with 20 percent of a home’s purchase price. Figures from 2010, seem to support this claim. Around 39 percent of home buyers in 2010 put a down payment of less than 20 percent, according to a poll by CoreLogic. The question, of course, is if the low down payments are because people can’t afford to pay 20 percent or because they are not required to do so? Additionally, even if many buyers can’t afford the 20 percent rule, is that necessarily a problem? Could it be argued that buyers who can’t afford to pay 20 percent of their mortgage are simply not in a position to buy and should focus their efforts on saving for a down payment? Of course, the real estate mortgage industry claims it is time for the government to stimulate the mortgage industry not weigh it down with restricting regulations. How do you feel? Is this regulation a much needed protection against another crash, or is it an example of federal government choking the growth the real estate industry so desperately needs?

    Do you know what a mortgage servicer is? Many borrowers do not know that the company which receives their monthly payments and sends nasty letters when they are behind on their payments is often not the company or investor that sold them the mortgage in the first place or even the current investor. In the mortgage industry there are three main players, mortgage originators, mortgage servicers and mortgage investors. Mortgage investors put forward the money for the loan, mortgage servicers handle the payments and communication with the borrowers and mortgage originators sell the mortgage. In some cases, all three roles are played by the same company but often these roles are split between specialized companies.

    Of course, throughout the life of your mortgage fees are paid to the companies that manage your mortgage. The origination fee you pay when you sign for a mortgage is part of the payment mortgage originators receive. Every month interest is paid to the mortgage lender and a portion of the interest and mortgage fees goes to the company that manages your payments. These fees do not stop when you are behind in your payments and you are applying for a mortgage modification.

    Mortgage modifications are paperwork intensive procedures which require a lot of research and communication between borrowers, mortgage servicers and mortgage lenders. This may help you understand why mortgage modifications often take so long to get processed even when borrowers clearly qualify for them. Mortgage servicers receive a fee for their work during mortgage modifications. However, the rules that regulate how much they receive have just been changed.

    Fannie May requires mortgage servicers to only charge a fee, if the loan modification is approved. That has been the case for some time now. However, how much mortgage servicers can charge has recently changed. Why? Fannie Mae states recent simplifications in the mortgage modification process as a basis for the reduction in fees charged by servicers under the government sponsored mortgage assistance programs. The current limit is 0.25 percent of the mortgage amount or whatever the mortgage servicer received before the loan modification.

    The maximum allowed servicing fee for mortgage modifications is not the only change announced by Fannie Mae. Mortgage investors and mortgage servicers must also adapt to changes in foreclosure time frames and rules on mortgage delinquency management. Now, if mortgage servicers exceed the allowed time frame to assess a loan modification, Fannie Mae will impose penalties so servicers remediate the problem and improve their performance.


    Pennsylvania Foreclosure Help

    The state of Pennsylvania Housing Finance Agency and the US Department of Housing and Urban Development (HUD) have approved counselors who can help you free of charge to access programs and services for homeowners in danger of foreclosure. Pennsylvania Foreclosure Help is not just something that is important to keep our People in their Home during this housing crisis.  The Pennsylvania Mortgage Help Hotline is 1-8669845108. This way you are sure that the counselors you choose can really provide the help you need to evaluate your financial situation, explain the available options and work with your lender to arrive at a viable solution. So don´t leave your home-stay and call the hotline for help without delay.

    The longer you wait and the further behind you fall in mortgage payments the harder it will be to catch up. If you don´t get up to date with mortgage payments your lender could be allowed to sell your house to pay off the debts and this is a situation that too many, who find themselves in financial crisis have to face.

    One of the programs is HEMAP Homeowners Emergency Mortgage Assistance Program from which thousands of families have gained much needed help. This is the only program of its kind created by Act 91 of 1983 to prevent homelessness among the citizens of Pennsylvania and funded by state appropriations and repayment of existing HEMAP loans. The program assures regular mortgage payments making it possible for the house owners to look for employment or train for other work or receive needed education.

    This program is in fact a loan which must be repaid and it is not available for FHA Title II (purchase) mortgages. Those who are approved for HEMAP have the property in danger of foreclosure secured by a mortgage so creating a loan. There are two types available according to the financial situation of the owner. These are continuing mortgage assistance loans and non-continuing mortgage assistance loans. Those qualifying for a non-continuing mortgage loan have their mortgage brought up to date from which date the owner is responsible to keep up the payments to the lender as well as monthly repayment to HEMAP.

    It is possible that there may be an additional cash contribution toward the mortgage delinquency when the HEMAP loan closes. Those who are eligible for a continuing mortgage assistance loan have the mortgage payments brought up to date and then subsequent payments to the lender are subsidized. Both types of loans are limited to a maximum of 24 months from the date of the mortgage delinquency or a maximum of $60,000,00 whichever comes first. The homeowners benefitting from the loan are required to pay up to 40 percent of their income toward their housing expenses. $25,00 being the minimum monthly payment allowed by law. Thus the mortgage is paid and the family do not lose their home.

    Government Mortgage Help prides itself as a useful mortgage assistance tool that focuses on the positive, on the solutions available to homeowners instead of focusing on the scams and less than reputable vultures that prey on those in financial difficulties. Fear mongering, although a great way of grabbing headlines, rarely provides practical help. However, sometimes we must descend into the underworld of loan modification and foreclosure prevention programs to warn homeowners about the risks of so called loan modification agencies and foreclosure avoidance agents.

    If you want to learn how you can save your home from foreclosure, read our article: Is Foreclosure Knocking at Your Door? Fight Back, which is based on research provided by the Federal Deposit Insurance Corporation.

    After the credit bubble burst in 2007 and new species of real estate consultant arose overnight throughout the United States: unethical foreclosure rescue and loan modification operators. These self-appointed experts come under a variety of names, such as foreclosure consultants or mortgage consultants. They prey on financially challenged households who are desperate to save their homes from foreclosure.

    These consultants and their companies claim to have the “secrets” to assist homeowners and help them refinance or modify their mortgage, repair their credit or reduce their mortgage balance. The truth, of course, is they simply want to convince you to follow their bad advice so they can take your money or even your home.

    Sadly, the scams associated with these “foreclosure rescue agencies” are too many to mention. They include getting you to sign off the deed to your house to the agency so they can better “fight off” the foreclosure process, asking you to make your mortgage payments through them, or they might even suggest you stop making payments altogether and use your money to pay for their services.

    Be safe, be smart. If a deal seems to good to be true, assume it is. Avoiding these agencies is easy. Only deal with non-profit housing counseling agencies certified by the Housing and Urban Development Department. These organizations are sponsored by federal funds and will have your best interests at heart. Click here to find a housing agency near you.

    If you think you have already fallen into a foreclosure rescue scam, you can still find help. Contact your local police station and explain your situation. If you need a lawyer and can’t afford it, click here to find free legal services in your area.

    Free, accurate and useful information is available. You do not need to pay for it. Please find below a list of reliable (and free) resources you can use.

    FDIC Foreclosure Prevention Website
    (877) ASK-FDIC or 877-275-3342

    Government-sponsored Mortgage Modification and Refinance Programs

    Foreclosure Mitigation Assistance and Counseling

    Report Foreclosure Scams

    On January 10th, 2011, the Obama administration launched a new financial assistance website called MyMoney.gov as part of their National Strategy for Financial Literacy for 2011. Tackling the financial crisis from an educational perspective may seem like a long term project but research shows financial education, or more precisely the lack of it, is at the heart of the financial problems of many homeowners.

    According to a poll by Freddie Mac on 2,031 American homeowners published by FDIC, the Federal Deposit Insurance Corporation, six in 10 homeowners wish they understood the terms and details of their mortgage better.

    MyMoney.gov brings together the know-how and expertise of 20 Federal agencies and Bureaus to fill this gap in our collective financial education and help you make smart financial choices. In doing so it deals with a wide variety of financial issues we should all be interested in. Issues such as managing debt and credit, saving and investing, getting insured, knowing your consumer rights, designing a spending plan, managing debt and credit, getting a loan and dealing with mortgages.

    In order to help spread the word we have prepared a series of articles focused on supplying and commenting on the help and information provided by the government on the subjects of mortgages and debt management.

    We will pick the best tips related to the mortgage and home loan industry. Here are some of the themes we will cover.

    Looking for a mortgage? Learn How to Find the Best One for You.

    5 Tips for Shopping for a Mortgage.

    Is Foreclosure Knocking on Your Door? Fight Back

    Your Foreclosure Prevention Toolkit

    Calculate the cost of refinancing your mortgage with Wells Fargo's Refinance Program for Existing Customers.

    Calculate the cost of refinancing your mortgage with Wells Fargo's Refinance Program for Existing Customers.

    Do you own a Wells Fargo mortgage? Would you like to see your mortgage payments reduced, pay your mortgage off earlier and save money on interest? If your answer to both questions is yes, you may qualify for a Wells Fargo Refinance for Existing Customers. Banks know the value of reliable and trustworthy customers. They also know that clients with a good credit score can call the shots in today’s economy and find good deals if they want to. That is why major banks like Chase, Citibank and Wells Fargo are providing their existing clients with special deals to improve their mortgages if they stick to their current bank.

    What are the benefits?

    Wells Fargo existing customers who apply for a refinance through Wells Fargo’s Refinance for Existing Customers Program do not have to pay application or appraisal fees for a refinance. There are no closing costs and the pricing (interest rate, points and other expenses) are locked once you fill in the application.

    These benefits are substantial and may make it worth it for you to stay with Wells Fargo. However, other banks are also interested in your business if you have a good credit score and history, so it is always worth looking around for deals.

    Back to the benefits of this program, you might want to consider the cost of application fees, closing costs and appraisal fees in a standard refinance. According to the U.S. Federal Reserve Guide on Refinancing, you can expect to pay from $75 to $300 as an application fee, a typical origination fee can cost you up to 1.5 percent of the loan’s balance, appraisal fees are going at $300 to $700, inspection fees at $175 to $350 and closing costs can cost you up to 2 percent of the pending balance. In a nutshell, the Wells Fargo Refinance Program for Existing Customers can save you thousands of dollars. How much you save will depend on your current mortgage early payment penalties, your current interest rate and y0ur new interest rate.

    On the flip side, to qualify for a Wells Fargo Existing Customers Refinance you must have no cash-out refinance requirements (and that includes payoffs of other loans) and your property must not require a title change.

    To apply visit Wells Fargo’s website or click here for a direct link.

    You will need to supply personal information and details on your existing mortgage. If you have any questions when filling in your application you can contact Wells Fargo’s customer service desk free of charge at 877-937-9357 from Monday to Friday 8.am to 11 pm and Saturdays from 8 a.m. to 4:30 p.m.

    by Andrew Latham

    UnderwaterHouseIf you’re underwater on your home, you might have lost hope on refinancing your mortgage. It is true that if you owe more on your mortgage than its current market value, you are not going to get a line-up of lenders fighting to refinance your home. However, that doesn’t mean you are out of options. You may still benefit from today’s low-interest rates. Welcome to HARP, the government’s Making Home Affordable Program.

    The Program
    HARP allows homeowners who meet the program’s criteria to refinance their mortgages even through their homes are underwater. The program will refinance a loan that is between 105 and 125 percent of the home’s value. In other words, if the current market value of your home is $100,000, you can refinance up to $125,000.

    Eligibility Criteria
    To qualify for a HARP refinance you must satisfy the following criteria:
    – You must be the owner and occupant of the home you wish to refinance.
    – Your mortgage must be owned or guaranteed by Fannie or Freddie. If you do not know if Fannie or Freddie owns your mortgage, you can ask your mortgage lender (or servicer) or call the following toll-free numbers set by Fannie (1-800-7FANNIE) and Freddie (1-800-FREDDIE).
    – You must be current on your mortgage payments. This is not really a program for homeowners who are struggling to make their payments. If you are behind on your payments you should consider a loan modification before you apply for a refinance.
    – As mentioned above, your loan cannot be worth more than 125 percent of the market value of your home.
    – You must prove you can afford the mortgage payments.
    – The new loan must be a good deal for you. In other words, it must either drop the overall cost of your mortgage or/and increase its stability (e.g. switching from an ARM to a fixed-rate mortgage).

    If you meet this criteria, you might qualify for a HARP refinance even if you’re underwater. You will have to hurry though, the program ends the 10th of June 2011. Visit MakingHomeAffordable.com for more details on this program. However, if you do not qualify for HARP, the government still offers another option to help you enjoy the current low-interest rates offered by lenders. Learn more in our next article in this series: Loan Modifications for Underwater Homes: Your Options.

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