Could Federal Loan Programs Reduce Your Monthly Mortgage Burden?
There are numerous Federal loan programs that may be able to help you reduce your mortgage burdens. The suitability of different programs varies based on your circumstances and qualifications, so it’s essential to understand the details of each before applying.
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Freddie Mac Standard Modification
If you qualify as an at-risk borrower, you may request a modification of your mortgage payments in order to escape foreclosure. This program applies to properties including primary domiciles, investment real estate, second homes and vacant, non-condemned buildings.
Only some mortgages are eligible for Standard Modification. If you’ve taken out a first-lien mortgage, for instance, it has to be secured, guaranteed or owned by Freddie Mac, and all mortgages should be at least 12 months old by the time you request an evaluation for modification. While it’s OK to apply for modifications to mortgages that were already modified, you can’t have been granted more than two prior modifications.
What defines at risk? According to Freddie Mac, you need to be at least 60 days delinquent or prove you meet the agency’s terms for being in danger of defaulting in the near future. Borrowers also need to submit evidence of eligible hardships, verify that they possess the necessary income to make modified payments and have been deemed unqualified for the Home Affordable Modification Program, or HAMP. Making the process a bit more straightforward, you can submit a formal Borrower Response Package to request a trial period modification.
Freddie Mac Streamlined Modification
This program is designed to help borrowers who are seriously behind on their payments. It lets them modify their repayment terms without having to first complete and turn in a Borrower Response Package.
Like Freddie Mac’s Standard Modification option, this program combines certain terms of modification with incentives for loan servicers. The major difference is that most borrowers need to be no less than 90 days behind on their payments to take advantage of this rapid modification program. To be eligible, borrowers must have taken mortgages on primary residences, second homes, investment properties or vacant real estate at least 12 months before being evaluated for Streamlined Modification.
This program also commands loan servicers to keep track of who’s eligible and send these borrowers solicitation letters and notices. As a borrower who’s received such a notice, you can signify your desire to enter the trial period of a Streamlined Modification by submitting a modified payment as detailed in the letter. If you’re able to keep up with the trial plan’s terms, you may be granted a permanent modification.
Home Affordable Mortgage Program
The Home Affordable Mortgage Program, or HAMP, is for loans that originated on or before January 1, 2009. Mainly intended to help borrowers deal with the impacts of the subprime mortgage crisis, this program applies to first-lien loans on properties occupied by their owners and whose unpaid principal balance is as much as $729,750.
The first-lien mortgages eligible for this program need to be guaranteed, securitized or owned by Freddie Mac, but they can be for single-family properties or units with multiple dwellings, such as condos and cooperatives. Other eligible mortgages may include those guaranteed by the Rural Housing Service, or RHS, the Department of Veteran’s Affairs, or VA, and the Federal Housing Administration, or FHA. These mortgages’ eligibility depends on the specific guidelines of the agencies that guarantee them.
Borrowers who seek HAMP modifications need to demonstrate financial hardship and show that they’re in foreclosure or mortgage litigation. They must also demonstrate that their current monthly ratio of housing expenses to income is higher than 31 percent of what they gross each month. While having entered a separate modification arrangement doesn’t make you ineligible, you’ll need to specifically request HAMP consideration in such a case.
HAMP modifications can only be used once per loan. If you’re thinking about applying, remember that the program is scheduled to cease granting modifications on December 31, 2016.
Home Affordable Refinance Program
Also known as HARP, this program is similar to HAMP, but it’s targeted at borrowers with underwater mortgages. If you’re up to date on payments, but housing market trends mean that you won’t be able to refinance, this may be for you.
While most of the same basic eligibility requirements found in HAMP apply to HARP, there are a few key differences. Your loan needs to have originated on or before May 31, 2009 for HARP, and it must be owned by Freddie Mac or Fannie Mae. In addition to being current on your payments, you also require a clean history, with no payments in the past six months that were more than 30 days late and a maximum of one late payment in the past year.
If you’re deemed eligible for HARP, you’ll be granted a lowered mortgage rate and monthly payment, a fixed rate mortgage, a reduction in the length of your mortgage or some combination of these options. According to Freddie Mac, key points to remember are that only some lenders participate in HARP and that the program has changed over time. Borrowers who weren’t eligible in the past should reapply as the rules evolve and be willing to investigate alternate lenders if their mortgage obligations are higher than their home values.
VA and FHA Streamline Refinance Loans
Loans originated by the VA or the FHA may be eligible for special FHA Streamline Refinance or VA Interest Rate Reduction Refinance Loan, or IRRRL, programs. These loans differ, but the general idea is that they offer a faster means of refinancing a mortgage to obtain a reduced interest rate and lower monthly payment.
Streamline and IRRRL refinancing don’t require appraisal or credit underwriting. There are also options to complete the process without paying out of pocket, although allowing the lender to pay the costs may result in a higher interest rate. In general, borrowers aren’t allowed to receive any cash from the proceeds of their new loans, but since you can work with your preferred lender, you may find that this program provides a bit more relief and freedom to choose than certain alternatives.