Borrowers Who Are at Risk of Foreclosure Are Asking:

1.    What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

2.    Do I need to be behind on my mortgage payments to be eligible for a modification?

No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.

3.    How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?

In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

4.    I do not live in the house that secures the mortgage I’d like to modify. Is this mortgage eligible for the Homeowner Affordability and Stability Plan?

No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence.

5.    I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?

Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.

6.    I have two mortgages. Will the Homeowner Affordability and Stability Plan reduce the payments on both?

Only the first mortgage is eligible for a modification.

7.    I owe more than my house is worth. Will the Homeowner Affordability and Stability Plan reduce what I owe?

The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.

8.    I heard the government was providing a financial incentive to borrowers. Is that true?

Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.

9.    How much will a modification cost me?

There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.

10.    Is my lender required to modify my loan?

No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.

11.    I’m already working with my lender / housing counselor on a loan workout. Can I still be considered for the Homeowner Affordability and Stability Plan?

Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.

12.    How do I apply for a modification under the Homeowner Affordability and Stability Plan?

You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.

13.    What should I do in the meantime?

You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes:
•    information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources
•    your most recent income tax return
•    information about any second mortgage on the house
•    payments on each of your credit cards if you are carrying balances from month to month, and
•    payments on other loans such as student loans and car loans.

14.    My loan is scheduled for foreclosure soon. What should I do?

Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower’s eligibility.  We support this effort.

Here are a few items to think about:

1.    Compliance/legal issues – out of state sellers (banks) are sometimes not aware of Michigan laws & requirements resulting in lengthy delays and there are usually no seller disclosures or records available.

2.    Long delays in negotiation – your “accepted” offer may go into a pool of other “accepted” offers with the seller ultimately deciding weeks later to take another bid or reject all of them. Unfortunately, much of this negotiation turns out to be verbal – (non-enforceable) – creating lots of frustration and hard feelings.

3.    Not enough help – to overwhelmed and overburdened bank employees working on your transaction, it is just one of thousands they must process. Plan on at least 2 to 3 times longer processing time – be prepared for “lost” documents, additional forms needed and unreasonable requests.

4.    The AS-IS clause – the bank’s purchase agreement is very different from what you may be used to. Unlike buying a “regular” house where the seller is responsible for keeping the property in substantially the same condition until the closing, the foreclosure sale puts all the risk on the buyer. Once you have a confirmed agreement of sale with the bank, if anything happens to the property prior to closing it is your problem. I know of properties in which copper pipes, aluminum siding, A/C unit, kitchen cupboards, hot water tanks and furnaces have been removed and the buyer ended up with a shell. Believe me, it happens.

5.    The Equity Loan – the strategy of using your equity line of credit to fix up the house can be derailed when your bank decides to “freeze” or discontinue your line of credit. You have a house in major disrepair and no money to make the necessary improvements.

6.    Water Intrusion & Mold – some houses have remained vacant for a year or two with no heat/electricity, flooded basements, leaky roofs, missing downspouts & gutters cause water damage and eventual mold. Temperature extremes also cause stress cracks and structural damage; animals & squatters like to seek shelter as well.

7.    Your Ability to Get Approved – don’t get too caught up in your “investment strategy” until you have a firm mortgage approval from your lender stating that they will lend you money on this “distressed” property. Don’t think you’re going in zero down on these deals.

8.    Underestimating – unless you are a savvy builder/tradesman, the average buyer has no idea of the real cost of renovating these distressed homes. There are lots of hidden costs and problems that arise which have devastated some buyers. Here’s a rule of thumb à plan on the project taking twice as long and costing twice as much as your best estimate.

My best advice is to gather enough information to see if you are ready for this type of a challenge. It can be mentally, physically, and psychologically draining, but, if you’re up for it, rehabbing the distressed home can be very rewarding.