New Options For Mortgage Modifications

On Wednesday, it was announced by the Federal Government that there is a new loan modification program available for homeowners.  This new program is specifically designed to help a larger percentage of homeowners, given the new program does not require the borrower to prove their income or financial hardship status.

The Streamlined Modification Initiative requires that borrowers with home loans that are backed by  Fannie Mae or Freddie Mac must be at least 90 days past due on their current mortgages,  and they must be able to  make three consecutive trial payments on time. This new program is headed by the Federal Housing Finance Agency, the agency that regulates both Fannie May and Freddie Mac.

Initiative Explained

Past programs, including HAMP, or Home Affordable Modification Program required all borrowers to show proof in documentation of their financial situations, including income and financial hardship information.  The requirement of this proof led to many mortgage servicers being unable to provide modifications for risky borrowers, which in turn minimized the overall effectiveness of the modification programs themselves.

Starting July 1, 2013, the new initiative will allow for the more lenient requirements.  By this date, all mortgage servicers are required to contact all delinquent borrowers by mail and offer them a chance at loan modification.

The new initiative will provide borrowers with a new interest rate that is either equal to or lower than the current rates they are paying.  The rates will be based on the typical averages of 30-year fixed rate mortgages, and borrowers will be allowed a longer term-up to 40 years.  Additionally, any borrower that owes more money on their homes than the actual home is worth will not be required to pay any interest on up to 30% of the overall unpaid balance.  The predicted savings on monthly mortgage payments is around 30% per borrower.

Eligibility Requirements

Eligibility requirements for the new program state that homeowners must be currently between 90 days and 24 months past due  on their loans, and their first lien mortgage must be at least 12 months old.  Additionally, the total amount that the homeowners currently owe on their mortgage must be at least 80% of the home’s total value.

The FHFA has stated that there are various screening measures in place that will make certain this new initiative program cannot be exploited-in other words, homeowners that purposely stop paying their mortgages will not be able to qualify for a mortgage modification.

Currently, the FHFA does not have a specific number of expected borrowers for the new program, but a recent pilot program showed that 70% of individuals that were offered the new program were willing to participate in the trial, and 50% of those individuals actually obtained a loan modification.

Currently, it is estimated that 1 in every 5 homeowners owe more money on their mortgage than the actual value of their home.  This alone is what is slowing down the overall improvement of the real estate market.

In their fourth quarter, Fannie Mae and Freddie Mac have provided assistance for 130,000 homeowners in order for them to avoid going into foreclosure.  Since 2008, they have helped approximately 2.7 million mortgage borrowers avoid foreclosure completely.  This calculation includes 1.3 million borrowers who were saved through repayment and forbearance plans, loan modifications, and short sales.

Banks Easing Up on Tight Mortgage Guidelines in 2015

In the slow recovery of the housing crisis, the mortgage industry is definitely starting to see significant improvement.  While the lending criteria has certainly been tightened up over the past year, the good news is that mortgages are moving in the right direction and eligible borrowers are starting to apply for loans and refinancing once again.  Additionally, certain banks are beginning to ease up on the stricter guidelines, as long as potential borrowers meet specific criteria.

  • Senior bank officers were recently surveyed, and here are some interesting results:
  • Banks easing up on mortgage guidelines – 6.1%.
  • Banks implementing tighter guidelines – 1.5%.
  • No change in guidelines either way (e.g.) tightening or loosening – 92.3%.

While there is a bit of loosening going on, the change is definitely for the better. This latest survey actually is the ninth in a row where less than 10 % of lending institutions have reported tightening their standards.  This is good news for potential borrowers that are looking to purchase a home in 2013 or 2014, as the demand for homes is slowly but surely growing.  So, while there are definitely tighter qualification criteria overall, there are a variety of  banks that are willing to bend.  Additionally, mortgage software provider Ellie Mae has recently reported a 5 % overall increase in the amount of approved mortgage and refinance applications.

With the lenders slowly easing up on their credit standards combined with the high demand for credit, Americans are finding that borrowing from banks is starting to become easier, which in turn supports overall spending, contributing positively to the economy.  And there is no better time than the present, as a government budget cut is right around the corner.

FHA Home Loans Are Becoming the New Sub-Prime

More and more borrowers are turning to FHA loans, due to the fact that FHA lenders are willing to counsel them and advise on how to fix the areas of their credit that may be hindering them from obtaining loans.  They are also helpful when it comes to rescoring the borrowers’ overall credit.  While at one point in time FHA loans were only popular among first time home buyers, many of today’s borrowers are previous homeowners that may have issues with past credit, mainly due to unemployment and the economic crisis. FHA loans can help these borrowers move forward by allowing lower down payments and more leniency with the mortgage application process.

Mortgage Statistics For 2012

Based on statistics reported from the mortgage automation company Ellie Mae, here is what the average mortgage loan process looked like in the year 2012:

  • The average closing time on a mortgage loan in 2012 was 48 days.
  • The average mortgage loan down payment in 2012 was approximately 21%.
  • The required credit score to obtain a mortgage was 748. Currently, only 37% of 200 million Americans hold a 748 or higher.
  • In 2012, the debt to income ratio was 34% overall household debt compared to a 23% monthly mortgage payment.
  • The average interest rate in 2012 was 3.90%.

While the statistics definitely show improvement, it is important for anyone looking to obtain a home loan to understand that while certain banks are easing up on the strict guidelines, there is also specific criteria that all borrowers must meet.  It is always a good idea to take a good look at your finances and current job situation before making the final decision to apply for a mortgage.  While the economy is slowly making its way back, there are still quite a few roadblocks that borrowers may come up against, so it is always wise to proceed with caution when it comes to taking out a large loan.