The Obama administration has recently put pressure on mortgage lenders to convert temporary loan modifications for high-risk borrowers to permanent ones by the end of the year.
HUD (Department of Housing and Urban Development) along with the U.S. Department of Treasury will be requiring lenders to submit a schedule for how they will decide whether or not a loan would be permanently modified and to report any obstacles borrowers face in moving to the permanent phase. This is intended to discourage lenders from cherry-picking those borrowers who are at lowest risk and therefore need assistance the least.
Since the federal Home Affordable Modification Program (HAMP) was launched in May of this year, lenders have temporarily modified more than 650,000 home loans to lower mortgage payments from struggling homeowners. More than 375,000 of these modifications are scheduled to become permanent by end of 2009.
Option ARMs (those exotic mortgages which allowed homebuyers to come to closing with little cash and choose on a monthly bases, how much to pay: interest and principal, interest only, or a minimum amount less than the interest due) have been most popular in “bubble markets” – CA, NV, FL, AZ – where double digit home annual price increases put the cost of buying a home out of reach. Many borrowers could only afford a home if they chose the option ARM.
Home prices in many of the bubble markets where option ARMs are most concentrated have fallen 30% – 40%, some even more. When the loans recast (interests rate adjusts), many homeowners may find themselves underwater.
With the potential permanency of loan mod’s, these option ARM borrowers may have the ability to modify their existing mortgage, get out of the option ARM, into a secured fixed rate, and save them from possible foreclosure.
Curious to know if a loan mod is right for you? Send me an email and we’ll look at the possibilities.