What's the Deal With.....Loan Modifications

I have had several inquiries from people experiencing financial difficulties who want to know what I know about the loan modifications many lenders are offering. Some lenders are willing to consider modifying mortgages, but the borrower must meet certain criteria. First, you should know that lenders are focusing their efforts in the hardest hit areas first…Florida, California, Arizona, Nevada, Michigan and Ohio. They are aggressively trying to contact borrowers behind on their mortgage to see if they qualify. If not behind on their mortgage, it is not likely at the present time that lenders will be open to a modification.
What does it mean to qualify? The borrower must have a steady income (even if it’s been reduced) and their debt to income ratio cannot exceed 38% with the new modified loan payment. Translated: If you take your gross monthly income and divide it by the total of your new proposed housing payment plus the minimum monthly obligations on all your other credit cards, car loans etc., it should exceed 38%. If you are self employed and typically show the IRS very little income, this will be a large obstacle. If you have lost your job, you are not a candidate. If you are on commission and your income is much less this year, you still may be a good candidate. There are talks of plans that the government has discussed that would make these opportunities more widely available. A lot of scam artists have jumped on this bandwagon, so tread carefully before you sign up for anything. —SDE

The craziness continues….What a year! One for the history books in so many ways. Most of these records are for things we would rather not hear about. But there are two bits of good news as we end the year….gas prices and mortgage rates have plunged. Can you believe the gas situation…I remember in the third week in October wondering if I would ever be able to find gas, more or less purchase it. Back then, it was hovering around $4.50/gal, now we are very close to $1.50. Only 2 months ago, that is unbelievable. The same thing happened with mortgage rates. Up until two days before Thanksgiving, we were hovering around 6% (which wasn’t bad). Then on November 25th the Federal Reserve announced a plan to inject up to $600 billion dollars to purchase Fannie Mae and Freddie Mac mortgage backed securities which almost immediately caused the 30 year rate to plunge a ½%. Since then they have been on a roller coaster, but at one point they fell to the low 5% range. So if you are on an adjustable rate or have a rate above 6%, exploring your options for refinancing is prudent. But there are challenges; 1) appraised values have been an issue since values have dropped in most areas, 2) your credit score has to be excellent to get the best rates and 3) if you have a home equity line of credit, the equity line lender has to agree to subordinate to a new first mortgage (they have to agree to it). Many of them will not do this because they are trying to get these loans off their books. Here at Family Mortgage, we are proactive in all these areas. If there is a concern about the value of your home, I have hired an appraiser to do what they call a “pencil search” on the computer up front. They look up comparable sales in your area and give me a close approximation of what the appraisal will come in at. That way we are not wasting anyone’s time. As for credit scoring, we can often give you a strategy to get your scores on the rebound if you have issues. Sometimes simple steps can make a big difference. And as for the home equity lines, we have a lender that is still aggressively lending, so oftentimes we can just set you up with a new home equity line if your old lender doesn’t cooperate. Recently, I have had a lot of people ask me if you can still get loans. The answer is a resounding yes! Are their challenges? Yes. Can we overcome them? Some yes and some no. But you won’t know until you try. We have historically low interest rates right now, I f you are a candidate, it would be a shame to miss this opportunity. The worst thing that happens is that you find out the current value of your home and/or have a plan to get your credit scores into the excellent range with a plan from Family Mortgage.