Transcript Dealing with the Housing Crisis Understanding the Options for Keeping Your Home or Transitioning to a New Residence presented by Community Action House.

Dealing with the Housing Crisis
Understanding the Options for
Keeping Your Home or Transitioning
to a New Residence
presented by Community Action House
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First and Foremost…
• Thank you for coming! This is an important first step
to understanding the process.
• We have a lot of material to cover – for this reason,
please make a note of questions that might arise
during the presentation – we will have a Q & A
session at the end.
• Please remember that we are not attorneys and do
not offer legal advice.
• Thank you to the City of Holland Human Relations
Office for hosting our workshop!
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Key Words/Definitions
• Borrower/Co-Borrower: Person(s) responsible
for making payment on loan.
• Servicer: Company you make your payment to
• Lender: Company who originally did your loan
• Investor: Owner of your loan
• Modification: Changing some terms of your
loan without doing a whole new loan
• Refinance: Taking out a whole new loan to
payoff the current mortgage.
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Why So Many Phone Calls??
Different Mortgage Company Departments
• Customer Service – friendly reminders
• Collections – Will continue to call until final
work-out is approved and implemented
• Loss Mitigation – works with you to “solve”
the problem (May take 60 to 120 days to
review your file/request for modification)
• Foreclosure – handles file after sheriff’s sale
See attached « Understanding the Foreclosure Process » for more detail
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What Housing Counselors do:
• Assist client in analyzing the situation and
explaining the foreclosure process
• Assist in the development of a spending plan
and/or crisis budget
• Present and explain practical options to the
homeowner so that they can make an
informed decision
Community Action House Foreclosure Prevention Program
What Housing Counselors do:
• Communicate and negotiate with the lender
• Identification of, and referrals to, additional
resources
• Support the homeowner’s decision and assist
in the resolution
• Protect confidentiality and provide honesty,
respect and professionalism in all services
Community Action House Foreclosure Prevention Program
Where to Start: Asking Yourself
the Tough Questions
• Is the financial difficulty likely to continue, or is
a solution in sight?
• Is homeownership still a viable and affordable
option?
• Is renting a better option?
• How much flexibility is there in the budget?
• How long can a “crisis budget” be tolerated?
KEEP AN OPEN MIND AND BE REALISTIC
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Based on the answers
to these questions –
What are my
OPTIONS?
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Curable Options
Allows borrowers to stay in their home.
------------------------------------• A FINANCIAL ANALYSIS SHOWS A REALISTIC
ABILITY TO AFFORD THE HOUSE
• THE HOMEOWNER WANTS TO STAY IN THE HOUSE
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Curable Options
• REPAYMENT PLAN
• 3 or 6 month period negotiated with servicer to bring loan payments current
• Normally at a higher payment than borrower is currently paying
• FORBEARANCE
• 3 or 6 month period negotiated with servicer to lower payment temporarily
during time of financial crisis and allow borrower to recuperate.
• Sometimes requires a balloon payment at the end of the forbearance period
• LOAN MODIFICATION
• Modification of original terms of loan based on lowering interest rate,
lengthening term of loan, forgiving part of principal balance
• Results in lower total monthly payments so that borrower may keep home
• PARTIAL CLAIM
• Requesting that mortgage insurance set aside a portion of the principal
balance in separate account
• Becomes a second lien on the property, must be paid off when home is sold
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Incurable Options
Borrowers will be required to leave their home
within a set period of time.
----------------------------------------• FINANCIAL ANALYSIS INDICATES THAT THERE IS NO
REALISTIC ABILITY TO CONTINUE MAKING
PAYMENTS ON THE HOUSE.
• THE HOMEOWNER INDICATES THEY DO NOT WANT
TO KEEP THE HOUSE.
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Incurable Options
• FULL SALE (equity in the property)
• Selling home for a profit, or breaking even – paying off all loans against
the property
• SHORT SALE (no/negative equity)
• Selling home for less than what is owed
• Must be negotiated with the servicer
• DEED-IN-LIEU OF FORECLOSURE (no/negative equity)
• Must be negotiated with the servicer
• There must be only one mortgage on the property
• FORECLOSURE (“letting the house go back to the bank”)
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Understanding the Foreclosure Process
Day 1 to 15
Payments due on the 1st
Late fee after the 15th day
Begin communication by
contacting your Lender.
Contact a MSHDA approved
lender for refinance options.
Day 16 to 30
Late charges are
assessed.
Loan is in default at 30
days.
Lender sends notice of
delinquency.
Negotiate a work out
plan “what are my
options?”
As soon as possible contact a LINKS Certified
Housing Counselor @
http://www.michigan.gov/mshda
Day 45 to 60
Day 90 to 105
Day 150 to 155
Redemption Period
Lender attempts phone
contact.
Lender sends “demand”
or “breach” letter to the
borrower pointing out
that terms of the
mortgage have been
violated.
Once the “demand”
letter goes out all
delinquent payments are
due. Partial payments
are not accepted.
Lender hires local attorney
or other firm to initiate
foreclosure proceedings.
Adds about $1,500 to
$2,500 to your costs.
Interest continues to
accumulate.
Public Notification - Notice
of Foreclosure at the local
courthouse, details of the
debt published in local
paper for 4 consecutive
weeks and notice posted
on the home.
Sheriff Sale - House sold
at foreclosure sale or
auction.
Title transferred subject to
Redemption Rights of the
owner.
The “sheriff’s deed” list the
last date the property can
be redeemed.
Redemption period is
generally six months, but
can be up to 12 months if
property is over 3 acres or
there is more than 50%
equity in the property.
Warning: If you vacate the
home the Lender can
accelerate or shorten the
redemption period.
To get the property back
you must pay:
Mortgage + interest + late
fee + court costs +
attorney fees.
LIVE in the house
No payment
Maintain utilities
Maintain Insurance
General upkeep
EVICTION - At the end of
the Redemption Period you
will receive an eviction
notice.
LEGAL NOTICE - You will
be served with legal notice
of action. You can appear
in court.
Date is set to actually have
the Sheriff move your
belongings to the curb.
During this time if you can make a partial payment – make it.
Don’t commit to a workout plan if you cannot maintain it or make the payments.
In most cases, the collection and foreclosure process continues while your
request for a workout is under review.
Make sure you are communicating with someone who has the authority to do a
workout and get it in writing.
Refinance - If you have an Adjustable Rate Mortgage (ARM) or if you have late
payments find out if you are eligible for MSHDA’s “SAVE THE DREAM” Refinance
Programs or the FHA Secure Product.
Payments can be made beyond the 15 days, but 30 days late raises a red flag and
can hinder your ability to refinance.
Be Realistic – if you cannot afford to keep your home, list it with a reputable Realtor
and sell it.
To SELL the house – you must pay everything listed above or in the case
of a short sale, get permission and a waiver of deficiency from the bank.
Save Your Money to help you move.
Avoid Rescue Scams
Don’t give someone money who says they can prevent a Foreclosure
Don’t sign paperwork you aren’t familiar with
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The Home Affordability and
Stability Plan
•
•
•
•
Home Affordable Refinance (HARP)
Home Affordable Loan Modification
(HAMP)
Home Affordable Unemployment
Program (UP)
FHA-Home Affordable Modification
Program
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To Determine if your loan is eligible
for a Home Affordable Refinance or
Modification:
(FANNIE MAE AND FREDDIE MAC ONLY)
1 800 7FANNIE (8am-8pm)
www.fanniemae.com/homeaffordable
1 800 FREDDIE (8am-8pm)
www.freddiemac.com/avoidforeclosure
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Home Affordable Refinance Program
(HARP)
• Goal of this program is to assist homeowners
who are currently locked out of the re-fi process
due to declining home values
• For a regular refinance in today’s market, lenders
are requiring loan-to-value (LTV) of no more than
70-75%. This program allows a refinance at 125%
LTV. (effective mid-October - 2009)
• Interest Rate is based on current market rate around 5%
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HARP Eligibility
•
•
•
•
•
•
Owner Occupied
Must have sufficient income to support loan
1st mortgage cannot exceed 125% of current
value
Total Debt (2nd Mort.) can exceed 125%, as
long as the junior liens will subordinate to the
new re-fi loan
No Cash Out
Mortgage must be current for last 12 months
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Home Affordable Modification Program
(HAMP)
• Many loans are eligible, depending on Servicer and
Investor participation.
• Main goal of this program is to help borrower stay in
their home and get current on their payments by:
• Lowering interest rate
• Extending the term of the loan in order to lower
monthly payments
• Adding arrearages to the end of the loan
(capitalize arrearages)
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HAMP Eligibility
•
•
•
•
Owner Occupied
Current Mortgage Payment exceeds 31% of
Gross Income
Needs to be Delinquent
If not currently Delinquent, Must provide
proof of Imminent Default
•
•
•
•
•
Death of a borrower or co-borrower
Long-term or permanent disability or illness of borrower, coborrower or dependent family member
Legally documented divorce or separation of the borrower and
co-borrower
Separation borrowers unrelated by marriage, civil union, or
similar domestic partnership under applicable law
Must have “hardship” that is involuntary (loss
of Income/Increased Medical Expenses)
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How does the lender figure out
the terms of the modified loan?
• Must lower total house payment to 31% of
Gross Monthly Income by one or more of the
following:
– Interest rate reduction (floor of 2%)
– Amortization (maximum of 40 years)
– Principal Forbearance
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In addition…
• Lenders are not allowed to charge fees
• A trial modification will be established for
approximately 3 months. If borrowers make all of
their payments on time, the modification may
become permanent
• After 5 years, if the modified rate is below the market
rate, it will “step up” a maximum of 1%/year until it
reaches the market rate for the year it was created
For Example:
Beginning Rate at Modification:
Step Up Rate:
Step Up Rate
Final Fixed Rate:
2%
3%
4%
5%
Years 1 through 5
Year 6
Year 7
Years 8 through 30
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FHA HAMP Eligibility
• FHA mortgages must be less than 12 months
delinquent
• Partial Claim may go up to 30% of principal
balance
• Loan must be at least 12 months old.
• Total debt to income ratio cannot be greater
than 55%
• Primary residence only
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Home Affordable Unemployment
Program (UP)
• As of July 1st, 2010 - Unemployment benefits are no
longer accepted as income for HAMP
• Applies to non-GSE 1st lien mortgages only
• Borrowers must be considered for UP before being
considered for HAMP
• UP grants borrowers a forbearance period where
mortgage payments are reduced or eliminated
• Following UP Forbearance or after 30 days
employment borrowers will be evaluated for HAMP
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UP (Continued)
• Foreclosure activity may not continue while a
borrower is being evaluated for UP
• Borrowers must request consideration for UP
forbearance - by phone, mail or email
• Servicers must document request and provide
receipt of the request within 10 day
• Servicers may require borrower to have received
benefits for a minimum of 3 months prior
• Borrowers must be entitled to receive
unemployment benefits in the month the UP
forbearance plan begins
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UP Forbearance
• Minimum forbearance period of 3 months
• Forbearance - a written repayment agreement which
may allow you to postpone monthly mortgage
payments, or make a reduced payment for a set period
of time.
• Mortgage payment must be reduced to 31%
of GMI or less
• Stated or documented income
• Mortgage payment may be suspended
altogether
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Help for Hardest Hit – H4HH
• $154.5 million to help MI homeowners
• 3 Programs:
– Unemployment Mortgage Subsidy
– Principal Curtailment
– Loan Rescue
• Participating Servicers:
• Fifth Third Bank, First Place Bank, Flagstar Bank, Huntington
National Bank, Independent Bank, Macatawa Bank, Members First
Mortgage (Credit Unions) , United Bank & Trust, United Bank
Mortgage Corporation
• For a more complete list of participating servicers, see:
http://www.michigan.gov/documents/mshda/H4HH_Lender-Servicer_List_7-12-10_327551_7.pdf
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1) Unemployment Mortgage Subsidy
-Must be receiving Michigan Unemployment Benefits
-Monthly subsidy, 50% of mortgage payment or $750, whichever is less
-Maximum of 12 months ($9000)
-Ceases 2 months after homeowner goes back to work
2) Principal Curtailment
-For homeowners with severe negative equity (≥115%)
-H4HH maximum curtailment of $10,000 + lender curtailment $10,000
-Servicer re-amortizes lower balance
3) Loan Rescue
-For homeowners who have experienced a documentable hardship along
with a recovery
- Assistance up to $5,000 to go towards delinquent mortgage payment,
property taxes and escrow shortage
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For All Three H4HH Programs
• Lender/Servicer executes a secured subordinate lien mortgage
and note that is 0% non-amortizing and forgivable over 5 years at
20% per year.
• The home must be an existing single-family home or
condominium
• The home must be an existing manufactured home that is
permanently affixed to real estate (no mobile homes in parks)
• The home must be owner-occupied, primary resident
• No second homes or investment properties
• Homeowner cannot have cash reserves exceeding 3 months PITI
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For H4HH Programs -All lenders will
require a “workout” package.
• Documents required include:
–
–
–
–
Making Home Affordable modification request
A hardship letter – See “tip sheet” in packet
Financial Worksheet (specific to servicer)
Verification of household income (i.e. 2 months pay
stubs, W-2’s, 1099’s, award letters from SS/pension)
– Bank Statements – 2 most recent months
– Tax returns – Last two years – all attachments
Some lenders may also require signed 4506-T form, proof of
occupancy, such as a utility bill, and a copy of the front and back of
your driver’s license or state ID card.
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To Request a Modification:
• Start by finding out who the investor is on
your loan
•
•
•
•
Fannie Mae 1-800-7FANNIE (8am to 8pm EST)
www.fanniemae.com/loanlookup
Freddie Mac 1-800-FREDDIE (8am to 8pm EST)
www.freddiemac.com/mymortgage
• Then determine your eligibility at
http://www.makinghomeaffordable.gov/eligibility.html
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To Request a Modification (Continued)
• Submit an “Initial Package” to your mortgage
company. The Initial Package includes:
–
–
–
–
Making Home Affordable modification request (see link)
A hardship letter – See “tip sheet” in packet
Financial Worksheet (specific to servicer)
Verification of household income (i.e. 2 months pay stubs, W2’s, 1099’s, award letters from SS/pension – see attached)
– Bank Statements – 2 most recent months
– Tax returns – Last two years – all attachments
Some lenders may also require signed 4506-T form, proof of occupancy,
such as a utility bill, and a copy of the front and back of your driver’s
license or state ID card.
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Proof of Income Checklist
Your mortgage servicer needs the documents listed below to
verify the income of each borrower.
• For each borrower who receives a salary or hourly wages:
– Copy of your two most recent pay stubs that show year-to-date
earnings.
• For each borrower who is self-employed:
– Most recent quarterly or year-to-date profit/loss statement.
• For each borrower who has income such as social security,
disability or death benefits, pension, adoption assistance, public
assistance, or unemployment:
– Copy of benefits statement or letter from the provider that states the
amount, frequency and duration of the benefit, or
– Two most recent bank statements showing receipt of such payment.
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Proof of Income Checklist (Continued)
• For each borrower who is relying on alimony or child support as
qualifying income*:
– Copy of divorce or other court decree; or separation agreement or
other written agreement filed with the court that states the amount
and period of time over which it will be received, or
– Two most recent bank statement showing receipt of such payment.
* You are not required to disclose Child Support, Alimony or
Separation Maintenance income, unless you choose to have it
considered by your servicer.
• For borrowers who are current on their mortgage payments:
– Copies of the most recently filed and signed federal tax return with all
schedules, including Schedule E—Supplemental Income and Loss.
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Working with Your Servicer
• Remain calm. We understand that this is a very
difficult situation; however, we recommend that
you use good judgment, discretion, and tact
when speaking with your servicer.
• Keep in contact with the servicer and apprise
them of any and all changes to your situation.
• REMEMBER: Your servicer WANTS to help you –
they do not want to take your home.
• Do not wait to open mail and other
correspondence from the servicer and their
attorney – open it immediately.
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Working with Your Servicer
• Document all conversations with the servicer
• Date and time of call
• Name of person that you spoke with and their ID #
• Information discussed
• Request all information be provided in writing
• Be aware of deadlines –provide all information
within the time frame given by the servicer
• Provide all documentation requested,
including all pages of tax returns and bank
statements.
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What about Bankruptcy?
Bankruptcy is an option,
however, it should be
discussed with an attorney in
order to determine if it is the
best option for your particular
situation.
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Foreclosure Rescue Scams
DANGER / BEWARE!!!
• Legitimate agencies never ask for money
• Avoid anyone who says they can save a house for a
fee
• Beware offers to purchase the home and sell/lease it
back
• Any unsolicited offers for assistance should be
reviewed with EXTREME CAUTION
For More Information, go to: www.LoanScamAlert.org
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Renting a home that is going into foreclosure?
What are your rights?
• New Law went into affect May 20, 2009
• Requires 90 day pre-eviction notice if new
owner will be using the home as a primary
residence.
• May be able to stay until the end of your lease
if you continue to pay rent
• Tenant must have a lease/rental contract
• http://www.nlihc.org/template/page.cfm?id=227
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Reminders:
• When considering your options, keep an
open mind and be realistic.
• Be patient - this process can take several
months to complete.
• There are many options and help is out
there for those who qualify.
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For more information go to:
www.financialstability.gov
www.makinghomeaffordable.com
http://www.michigan.gov/mshda
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Questions?
Please visit our website:
www.communityactionhouse.org
Or Call:
616-738-1170
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COMMUNITY ACTION HOUSE
665 136TH Avenue, Holland, MI 49424
616.738.1170
www.communityactionhouse.org
A MICHIGAN STATE HOUSING DEVELOPMENT APPROVED
HOME OWNERSHIP COUNSELING AGENCY
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