Loan Modification vs. FHA – Hope for Homeowners Program Comparative Analysis!

Loan Modification vs. FHA – Hope for Homeowners Program:

Current Housing Market Status:

In the last 3 or 4 years, a large number of homeowners have been trying to

complete a “loan workout” with their current mortgage lender to lower the interest
rate and improve the terms of their loan. Many lenders have chosen not to
accept any new terms, rather, let the property go into foreclosure.

Because lenders have an overwhelming number of properties in foreclosure, they

are starting to accept loan modifications via their loss mitigation departments.
The time is ripe for consumers (who own homes) to take action and request that
their loans be modified towards better terms and a lower interest rate they can
afford, if they have high interest rate sub-prime loans or are at risk for
foreclosure.

Since, the rate of foreclosures is increasing, everyday, the federal government,

congress and the president have approved and signed a new bill which will allow
homeowners to take advantage of a new “FHA – Hope for Homeowners
Program” designed to save more than 400,000 homeowners from foreclosure.
This program will go “live” on October 1st, 2008.

The new FHA loan program will assist homeowners who are currently in
foreclosure, close to foreclosure or those who have high interest rate mortgage
loans like those called sub-prime loans. The program is different than a loan
modification in several ways.

The following is a bulleted layout of the deference’s between completing a loan

modification and getting approved to do a FHA –Hope for Homeowners program.

Loan Modification:

1. You can recast your current loan into different terms, with the hope to
benefit from a lower interest rate, which is fixed rather than an adjustable
interest rate.
2. The costs of the loan modification are rolled on the “back-end” of the loan,
which will increase the amount of money you owe.
3. The loss mitigation department may choose to keep the amount (that you
own on your loan) higher than your current home value. Or they may
choose to lower that amount, some, but not as much as it could be to
make your new payment comfortable in the long term. This could mean
that you may be in financial jeopardy, in the future.
4. It’s a fact, what cause your current lender to be interested in keeping your
loan on their books are the servicing rights. They make money servicing
your loan over the term of the amortization schedule. The problem is that

Part of the Foreclosure Prevention Act of 2008

Loan Modification vs. FHA – Hope for Homeowners Program Comparative Analysis!

many lenders have filed for bankruptcy or just got out of the business (due
to poor credits markets) and the servicing rights have been sold to other
investors. This often causes a strain, since; the servicer does not actually
have your loan documents at their facility, so they rely on others to get
your original loan information to them for review. This process can cause
the loan modification workout to be slow, in many cases. Timing is very
important, since, homeowners are not knowledgeable in the process and
they often wait to late to get the loan modification process started. It is
important to communicate with your current lender and get the loan
modification process stated, months before your home goes to foreclosure
sale.
5. If your request for a loan modification is rejected, you may want to try it
again in a few months, since; some lenders don’t document the loan
modification attempt you made. They are often motivated by changes in
the housing market and their intent changes as more and more loans go
into default. It does not hurt to try again. It is smart to work with a loan
modification specialist, a seasoned loan officer or an attorney who
specializes in real estate, mortgage lending and loan modifications. They
understand how to speak to loss mitigation department, personnel and
can get a general idea of the mood and trends of your lenders loss
mitigation department.
6. Many loan modification specialist work together with attorney firms to get
the loss mitigation departments to act in a timely manner. Those same
attorney firms work with the loan modification specialist to make sure the
original loan documents are not fraud ridden. This is a good approach, yet
it can cost the homeowner additional money, since both the loan
modification specialist and the attorney need to be paid for their services.
7. Homeowners are required to pay the loan modification specialists and
attorneys for the services, provided. Many homeowners think that the cost
will be included in the new loan amount, but this is not the case. Logically,
lenders are already loosing money when they agree to modify the loan
terms and conditions for the homeowner, so, you can bet that they will not
agree to “package” the costs of doing the loan modification into the new
loan. That cost is paid by the homeowner, directly to the loan modification
specialist and/or the attorney. The cost can range between $995.00 and
$, 5000.00; as an average. Many loan modification specialist, senior loan
officers and attorney firms can work out a payment plan, yet, many require
at least ½ upfront before they start the loan workout. Understand, there is
no guarantee that your loan modification or loan workout will be accepted.
You will still have to pay your representation your agreed amount. A large
percentage of loan modifications and workouts are accepted. So, it’s a
good bet, since, most people do not want to loose their homes to
foreclosure.
8. Loss mitigation representatives, (most often) do not require you to pay for
a new appraisal. Instead, they have your representative provide census

Part of the Foreclosure Prevention Act of 2008

Loan Modification vs. FHA – Hope for Homeowners Program Comparative Analysis!

track data, a BPO (broker price opinion) or a print out of valuation from
title company market sales data.
9. If you are in foreclosure and costs have been incurred from posting your
foreclosure sales data, attorney fees, title costs or other costs; you could
be liable for those costs, if our current lender requires it (as a requirement
to the loan modification).
10. Loss mitigation departments may choose to approve you for a new loan
which is (another adjustable or tiered –fixed loan). Be careful. Do your
homework or “talk-it-over” with your representation.

FHA- Hope for Homeowners Program:

1. The federal housing administration (FHA) has required that all

homeowners who become approved for this program accept a 30 year
fixed rate program. No other loan types will be accepted. You can only
qualify for this program.
2. FHA will loan up to 90% of the current value of your property. This means
that if you purchased your property for a higher purchase price and
currently have a loan amount higher than what the value of the property is
presently, you can become approved to do a loan amount at 90% of what
your current house is worth.
3. If you have more than a 1st trust deed lien (subordinate liens) on your
property and your property value has severely, diminished; your current
lenders may take the loss when you get approved under the “Hope for
Homeowners Program”. Usually, the subordinate lenders loose, unless
they purchase the primary lien. Most do not purchase the 1st trust deed
lien. So, the subordinate lender takes a loose on their investment.
4. FHA’s goal is to keep as many homeowners in their homes. They
understand that it would be better to do a loan for a homeowner rather
than have that property go into foreclosure, be place into the retail real
estate marketplace, causing a further degrading of the housing market.
5. The FHA underwriting guidelines are currently more liberal than any other
loan guidelines in the current market. FHA is more forgiving in their
approach to mortgage lending.
6. The FHA underwriting guidelines have not been disclosed. As October,
1st, 2008 approaches, lenders, processors and underwriters will have a
more clear idea as to what is required to get a loan approval.
7. Homeowners will (probably) be required to pay for a new FHA appraisal,
as a condition for loan approval and closing. Underwriting guidelines will
determine if this is true. The average costs for an FHA appraisal is
ranges, $300 - $450.
8. Income to debt ratios will be determined and posted in the underwriting
guidelines. Consult your loan modification specialist or loan officer.
9. The loan servicing companies that service, sub-prime loans will (probably)
be more inclined to accept a loan modification, since they will want to
transfer the lien to FHA, rather than keep it on their books. They have

Part of the Foreclosure Prevention Act of 2008

Loan Modification vs. FHA – Hope for Homeowners Program Comparative Analysis!

taken huge losses and have an overwhelming desire to get rid if their
current problems. Have patience with these lenders, since, they do not
keep your actual loan documents at their facilities. They will have to
request them. Many loss mitigation personnel are stressed and will want
to make a determination as to your file, fast. This is an advantage to you!
Work closely with your loan officer to get the items needed for loan
submission.
10. If you live in a heavily populated area like Los Angeles, Orange County,
San Francisco, Seattle, Portland, Denver, Miami, etc., you will more than
likely have a higher percentage of success with a loss mitigation
department. This is because there are more homes in foreclosure in
concentrated housing areas.
11. Even though we have not seen the FHA underwriter guidelines, (since
they have not been delivered to the underwriters) they will be available on
or before October, 1st, 2008. We can expect that the guidelines will
probably focus on a person ability to make the new housing payment and
not the persons credit score. We call this “ability to pay”!
12. If you’re, FHA -“Hope for Homeowners Program” loan application is
accepted by FHA; your current lender will still have to accept the condition
which FHA places on the loan. This means that your current lender may to
take a loss in equity by accepting the FHA loan buyout, offered.
13. The good news is that your current lender (already) understands that they
will take a loss in equity, if the property goes into foreclosure. If they don’t
accept the FHA buyout, they may have to place your foreclosed property
into the retail sales marketplace. This means that they may have to pay a
Realtor up to 6% commission, wait for the property to be purchased, incur
additional holding cost, pay a gardener, electricity and water bills. All the
while, they realize that the property will probably be reduced in value even
more as additional foreclosure properties come on to the marketplace.
This is not a rosy situation for them, so, most will realize that it would be
better to sell the loan to FHA and take less of a financial loss.
14. The main benefit to your current lender in accepting the terms of a FHA
buyout is that under the FHA guidelines, they can benefit from a portion of
any equity gain in the property for up to 5 years, at the time FHA buys the
loan. If the homeowner chooses to sell the home within the 5 year period
after the close of the new FHA loan; the lender can participate in a
percentage of any equity gain. This single condition will cause many
lenders to accept the FHA loan buyout. Ask your loan officer for
information regarding lender participation in an equity gains.
15. Many lenders are fully; “FHA approved lenders” and will require that your
loan be recast within the FHA loan department of your current lender.
Therefore, ask your loan officer if your current lender (note holder) is FHA
licensed. This will save you time and headaches, since; many loan
officers will try to do the loan on your behalf without determining if your
current lender wants the new FHA loan on their own books. This may be a
condition for an FHA loan approval, by your current lender. If our current

Part of the Foreclosure Prevention Act of 2008

Loan Modification vs. FHA – Hope for Homeowners Program Comparative Analysis!

lender is already an approved lender, they might as well sell the loan to
FHA, direct, correct?
16. Third party cost like, attorney fees, loss mitigation fees, foreclosure
posting fees, etc., will be absorbed by your current lender under the FHA –
Hope for Homeowners Program. You will not incur these fees under the
program. The lender will take this loss, too.
17. As part of the Foreclosure Prevention Act of 2008, 1st time homebuyers
are encouraged to purchase homes between April, 2008 and July 2009.
They can receive up to $7500 dollars in tax credits from the federal
government. You can get more information about this program at:
http://www.7500taxcredit.net. This program has been established to
speed up the housing recovery by getting people to purchase homes.
Additionally, it will cause home sellers to purchase homes, as well, since
they are often “move up” buyers. This program is part of the overall
attempt to correct the bad housing market.
18. Credit Score vs. Your Ability to Make the Payment: These two factors will
be outlined in the underwriting guidelines. I would expect that the ability to
pay will override the credit score issue, since, most people having
problems making their housing payments, already, have degraded credit
scores. Consult your loan officer for details.

Summary:

Loan Modification:

Consumers, now have several options to preserve home ownership. If one

option does not work try the other. Remember, time is of the essence, so act
promptly to give your self time to use one or both options.

1. Loan modification is a good option for many, if your have proper

representation and get a favorable deal.
2. You will have to pay the costs for this type of loan modification.
3. You will not have to pay for an appraisal, in most cases.

Visit this site for more information: http://www.LoanModificationContacts.com

FHA – Hope for Homeowners Program:

1. This program may be a better deal for you, if your lender is no longer in
business (sub-prime lenders and prime lenders). It can still be a great
benefit to you if your lender is still in business and wants to remove some
bad assets from their books (understanding) you might become one of
those bad assets. Your loan officer can provide this information for you.

Part of the Foreclosure Prevention Act of 2008

Loan Modification vs. FHA – Hope for Homeowners Program Comparative Analysis!

2. Since, FHA will go to 90% of the current value of your property; you can
be the real winner. This simple fact means that you will have a better
opportunity to qualify under a 30 year fixed loan and your housing
payment will be more affordable, then what you are currently paying.
3. You will most likely, be required to pay for an appraisal. Ask your loan
officer about this, since; the underwriting guidelines have not come out,
yet.
4. You may or may not have to pay for the closing cost to procure the loan.
It has not been determined, who actually pays for the closing costs. It will
be in the underwriting guidelines, when they come out. Ask your loan
officer.

5. Credit Score vs. Ability to Pay: Underwriting guidelines will determine

these two factors. FHA underwriters will probably be more forgiving and
weight their approval on your ability to make the monthly housing
payment. We will have to wait for the underwriting guidelines. Ask your
loan officer about these two factors.

Visit this site for more information: http://www.HopeforHomeownersProgram.org

Be sure to visit the “Hope for Homeowners Program” forum, on the site.

Author: Steve Linnin

o A Real Estate Broker and Mortgage Lending Professional for Over
23 Years.
o An on-going trainer and educator of real estate agents and loan
officers.

http://www.Linnin.info

If you need assistance in either one of these programs, you can contact Mr.
Linnin on any one of the websites.

Part of the Foreclosure Prevention Act of 2008