To rally the nation during the Great Depression, president-elect Franklin D. Roosevelt famously remarked that "the only thing we have to fear is fear itself." But some 81 years later, his words could represent a rallying cry for homeowners who might be struggling to deal with mortgage woes.
According to industry professionals, fear can be a major factor that prevents homeowners from taking the necessary steps they need to turn their negative situations into positive ones.
"What we commonly run into is that we have people who put their heads in the sand," says Aaron Ninness, a senior loan consultant with First California Mortgage who is based in Denver, Colorado. "There are a lot of great options out there, but they require open communication with mortgage companies and (loan) servicers."
If you're a struggling homeowner, potential solutions could be well within your grasp. Read on to get a closer look at four options for people who want to remedy their mortgage situation.
Option #1: Change Your Loan's Terms
A struggling homeowner with a shorter loan term should not fear the possibility of refinancing to a long-term loan, experts contend. By extending the length of your mortgage, you could cut your monthly payments and in effect, make them more manageable.
"For people in a 15- or 20-year loan, it might be better to switch to a 30-year," Ninness says. "By making less of a payment each month, people typically are able to make ends meet."
In some instances of lengthening a term, according to Matt Jolivette, vice president of Associated Mortgage Group in Portland, Oregon, it's possible that refinancing also could lower your interest rate.
Jolivette offers this example: A homeowner could start out with a $200,000 loan on a property with a 15-year fixed-rate mortgage and a 5 percent interest rate. According to Freddie Mac, the average interest rate for a 30-year fixed-rate mortgage as of October 24, 2013 is 4.13 percent. Should the monthly principal and interest payments of $1,582 become a struggle after paying down the loan to $185,000, the homeowner could conceivably go to a 30-year mortgage with a 4.13 percent interest rate, yielding a much more manageable $897 monthly payment.
Option #2: Refinance through the HARP 2.0 Program
Distressed homeowners whose mortgages are underwater might find the latest version of the Home Affordable Refinance Program (HARP) a possible solution to their woes.
Called HARP 2.0 in its current incarnation, the program is administered by the Federal Housing Finance Agency (FHFA) and aims to give homeowners a chance to refinance their underwater mortgages. In April of 2013, it was announced the program would be extended by two years through December 31, 2015.
"HARP has been a great program," Ninness says. "The main thing [to qualify] is you have to be current with your payments."
Some of the other eligibility requirements for HARP include:
- The mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac, the government-sponsored mortgage entities.
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- The current loan-to-value (LTV) ratio must be greater than 80 percent.
Another thing to keep in mind, he says, is that you need to shop around because different lenders could give you different results from the loan qualification process - meaning depending on the lender, you could see differences in interest rates and even qualifying at all.
"The biggest issue is that different lenders have different ways they apply the HARP program," Ninness says. "I've seen a situation when someone was denied for HARP at one credit union, but went to someone else to refinance with HARP."
Feeling left out of the HARP program because your loan isn't owned by Fannie Mae or Freddie Mac? Well, you might be able to ease your fears in that area. A HARP 3.0 program is reportedly being pushed by the Obama administration in Congress.
According to the White House's website, www.whitehouse.gov, some 12 million homeowners whose loans aren't owned by Freddie or Fannie would qualify under the new bill with expanded HARP eligibility requirements. Stay tuned.
Option #3: The FHA's Back to Work Program
Homeowners who have gone through experiences such as bankruptcy, foreclosure, or short sale might feel particularly vulnerable in their mortgage situation, since it will be harder for them to qualify for a loan in the future. but the U.S. Department of Housing and Urban Development (HUD) has come up with a solution capable of giving borrowers a second chance at qualifying for a mortgage if they've faced financial troubles in the past.
Called Back to Work - Extenuating Circumstances, the program was announced in August of 2013 and is aimed at giving borrowers a chance to qualify for an FHA-backed mortgage sooner than later if they can show their financial hardship was due to an "economic event."
"It is really for people with special circumstances," Ninness says.
According to a statement issued by HUD, the FHA will consider borrowers who can document that:
- Certain credit problems came as a result of losing a job, or a significant loss of household income beyond the borrower's control.
- The borrower has proven full recovery from the event.
- The borrower has completed a housing counseling program.
Option #4: Loan Modification
Nobody wants to have their mortgage reach the point of foreclosure.
So what can homeowners do to help prevent foreclosure from becoming a reality? Ninness suggests that a loan modification could give borrowers a second chance at stability.
HUD defines a modification as "when a lender agrees to modify the terms of a mortgage without refinancing the loan." According to Ninness, the process has both its good points and negative points.
"To get a modification, you have to give a lot of information, tax returns, bank statements, financial activities, pay stubs," Ninness says. "Everything has to be documented and proven, and the modification is the same as saying, 'I can no longer pay my mortgage.' "
Ninness says this procedure typically reflects negatively on borrowers' credit reports because they may actually have to miss payments before being considered for this option by lenders.
"Depending on who you talk to, some lenders will tell you to stop making payments before they help you," Ninness says. "It makes people look like they are delinquent on their mortgage payment, and getting a modification stays on their report for a minimum of seven years." And having a delinquency on your credit report can make it much harder to qualify for a mortgage or refinancing in the future.
On the other hand, Ninnes says a loan modification can enable borrowers to keep their home and, depending on the situation, reduce monthly payments.
Option #5: Delayed Payment Plan
For people who fear a modification is a bit too extreme, they might want to opt for a delayed payment plan. In this case, according to Ninness, a lender could agree to suspended payments for three months to give a borrower time to get back on track financially.
Once the three-month period is over, the borrower would begin making normal payments again with the same amount of time remaining on their mortgage. The big problem with this option, Ninness says, is it seems to fly under the radar.
"When you go to a bank's website, you don't see the option for a delayed plan," Ninness says. So, he recommends that when you contact your lender, ask to speak with someone who is knowledgeable about the program.
In other words, don't fear speaking up about your situation to someone who might be in a position to help.
- Freddie Mac