If you are an underwater Homeowner and have been considering a Southern New Hampshire short sale because you have (by now) heard all the horror stories about the impossibility of obtaining a meaningful loan modification you might be tempted to rush out and apply for the "Easy No Doc Streamlined Modification" that FHFA has just begun trumpeting.
After all, according to the March 27, 2013 FHFA News Release, "Beginning July 1, Servicers will be required to offer eligible borrowers who are at least 90 days delinquent on their mortgage an easy way to lower their monthly payments and modify their mortgage without requiring financial or hardship documentation." With regard to eligibility requirements, the news release goes on to say that the loan must be owned or guaranteed by Fannie Mae or Freddie Mac, homeowners must be 90 days to 24 months delinquent and have a first-lien mortgage that is at least 12 months old with a loan to value ratio greater that 80 percent.
Sounds easy right?
Not so fast, Spanky! I doubt Staples will have to give up the EASY BUTTON anytime soon.
As is freqently the case, the sound bites and bullet points differ GREATLY from the actual guidelines that Servicers (the party to whom you make your mortgage payment) must follow. Being the inquisitive and somewhat cynical person that I am, I got my hot little hands on the Freddie Mac Guidelines pertaining to this program and, on first pass, discovered the following:
First up, a smattering out of the Who Is INELIGIBLE Category:
- Anyone whose loan is not owned or insured by Fannie and Freddie
- Anyone with a Government Loan - FHA, VA, RD
- Anyone who was previously modified and became 60 days or more delinquent within 12 months of the modification effective date
- Anyone who failed a previous modification Trial Period Plan within 12 months of the evaluation date .
- Any mortgage that is currently subject to an "unexpired offer" for another alternative to foreclosure including a forbearance or repayment plan
- Anyone who is currently paying under another Trial Period Plan, forbearance plan or repayment plan
This one is my personal favorite:
A Borrower with ALL of the following characteristics is NOT ELIGIBLE:
- Current FICO is 750 or greater
- The borrower has not provided a reason for default OR their reason is NOT AN ELIGIBLE HARDSHIP
- The borrower WAS CURRENT for each of the 5 months prior to the Due Date of Last Paid Installment and NEVER MADE A PAYMENT AFTER BECOMING DELINQUENT.
HUH? I mean, isn't that how it works??? You make your payments until something happens that causes you to NOT be able to make your payments so then you DON'T make your payments because you CAN'T make your payments. Well, according to this, that could render you ineligible if your FICO score is still good and your hardship isn't "ACCEPTABLE".
Speaking of which, Unemployment is a questionable hardship. It is listed as an acceptable hardship in one spot but if you dig in to the Guidelines they indicate that UNEMPLOYMENT IS NOT NECESSARILY CONSIDERED A LONG TERM HARDSHIP.
Other UNACCEPTABLE HARDSHIPS:
- The fact that the house is underwater
- Temporary Income Interruption (this goes back to the Unemployment question) when the borrower has assets that could be liquidated to pay the mortgage
- Interest rate adjustment in an Adjustable Rate Mortgage or the Re-Amortization of an Interest Only upon expiration of the Interest Only period. (This would appear to render you ineligible if you had a previous modification where they lowered your payment by putting you into an Interest Only loan for a period of time and now that period has expired and your payment has gone back up)
Here are a couple of other beauties you should take into consideration:
FHFA is making a big deal out of the fact that this program will provide PRINCIPAL FORBEARANCE for certain underwater homeowners.
DO NOT BE FOOLED! PRINCIPAL FORBEARANCE IS NOT THE SAME AS PRINCIPAL REDUCTION. With a principal reduction a portion of your principal is forgiven - it goes away. With principal forbearance your payment (for awhile) is calculated as if you had a lower loan amount but you are still, in the end, responsible for the entire amount. That is, I am sure, part of the reason why the loan term on many of these will be extended to 40 years.
And last, but certainly not least, the guidelines mandate that the final modified payment offered to the distressed homeowner must be less than OR THE SAME AS the payment they are currently making.
I can see it now: the distressed homeowner can no longer make payments and applies for an "Easy No Doc Streamlined" modification and, after being jerked around for several months while the foreclosure train bears down on them (it's supposed to be quick but we all know it's not going to be) they receive the good news:
Bank: "Congratulations. We've modified your loan. Your new P&I payment is $2000."
Borrower: "But...my old payment was $2000?"
Bank: "Yes, we know. Congratulations on your modification."
If you are considering a short sale in Southern New Hampshire and would like a free consultation, please contact me at 603-490-5344.