Dennis' Mortgage Blog

Question of the week:  Mortgage modification?

Answer:  In the last month the number of calls regarding modifications and seeking advice on how or whether to pursue has increased.  So we are on the same page as to what is a mortgage modification, it is when a lender agrees to modify the terms of repayment, amount owed and/or interest rate on an existing mortgage to the benefit of the mortgagee (the homeowner).

Homeowners may request modifications for several reasons, the two most prevalent are they have experienced income loss and are having difficulties making the monthly payment and/or they are significantly upside down on the property with the mortgage balance being worth considerably more than the value of the home.  Homeowners seeking modifications wish to retain their homes and not go through either a foreclosure or short-sale process to rid themselves of the payment, but also their homes.

Stratis Financial does not service any mortgages so for our past clients we are not able to make any decisions or assist with decisions as to whether to modify a mortgage originated by us or not.  Any modification must be pursued by the lender to whom the monthly mortgage is being paid—not always the owner of the mortgage which could be Fannie Mae, Freddie Mac, Ginnie Mae or an investor.

Like most answers I have for the question of the week there is no single answer for all situations however here are some factors to consider and repercussions I have seen regarding mortgage modifications:

Catch-22 Most lenders will not consider a request for a modification unless you are late on your mortgage.  I had phone calls from home calls from homeowner seeking a refinance because their modification application was denied and they want to lower their payments.  However since their application could not be processed unless they were behind on their payments they are not eligible for a refinance because they have late payments on their mortgage.   

Rolling Lates Some homeowners enter into a short term modification as they consider whether to sell their home for a smaller one or remain where they are.  I have seen many such cases where the lender modified and lowered their payment but also reported every payment made on the modification as 30 days late.  With the ability to sell their home without a short sale they were unable to buy a new home because of the mortgage lates.

Hardship Modifications generally require that you show “hardship” to qualify.  What defines “hardship?”  The definition is subjective and can vary from lender to lender and modification underwriter to underwriter.  Generally you need to show you have exhausted your assets, i.e. cash, in making payments and your income will not be able to continue to support the existing payment.  Further if you have enough equity to sell your home and pay the costs of the sale or more most lenders will not modify the loan, they figure if you are facing hardship you should sell the property and pay off your mortgage and not create a loss for them.

Private Better Odds  Since March 2009, when the Home Affordable Modification Program (HAMP) was initiated for Fannie and Freddie loans, less than 800,000 modifications have been accomplished. Since 2007 private lenders have completed over four million modifications.  “Private lenders” defined as mortgages that are non-government loans not owned by Fannie or Freddie.  Even though there are far fewer private sector mortgages in the marketplace, these investors are much more willing and able to modify mortgages—however the private market modifications have a much higher rate of re-default than the HAMP modifications.

Success No Guarantee For Success In October nearly half of the new defaults, or “foreclosure starts” were for homeowners who were previously in default and went through the modification process.  What this says is that a significant number of homeowners who go through the modification process to keep their homes probably should instead of looking for how to keep their home and increase the financial burden on their families consult a local real estate agent about selling the home as a short sale.

If you or someone you know is considering a mortgage modification contact me before missing that first mortgage payment that will preclude you (or them) from other mortgage options in the future.

Have a question?  Ask me!

Headlines move markets.  When it should be the news that moves markets, it seems that the headlines are all that matter in the attention deficit syndrome of most of the public and seemingly investors.  Two cases in point this week are the Fed bailout of Europe and the U.S. labor markets.

They are still in trouble.  Headlines screamed about the Euro-debt crisis being “solved” earlier this week when the United States Federal Reserve essentially agreed to lend unlimited amount of dollars to European banks for almost free, 0.5% interest.  To accommodate this action the Fed will print more money to ship to Europe so the banks will have enough money to cover their balance sheets, and perhaps to buy more bonds from Italy, France, Germany, Greece, Belgium…. “Solved?” Hardly since the fundamental issues that have created the economic crisis for European governments still exist: excessive spending and entitlement payments that have led to debt that exceeds their national Gross Domestic Products.  The cliché for the past several years in politics has been to kick the can down the road, the can being the financial problems of a local, state or federal governments and the road being the future.  Kicking the can allows current elected officials to push their problems and the need for political courage to make the proper decisions onto their successors in office.  The Fed’s move on Friday did not kick the can down the road, it tipped the can over.  Europe is still in crisis and unless major reforms are passed to eliminate deficits and pay down their debt our dollars are in jeopardy.

8.6% !! Shouts the headlines as the unemployment rate makes a tremendous drop from 9.0% as announced by the Labor Department today.  The unemployment rate is determined by telephone survey inquiring if anyone is looking for work, this month 594,000 fewer people indicated they were looking for work, not counted are the 320,000 who have quit trying to find work and are no longer considered unemployed.  The private sector added 140,000 jobs, just under the number needed to absorb the number of new workers entering the work force each month.  With first time unemployment claims climbing back of 400,000 and over 13 million Americans out of work the good news of a net gain in jobs is tempered by the tremendous amount of adults who still need a job.

Read beyond the headlines and get your news from more than one source so you can get an better idea of what is happening in the economy, in politics and in the news that impacts your household financially.  Our economy is hanging on with low growth, however it is far from healthy and sending unlimited amounts of money to Europe to support their failing economic systems can, and I think will, have an impact on our economy at home.

Rates for Friday December 2, 2011: A bit of a softening in rates this week as investors broke with convention and invested in stocks and bonds.  With the Dow Jones pushing over 7% this week the question is sustainability and whether it will remain above 12,000 points.  Mortgage Backed Securities have been trending slowly higher which indicates either a potential for lower rates in the future or that we are nearing the bottom of the rate range and we could seem them bounce off these lows.  Either way my strategy and advice is always to take the rate while you can get it and do not risk losing it while trying shave just a little more off—rates always, almost always as we saw earlier this year, go up faster than they go down.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.75%               Flat

30 year high-balance conforming           3.875%             Down 0.125%

30 year FHA*                                       3.75%               Flat

30 year FHA high-balance*                   3.75%               Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked.  Rates are based on 20% down (3.5% for FHA)  with 740 FICO score for purchase mortgages.

* Current rates include credit towards closing costs, call for quote on rate and credit.

Driving around the other day I heard an interview with Roy F. Baumeister and John Tierney, authors of Willpower, a book I will be downloading on my Kindle.  The authors study our willpower, or self-control, and discover that it acts like a muscle, the more you use it the stronger it is.  Self-control and willpower can be learned and practiced so you can expand your self-control over many areas of your life.   

I’m sure you are like me in that the intention of willpower is often far greater than the practice of willpower.  A routine is a positive and healthy repetition of something that is positive for you, like going to the gym every day; when your fall out of the routine you are in a rut.  It takes willpower to get out of the rut and back in the beneficial routine.

This week I pulled myself out of the rut and started back on the routine of going to the gym every morning—I need to practice the willpower and self-control to keep the routine and avoid falling back into the rut.

What willpower can you practice to establish a healthy routine for your body, your finances, your psyche or other area of your life?

Have a great week,

Dennis