What modification programs are available and how do they differ?
Once your modification application is submitted to your lender, the modification review becomes essentially a two-step process. The first step in the process is for your lender to consider whether you qualify for the federal government's Home Affordable Modification Program (HAMP), discussed in more detail below. If you do not qualify for a HAMP modification, or if your lender does not participate in the HAMP program, the next step in the modification process is for your lender to consider whether you qualify for one of your lender's internal modification options. These modifications are referred to "Internal Modifications" or "In-House Modifications", and are based on your lender's own underwriting policies, not the government's HAMP guidelines. Although both the HAMP modifications and In-House Modifications are focused on determining the monthly payment you can afford, the way they determine what you can afford is different. As such, your "affordable" monthly payment can vary significantly between the two programs. Understanding the distinction in these programs is critical to understanding the importance of the information you provide to your lender in your modification application.
With all its complexities, the objective of the government's HAMP program is relatively easy to understand. The goal of the HAMP program is to reduce your mortgage payments (including escrow for taxes and insurance) to 31% of your Gross monthly income. That's it! The government doesn't care about your Net take-home pay, your monthly expenses or your assets other than your home. You can see why this system is inherently flawed. How can anyone know what you can
actually afford unless they know how much money you actually bring home and what other expenses you have? Maybe you have extremely high medical expenses, child care and education expenses. Maybe you have a large second mortgage. Maybe you pay court ordered alimony or child support. Maybe you have 401k or other automatic deductions from your paycheck. The point is, it is impossible to know what anyone can actually afford on their mortgage without knowing how much money they actually bring home and how much they are required to spend on other expenses.
Despite its inherent flaws, a significant percentage of successful modifications come from the HAMP program. If your current mortgage payments are greater than 31% of your gross monthly income, and your mortgage otherwise qualifies. then you may qualify for a HAMP modification. If your current mortgage payment, including escrow, is already less than 31% of your gross monthly income, you do not qualify for a HAMP modification. You may, however, still qualify for an In-House Modification, which in many cases is even better than a HAMP modification.
Check back soon for our next post on In-House Modificaitons and how to qualify. In the meantime, if you are in foreclosure, call our office for a free consultation to see how we can help you save your home.
Bowin Law Group - Brevard's Hometown Law Group