HARP Refinance vs Forced into Loan Modification
by Rosa from Puerto Rico
Ask Kate why, instead of HARP refinancing, the bank forces me into a loan modification: Rosa purchased her house in 2005 and financed it with a fixed rate mortgage. But when her finances got tight, she ended up with a loan modification which she'd like to refinance back into a 30 year fixed.
Rosa Asks Kate Why the Bank Refuses to Refinance Her Mortgage
I hope you may clarify some doubts I have regarding the refinance of my home. I live in Puerto Rico. In November 3, 2005, I bought a single family home financed at a 7.75%.
The deal was a 30 year fixed rate mortgage.
I am disabled due to health issues and at that time I received around $3000 a month. I paid my mortgage on time, $1435 a month.
With that monthly income to pay for mortgage, personal debts, utilities, medications, physician visits, groceries and you name it, I was barely covering for all. My sons sometimes will send me around $200 to help me cover the monthly expenses I could not pay.
In the meantime, I was made aware of the loan mitigation program. When that happened I was barely covering my needs to be able to live. So I applied for the LM, and was told that my loan was not secured by Fannie Mae or Freddie Mac.
BBVA bought my loan from Fannie Mae so I was told I didn't qualified for any of the programs available. All because my loan was owned by BBVA, what they called a purse loan.
Finally I was accepted (with much stress and deceiving information) under something called loss mitigation and my mortgage payment went down to $1123.
It was made to appear to me like a closing, where I was asked to bring $1200 as good faith. I was asked to pay that amount until March 1, 2013 at 5%, when it would increase and keep increasing over a 40 year term. I need to know why my terms for payments increased to 40 years.
Between Jan and March 2013, I find out that BBVA sold my mortgage to Oriental Bank.
I am very much interested in refinancing my loan, and have been reading now, and this is when I find out about HARP 2 and perhaps 3.
I started paying $1435 monthly since April 2013 and with the terms of 40 years.
I called Oriental Bank to find out what the can offered and they concluded that another loss mitigation would be the best for me. I explained that I wanted a refinance because I want to know that the monthly payments will be the same.
I need to know which will be your advice in this matter. Thanks for your help, Rosa
Kate Answers: Refinance my Mortgage vs Forced into Loan Modification
While HARP refinances usually offer superior terms, HAMP loan modifications (I believe this is what your bank is calling a loan mitigation) have less qualifying criteria.
In other words, it is easier to get approved for a modification than refinance into a new mortgage.
Making Home Affordable Refinance Program (HARP) Criteria
Besides requiring pretty decent credit and reasonable debt-to-income ratios, a mortgage must also be owned or backed by by Fannie Mae or Freddie Mac to be eligible for HARP 2. Read more about HARP 2.0 qualifications at New HARP 2 Loan Announcement
I do not recommend depending on the word of your loan servicer or bank to know who owns your loan. You can verify the status directly by calling Fannie Mae at 1-800-7FANNIE or Freddie Mac at 1-800-FREDDIE. Have your home address and loan number handy before calling.
No one knows for sure about HARP 3 guidelines as the plan continues to stagnate in a proposal state. Read more about it here: HARP 3 Proposal - Responsible Homeowner Refinancing Act
Making Home Affordable Modification Program (HAMP) Terms
As opposed to a refinance which pays off your current mortgage, modifications merely alter existing terms. Your mortgage is not paid off neither is there a new deed of trust or promissory note connected with a loan modification.
Since the driving force behind modifications is to create an affordable payment, the pay back period is extended to 40 years. The initial interest rate is set very low and gradually rises, presumably as the homeowner gets back on his or her feet after the financial hardship subsides.
Shopping for a HARP Lender to Refinance Your Mortgage
Once you determine whether or not your financing is indeed a Fannie Mae or Freddie Mac loan, you could investigate your HARP eligibility further. If your bank is not interested in helping you, you should be able to apply to other participating banks.
Read my solutions for these homeowners who ask about shopping for HARP lenders
But don't burn bridges with your bank, even if they make you angry. They are the only ones who can modify your mortgage. If it turns out that you aren't approved for a HARP loan, you will need them for HAMP! Read more about HAMP loan modifications
Good luck and best wishes,
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