Vail Valley: Should you get your mortgage loan modified?
I promised last time to write about new words and things we are all learning from the ongoing economic crisis. Let’s look this week at mortgage modifications.
As most people have heard, the latest push to stabilize the housing market is a loan modification program to reduce interest rates, and in a few cases, balances, on mortgage loans in the Vail Valley and nationwide.
The goal here is to help millions of families who have suffered job losses or reduced income or have been hit by large jumps in their adjustable rate mortgages. To do so, the government is pushing for first mortgage payments (including taxes and insurance) to be reduced to between 31 and 38 percent of a borrower’s income for certain loans taken out before Jan. 1 of this year.
This program only covers loans owned by Fannie Mae and Freddie Mac, although many lenders are reviewing loans they hold in their portfolios and offering some options to borrowers whose loans are not Fannie or Freddie. To find out who really owns your loan, you need to call your lender and ask, but they can take up to 30 days to respond.
Keep in mind that just because you might make your payments to Chase or Wells Fargo doesn’t mean they own the loan, they may only own the servicing rights. Servicing rights consist of the right to collect the payments and handle the escrows for a small monthly fee.
If you have suffered a loss in income or had your interest rate adjust up drastically you might want to consider asking for a loan modification. Be prepared, very prepared, for a time-consuming and lengthy effort Lenders are overwhelmed with requests and inquiries, and have been for months. Washington Mutual, for example, has been taking up to six months to process requests, and that was before the latest announcement that dramatically increases the number of eligible candidates. It would not surprise me if wait times go out as long as a year.
You will have to fill out a lengthy application, supply tax returns and income and expense information and spend countless hours on hold. Waiting months for an answer will grate on the strongest of nerves and marriages. During this wait you will be expected to keep up your payments. Failure to do so will not stop collection efforts and late marks on your credit and you may or may not get a modification of terms. Generally you do not have to be delinquent to get a modification, though.
If you are offered something, read it carefully and be sure you understand it. There are few, if any, disclosure requirements for modifications and lenders are not stupid when it comes to making money and even somewhat reputable companies are, in my opinion, skirting their responsibilities in dealing fairly.
Countrywide Home Loans recently offered a local resident a modification that was in reality a money-making opportunity for Countrywide and a potentially terrible situation for a homeowner struggling to pay his mortgage.
This person was sold an adjustable rate mortgage a few years ago by Countrywide that contained a margin of 5.9 percent. A margin is the amount that the interest rate is pegged at above an index. The index a rate such as the prime rate or a LIBOR that the lender uses as a base to adjust the rate. This means that the rate on this loan was nearly 9 percent.
Due to various circumstances, this borrower was not eligible for a new mortgage, so he asked for a modification. Countrywide offered to fix his rate at 9 percent or mark it down to 6.9 percent until the next adjustment, which was less than 60 days away, when it would revert back to the original terms and rise to 9 percent or beyond.
Fortunately, we are seeing lenders such as Wells, WAMU and Amtrust being quite a bit more reasonable with their borrowers. We have seen some rates adjusted downward as low as 2.5 to 3 percent for those truly in need. These rates are only for a few years and then they may be resetting in the 5 percent range.
Chris Neuswanger is a mortgage originator at Macro Financial group in Avon and can be reached at 970-748-0342. He welcomes mortgage related inquiries from readers.