May 22, 2019

Government announces that help is on the way for underwater or unemployed borrowers

In the last post, we discussed underwater mortgages – the term used to indicate that a homeowner owes more money on the mortgage than the home is actually worth. As the article indicated, these are the number one cause of foreclosures, but fortunately, it looks like there may be hope on the horizon for those people who find themselves in underwater mortgages; If your home is severely underwater or you’re an unemployed homeowner, the government has announced that they will be offering additional options for struggling homeowners.

If your home is underwater and you’re borrowing money, there are two options. If you are making payments on time you may be eligible for a refinance with an FHA loan (a federal assistance loan). If you’re late on payments 60 days or more, however, you must apply for assistance through the Home Affordable Modification Program. Under HAMP, lenders, including many of the major ones, are offering principal reductions.

If you have made your mortgage payments but your loan is underwater, the refinance will be done through an FHA guaranteed loan. Your mortgage debt must be over 115% of the current market value and you must meet all guidelines in order to be eligible for an FHA guaranteed loan and a principal reduction. Your principal could be written down so that your total mortgage debt is less than 115% of the home’s market value.

If you own a home and are unemployed, you can receive a temporary reduction in mortgage loan payments for at least three months (maybe even up to six months), and in certain instances you may be able to skip payments altogether. To be eligible for payment reduction, you must be receiving unemployment checks, and the payment will be set at 31% of income based on your unemployment check. Other factors determining eligibility include that your home is your main residence, you have a mortgage balance less than $729,750, you owe mortgage payments that are not larger than 31% of your income, and you can prove financial hardship.

It’s possible that some borrowers still cannot afford the loan even after the reductions because they own more than they can afford. Lenders will be given incentives by the government to write down loans, including alternatives for short sales and deed-in-lieu of foreclosure. Lenders did not used to be required to try alternatives of principal reductions with a loan modification, but now must look at both a principal reduction and a reduction in interest rate.

“Underwater” Mortgages Down, But Many Foreclosures Still in Sight

Numbers have shown that the amount of underwater mortgages has decreased. A mortgage is called “underwater” when the homeowner owes more money than the home is actually worth. While the numbers of these types mortgage foreclosures are dropping, some experts caution that the amount of foreclosures in general will remain high.

A residential real estate report from Zillow.com illustrated that the number of underwater mortgages of single-family homeowners has dropped to 21% from 23%. This may seem like a small change but it’s a step in the right direction.

Underwater mortgages are the number one cause of foreclosures, and when homeowners have an underwater mortgage, it increases the probability that they will lose their home to foreclosure. This decrease in underwater mortgages makes people hopeful that there will be a drop in foreclosures as well. However, there is a possible downside to the decrease too. The decrease may be attributed to the fact that so many homeowners have already lost their homes to foreclosure that the number of underwater mortgages has decreased because the homes are already lost.

A report by CNN says that there are 1.2 to 1.5 million mortgages that are seriously delinquent, which means that payments are at least 90 days late. History shows that it’s rare for seriously delinquent homeowners to catch up on payments. These numbers show that even though underwater mortgages are down, many foreclosures are probably still in sight.

The number of foreclosures may rise even more in result of adjustable rate mortgages. Borrowers in these ARM mortgages can make minimal payments on their mortgages which don’t even cover the interest on the loan. In result, many borrowers will not be able to afford the payments which may lead to more foreclosures.

Borrowers in these cases were for a time allowed to make minimal payments on their mortgages. In the meantime, however, these payments did not even cover the interest of the loan, and when the mortgages reset borrowers will be required to start paying down the principal. Many people will not be able to afford these payments, and more foreclosures are likely to follow.