Q: About a year ago, I obtained a loan modification from WaMu that dropped my interest rate about 1.25 points, turned my adjustable-rate mortgage into a fixed-rate loan, and reduced my monthly payment by about $100 per month. I would like to see if I can get the payment down even further under the stimulus plan. Is there any reason I can’t go back and request a second modification?
A: All loan modification agreements are different, so first things first — read your entire agreement from the modification you got last year to see what, if anything, it says on the matter. It’s rare for one loan modification to expressly prohibit another modification in print; what’s not quite as rare is that some lenders have a company policy of allowing only one modification in a 12-month period of time.
Even if your lender has such a policy, it does sound like you’re close to the one-year mark, so that shouldn’t stop you from trying to get a Home Affordable modification, which is what we’ll call modifications made under the provisions of the Home Affordability and Stability Plan (www.MakingHomeAffordable.gov).
As loan modifications become more and more common — a trend I think is vitally important to the recovery of the housing market — I am increasingly concerned that mods will be perceived as though they are a homeowner’s right. This worries me because, at some point, they will become much less common or downright rare, and I don’t want homeowners to agree to loan terms with the expectation that they will just get it modified later (similar to the expectation many of us used to hold that you could always refinance an adjustable-rate mortgage (ARM) later — as you know by now, that one didn’t work out so well).
In my experience, homeowners who "do it themselves" to get their loan modifications often do not have the inside knowledge of what lenders will and won’t do to empower them to gauge whether the modification they are being offered is a "good" mod or not. They tend to take anything that’s offered, rather than strategically advocating for a more affordable payment. Lender modification offers will often be an arbitrary, small reduction in rate or payment, rather than a payment or rate reduction that is based on a real affordability standard, like the 31 percent of the borrower’s income that is the Home Affordable target benchmark for a modified monthly payment.
This might be why borrowers who get loan modifications "redefault" about 50 percent of the time; this redefault rate was a specific issue that the Home Affordable program tries to prevent with the 31 percent of income target.
The most likely snag in obtaining a Home Affordable modification will not be that you had a prior modification. Rather, the most common Home Affordable glitch is that your mortgage is not insured by Fannie Mae or Freddie Mac. Home Affordable refinances extend only to Fannie- and Freddie-insured loans; that’s about half the mortgages in the United States, but the flip side is that the other half of U.S. mortgages don’t qualify.
A separate program, the Home Affordable Modification Program, also applies to loans not covered by Fannie and Freddie.
To determine whether your loan is eligible, go to www.MakingHomeAffordable.gov and start there, then go to your lender’s Web site — almost every mortgage lender in America now has a home page link you can click to see what information you’ll need to gather to apply for a mod under the plan. …CONTINUED
There is a provision in the Home Affordable plan that will eventually require all banks who took bailout funds to conform their loan mod policies to certain of the Home Affordable modification standards, but it’s still new and I haven’t seen that happen yet — let’s give it some time!
There are very valid concerns about the scam artists out there offering to help people obtain loan modifications — I know loan-mod consultants with incredible track records of obtaining significantly reduced payments, and I know of loan-mod consultants who should probably go to jail, because they do so little and charge so much. The problem is, there’s not much a smart homeowner can do to distinguish between these types in the marketplace, other than maybe hiring a loan modification attorney with no disciplinary history, good client references and copies of successful modifications they have helped negotiate.
I’ve recently become sold on another option — there are Department of Housing and Urban Development-approved, nonprofit housing counseling agencies who package and negotiate loan modifications at no cost, some of which have extremely high success rates. Oh, and did I mention that it’s FREE?! Your tax dollars at work, people. I recently met Marcia Griffin, the president and founder of the HUD-approved nonprofit HomeFreeUSA.org, and talked at length with a number of staffers there — these folks have been negotiating loan mods for 20 years, have inside contacts at most of the major lenders, and have an 80 percent success rate working with borrowers nationwide on their loan mods.
If your loan is eligible, they can help you get a Home Affordable mod by working with you and your documents before submitting them to maximize your chances of success; if your loan is not eligible, they can help you explore your other options. And, excuse me if I’ve already mentioned this, you can’t beat the price!
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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