How to Untangle a HAMP Mortgage Modification Offer
by Lola in Atlanta, GA and by Julie in Lake Worth, FL
Ask Kate how to untangle your bank's confusing HAMP mortgage loan modification offer: Lola was using 70 percent of her income to make her HAMP mortgage payment. Now she has been approved for a HAMP Tier 2 trial but not the Principal Reduction Alternative (PRA). So Lola asks me for help untangling her confusing HAMP offer.
Julie's modification interest rate is scheduled to more than double over the next few years. Julie asks if she should try to negotiate a lower monthly house payment with her bank.
My Bank's HAMP Mortgage Loan Modification Offer Confuses Me By Lola in Atlanta, GA
I would be very grateful if you could offer your advice regarding my latest HAMP modification approved by my bank.
I received a HAMP 1 in early 2010 which I paid consistently. The payment that was 70% of my income until June 2014. I was so overwhelmed.
My property is underwater $240,000 and has remained this way since 2008.
With new increased income, I applied for a new modification at end of March. I fully qualify for HAMP Tier 2 and a principal reduction.
I was recently approved for another HAMP but they don't explain the terms very well. A trial modification was offered with the following terms:
1) $3375 monthly payment.
2) 3.375% interest rate.
3) $203,000 forbearance with no interest charged.
4) The interest rate is locked.
5) All fees and missed payments added to the balloon.
The bank advise this offer may change once they assess further however I do not understand what all is included in the payment.
Also in my previous modification, I had private mortgage insurance (PMI) of $709. The current bank services valued property at $410000. I purchased for $645000 and had a original loan of $580000. So my second question is how does PMI work when your property has been underwater for so long?
Lastly, why did they not offer any principal reduction? Will they offer something different when the modification is finalized? Is there anything I can do to negotiate and further improve this offer?
Hope I have explained my chaos and would sincerely appreciate your experienced input regarding untangling my mess.
Ask Kate answers: My Bank's HAMP Mortgage Loan Modification Offer Confuses Me
I can only imagine the stress of making a mortgage payment that was 70% of your income.
It's commendable that you paid it consistently.
How Are HAMP Modification Payments Calculated
Let me try to answer your questions regarding trial modifications. But first, take note that I am not privy to your individual loan servicer's paperwork. This is general information to help while you peruse the modification documents for complete answers.
- What's in the house payment? The monthly payment includes the modified mortgage payment, property taxes, homeowner's insurance, and your private mortgage insurance. But it does not include any payment based on the portion that was put into forbearance, in your case, $203,000.
- Do modification rates adjust? The interest rate is usually fixed for five years before it begins to increase at scheduled intervals. Again, the modification paperwork will clearly state if, when, and how much the rate will adjust, as well as the maximum amount the rate can adjust.
- Is forbearance the same as principal reduction? Also called a balloon payment, a portion of the amount you owe is placed in forbearance and set aside to be paid at a later date, for example, by selling the home or refinancing the mortgage. Even though eventually it must be paid back, the benefit for now is that the amount in forbearance is not included in the modified payment.
Private Mortgage Insurance (PMI)
PMI is usually not re-calculated during the modification process. Borrowers continue to pay the amount currently being charged. But how long will it take for an underwater mortgage to be able to drop PMI? Do read the guidelines at How Do I Cancel PMI?
Principal Reduction Alternative
The goal of Making Home Affordable's Principal Reduction Alternative is to permanently reduce mortgage balances when the amount owed by borrowers is greater than the value of their homes. PRA is used in conjunction with HAMP modifications.
Go here to learn about eligibility for HAMP Principal Reduction Alternative Program
to see if you can spot why the program was not offered to you. Otherwise, call your lender and ask for a specific explanation.
Trial HAMP Modification Period
Your finalized modification should consist of nearly the same terms as the trial. If it doesn't (and you were not late on any trial payments) demand a detailed explanation from your bank. In the following letter from Julie, you will find help for negotiating a more affordable HAMP modification
Keep in mind, you can also contact these government officials if you do not feel you are being treated fairly by your bank: How to contact Washington DC, State Government Officials, and the Consumer Financial Protection Bureau
Can I Negotiate a Lower HAMP Modification Payment By Julie in Lake Worth, FL
I have had my HAMP modification for nearly 5 years at 2%.
In a few months, the interest rate will start to climb each year to a cap of 4.75%.
The loan is $375,000 plus a balloon at year 25 of $180,000.
Do I have any other options or should I just leave things as they are? I am able to make the monthly payments but the extra amount will be a stretch.
Ask Kate answers: Can I Negotiate a Lower HAMP Modification Payment
After the last 10 years, the general consensus among struggling homeowners is that cutting through loan servicers' red tape is as frustrating as negotiating with the IRS.
That doesn't make negotiating a new HAMP loan modification very appealing, does it?
Negotiating Lower HAMP Loan Modification Payments
But actually, I have some good news. You are among thousands of homeowners who modified their loan terms 5 years ago with built-in interest rate adjustments that begin this year. These mortgage payment increases are making more than borrowers nervous.
Fannie Mae and Freddie Mac are also concerned that homeowners with loan mods won't be able to afford the scheduled interest rate adjustments which increase monthly payments. So to avoid thousands of foreclosures, the two mortgage giants have become more willing than ever to negotiate affordable payments for stretched-to-the-max borrowers.
You can read about negotiating better loan terms at National Mortgage News: Lower HAMP Payments
Calculate Mortgage Modification Payments
But before you call the loan servicer, you might want to calculate a few payments based on your schedule of rate adjustments.
Go to Mortgage Payment Calculator
and pop in your term (probably 40 years), loan amount, and each interest rate adjustment. Then you'll be equipped to compare your current HAMP to a new offer. Remember to add monthly amounts of your property taxes and homeowner's insurance before considering affordability.
Don't worry if you aren't familiar with mortgage payment calculators. I include tutorials.
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