HOMEOWNERS should know that the Home Affordable Modification Program (HAMP) came out with new guidelines, effective October 1, 2010 (Supplemental Directive 10-05). This new guideline offers reprieve to borrowers whose houses are worth significantly less than the principal balance of their first mortgage loan. Under the HAMP Program - principal reduction alternative (PRA), lenders are given the flexibility to offer principal reduction relief to borrowers. According to their own website:
"Principal Reduction Alternative (PRA)
With this new guidance, servicers are required to evaluate all HAMP-eligible loans with a mark-to-market-loan-to-value (MTMLTV) greater than 115% to determine if a principal reduction is beneficial.? If the evaluation shows the net present value (NPV) for a HAMP modification using PRA is positive, servicers are encouraged to offer the principal reduction to the borrower.? An updated NPV model reflecting principal reduction will be available to use for this evaluation. "
Under the HAMP lenders must lower the mortgage payments of qualified borrowers down to 31% of their gross income. Before this new guidelines, in order to achieve 31% mark for the mortgage payment vis-à-vis the borrower’s income, lenders will pull down the interest rate of the loan, extend the term of the loan, or forbear the principal (Standard Waterfall). This standard waterfall means that they must pull down the interest (2% being the floor interest rate), if the interest reduction is enough to lower their monthly mortgage, then the lenders are not required to extend the length of the loan. Reduction of the principal loan is often the last resort. As such, lender rarely grant this to borrowers.
This new guideline will help many homeowners who are upside-down (owe more than the value of their house) on their property. To qualify under the HAMP program, the borrower must: (1) be using the house as his/her primary residence; (2) owe less than or equal to $729,750 on the first mortgage; (3) suffer hardship (loss of income, significant increase in mortgage payment, other hardship); (4) have obtained the loan on or before January 1, 2009 (origination date); and (5) be paying more than 31% of the gross household income to his/her mortgage (including principal, interest, taxes, insurance and homeowner’s association dues). However, to be considered for a principal reduction, the homeowner must have a mark-to-market-loan-to-value (MTMLTV) greater than 115%.
To clarify, let us give you a clear example. For instance the current market value of your house is $400,000 but the principal loan amount on your first mortgage, including arrearage (unpaid mortgage) comes up to $465,000, then your MTMLTV is 116%. In this instance, you can apply for loan modification under HAMP program and the servicer "must evaluate the loan using both the standard HAMP modification waterfall (Standard Waterfall) and an alternative modification waterfall that includes principal reduction as the required second step in the waterfall (Alternative Waterfall)." Under this new guidelines you have better chances to achieve a principal reduction on your mortgage loan.
Several lenders have implemented this new guideline. In fact, One West Bank recently announced that it will implement the principal reduction alternative (PRA) loan modification program under the HAMP. Call us now to find out if you qualify to have a principal loan forbearance on your first mortgage.
***
If you have any impending foreclosure, please call our office at 213-639-3888 or e-mail us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Our office is located at 3699 Wilshire Boulevard, Suite 720, Los Angeles, California 90010.
* * *
This article does not constitute any legal guarantee or advice for any individual matter and does not create attorney client relationship with the readership.
( Published October 9, 2010 in Asian Journal Los Angeles p. C4 )
| < Prev | Next > |
|---|
