Why Guess, When You Can Know in About an Day?
It only takes about a day to get the REST Report, so why would anyone want to guess whether it is in the financial best interest of the investor to consider modifying your loan?
What is HAMP?
HAMP stands for: Home Affordable Modification Program, a component of the government’s Making Home Affordable initiative, which is a part of the Economic Affordability & Stability Act of 2008.
Homeowners who may qualify for a HAMP loan modification are required to enter a “trial modification period,” during which they must make all monthly trial payments on time and as agreed.
HAMP guidelines state that the trial period is 3 months, however, it is not at all uncommon for trial periods to last much longer. Some borrowers have reported having to make trial payment for close to a year before learning whether or not they qualify for a permanent HAMP loan modification, or modification under a lender’s or servicer’s in-house program.
If you qualify for a HAMP loan modification, the federal government compensates participating lender’s and mortgage servicers as an inducement for modifying the terms of your loan.
Who is eligible to get a HAMP loan modification?
HAMP applies to all mortgages originated before January 1, 2009. No loans originated after that date are eligible. New borrowers will be accepted until December 31, 2012. Program payments will be made for up to five years after the date of entry into the HAMP.
The goal of a HAMP loan modification is to modify the loan so that the full housing cost [principal, interest, taxes, insurance, homeowners insurance and hazard and flood insurance] [referred to as PITIA] does not exceed 31% of the borrower’s monthly gross income.
Mortgage insurance premiums (PMI Insurance) are excluded from the PITIA calculation.
The standard analysis (called the “Standard Waterfall”) states that to reach the 31% goal, the lender must first reduce the loan’s interest rate, and then extend the term of the loan. But there are limits: the interest rate cannot be lowered below 2%. And the loan term cannot be extended beyond 480 months.
What If You Don’t Qualify for HAMP?
You may or may not qualify for a HAMP loan modification, but even if don’t that doesn’t mean that you can’t get your loan modified. Most lenders and servicers offer in house modification programs, which have resulted in many more modifications than under HAMP. The REST Report shows the NPV analysis of various other loan workout options
The key to any successful loan modification is to establish that it is in the lender’s best interest to modify your loan. Whether or not you qualify for HAMP, the REST Report can help you do just that by providing an analysis of the lender’s Net Present Value of foreclosing along with several alternatives.
General Rule Which Applies to All Modifications
Most lenders and servicers have in house modification programs. These programs have resulted in far more modifications than done under the government’s HAMP program. Although these in house programs differ, it is beyond dispute that no investor will modify a loan unless it is in its financial self interest to do so. Therefore, it is necessary to analyze whether the value of the loan as modified is greater than the value of the property if foreclosed by the investor or sold in a short sale. This is exactly the purpose of the REST Report: to provide such an NPV analysis.