Suze Orman's Action Plan (19 page)

ACTION:
Start by contacting your lender and asking if there is any chance you can renegotiate (modify) your mortgage so your payments are more affordable. Please do this as soon as you think you’re in trouble—over half of those whose homes are foreclosed never speak to their lender prior to foreclosure, according to the National Foundation for
Consumer Credit Counseling (NFCC). When you call, right away ask for a loan-mitigation or workout specialist. Be prepared to document your financial hardship as well as your ability to afford the modified loan. You can get advice about how to talk to your lender at
www.hud.gov
. Click on “Tips for Avoiding Foreclosure.” Better yet, the NFCC has HUD-approved housing counselors who can advise you and will act as an advocate with your lender for the best resolution for your situation. Call 866-687-6322—you’ll be automatically connected to the agency closest to you—or visit their Homeowner Crisis Resource Center at
www.housinghelpnow.org
.

ACTION:
In February 2009 the Treasury Department announced a mortgage assistance program called Home Affordable. The program is two-pronged. The Home Affordable Refinance Program (HARP) is designed to help borrowers reduce their mortgage payments by getting a lower-cost loan. Your current mortgage can be as much as 125% of the current value of your home—meaning you are 25% underwater—and you may
still qualify for the Home Affordable Refinance Program. I’ll give more details below.

If you are unable to qualify for the Refinance Program you may be a candidate for the Home Affordable Modification Program (HAMP), in which your lender has a few different ways to push your payments down so you can afford to stay in your home.

Home Affordable is only intended for loans that were securitized or backed by Fannie Mae or Freddie Mac, though the intention is that lenders will offer this level of assistance to borrowers with other types of mortgages.

To learn more about Home Affordable, go to
www.makinghomeaffordable.gov
. This official website has tools to help you figure out your eligibility for both the refinance and modification programs. There is also a clear FAQ section that walks you through the ins and outs of the program.

As I write this in the fall of 2009, the programs have been slow to gain traction. Painfully slow. Lenders insist this is because it takes time to get their systems updated and personnel trained. Despite the slow start, the Treasury Department says Home Affordable is on pace to fulfull its initial goals: to help modify up to four million mortgages between 2009 and 2012 and help up to five million homeowners refinance into lower-cost mortgages.

But one thing is clear: If you want help, you are
going to need to be your own best advocate. It will take patience and persistence to get someone to consider your case. I wish it were different, but as we saw throughout 2009, many lenders have not been aggressive in seeking to help troubled homeowners. You are going to need to push and push to have a shot at getting a deal done. I encourage you to study the rules and regs at the Home Affordable website. There are very clear FAQs that explain what you need to know. The fact is, many of the people working at the banks are not always fully up to speed on how the programs work or not as motivated as you’d like to help you find solutions. You’ve heard the saying that knowledge is power? Well, it is so true in this case. Don’t rely on someone else’s knowledge. Be informed. It could make the difference in being able to stay in your home.

ACTION:
If you are having trouble getting your lender to confirm what type of mortgage you have, use the following government resources:

ACTION:
See if you can qualify for the Home Affordable Modification Program. The home must be your primary residence, and only “conforming” Fannie and Freddie mortgages (typically $417,000 or less, but up to $729,750 in qualified high-cost regions) are covered. While the Home Affordable Refinance Program is limited to borrowers who are no more than 25% underwater, the loan modification program does not have any limit on how deeply underwater you may be.

Now, that doesn’t mean everyone who is way behind on payments will automatically qualify for help. You still need to be able to afford the payments.

Here are the basic qualifying rules for the loan modification program:

• Your loan must be less than $729,750.
  

• You must live in the property. (No investment properties are covered.)
  

• You must be ready and willing to fully document your income. (Your most recent tax return and at least two current pay stubs are required.)
  

• You must have taken out the original mortgage before January 1, 2009.
  

• You must sign an affidavit (the lender will provide) that states you have a financial hardship.
  

• The payment on your first mortgage (including principal, interest, taxes, insurance, and homeowner’s association dues, if applicable) must exceed 31% of your current gross income.
  

• If your total household debt—including other loans, credit card balances, and alimony payments—total more than 55% of your income, you must agree to sign up for financial counseling.
  

Then it’s up to the lender to figure out if you are a good candidate for a loan modification. The basic idea with this program is that lenders will agree (egged on by financial incentives courtesy of the government) to reduce the interest rate on qualified loans to as low as 2% in an effort to reduce your payments so you can afford to stay in your home. The way it will work is that lenders will size up your monthly debt-to-income ratio (DTI). The lender has to agree to reduce your interest rate to a point where your DTI is no more than 38%. Then the government jumps into the picture and will agree to pay half of the cost of having the lender reduce the payment even further to get you down to a more manageable 31% DTI.

The low loan rate is good for five years. Then it
will gradually increase—by no more than one percentage point a year—to a permanent fixed-rate loan tied to today’s prevailing rates. That’s about 5.2% as of November 2009. I want to be clear: Your permanent rate isn’t the prevailing rate five years from now. If you qualify for this loan modification, you will lock in a maximum permanent rate based on the current fixed rate: about 5.2% in the early fall of 2009. So you might see your rate pushed as low as 2% right away to help you, but five years from now, when the rate starts “adjusting,” the max it will hit cannot exceed whatever the market rate is on the day you first qualified for the program.