Loss Mitigation and Lending Under the FHA Rule Change

The Federal Housing Administration (FHA) made significant rule changes last week that can affect its current and future mortgage borrowers, as well as those seeking loss mitigation assistance from FHA-backed lenders. The changes involve an overall tightening of its lending standards, as the agency met a serious crunch as a result of the recession and housing crisis.

Higher cash-downs
The most significant change is the increase in the mortgage insurance premium to be paid upfront. Where borrowers previously paid 1.75% of the loan amount as the one-time premium, they now have to put down 2.25%. However, the option to pay insurance in monthly premiums is still open. The FHA is also proposing an increase in the cap for annual premiums, which is currently 0.55% of the loan amount.

Minimum credit scores
Previously, any borrower could get an FHA mortgage with only a 3.5% down payment. Under the new rules, however, borrowers would need a credit score of at least 580 to get these terms. Otherwise, the minimum down payment will be set at 10%. For homeowners currently receiving loss mitigation help, such as loan modification, this can affect their chances of getting home financing in the future.

Stricter terms
Homeowners who qualify under these new terms will also have to deal with tighter lending terms. Lenders may impose tighter penalties on missed payments and raise their standards for approving potential borrowers. Loss mitigation options may also be limited for people with poor credit to start with, and common solutions such as loan modification may be harder to obtain except under the government program.

Seller assistance
The limit for seller concessions—a form of financial assistance extended by sellers to their buyers—will be reduced to 3% from a previous 6%. This can be in the form of shared closing costs or upgrades to the property. The practice, which helps homeowners sell their homes without lowering their price, puts the FHA at greater risk by effectively inflating the home’s appraised value, according to Stevens.

Lender monitoring
The FHA will also put a closer watch on lenders, particularly the “outlier” companies that originated the sub-prime loans that put the industry under water. Stevens said he is focused on finding and stopping these lenders through intense monitoring procedures, including the online reporting of lender performance rankings. He has also urged Congress to take action against lenders whose loans do not meet FHA guidelines.

Mortgage Modification & Credit Score

Does a Mortgage Modification Affect Your Credit Score?

Mortgage modification has grown significantly more popular in recent months, a result of the housing crash and the spate of mortgage defaults that followed. But while it has helped a good number of homeowners, many are still reluctant to get a mortgage loan modification. One of the main reasons is its potential effect on one’s credit rating over the long term.

Sure, it’s not as damaging as a short sale or a foreclosure, which can stay on your record for up to ten years. But in a credit-conscious society, a drop in your credit score can have major effects in your lifestyle. So how does a mortgage modification really affect your credit score, and what can you do about it?

Circumstances of default
The first thing to keep in mind is that by the time you apply for a loan modification, there may already have been damage to your credit score. Because modifying means accepting less profitable terms, most banks require you to be at least a month behind (sometimes even more) to qualify for a mortgage modification. But each payment you miss ends up on your credit report, and even if a loan mod gets you back on track, it’ll still take a while to clear it up. So your first step should be to call up your lender and know their policies—and decide whether the new terms are worth the added delinquency.

Reporting policies
Another important factor is how your lender views the mortgage loan modification. Some will consider your loan reinstated and carry on as normal, but others can report it to the credit bureaus as a negative mark. So while you do save money upfront, you may have to pay for it with a sharp blow to your credit score. Banks rarely bring up this matter with their borrowers, so it’s your job to inquire - call up the Loss Mitigation department and simply ask how mortgage loan modifications are reported.

Your credit requirements
For some homeowners, a reduced credit score is actually a fair trade-off considering the money they’ll be saving. If you don’t plan on taking out new loans in the next few years, a mortgage modification may be worth the credit score drop. Consider your future credit requirements: will you need a new credit card, a car loan, or a student loan in the years to come? If you think you’ll need that score before you’re fully back on track, try negotiating with your lender or ask about more credit-friendly alternatives.

Premier Home Loan Modification Attorney Launches Complete Loss Mitigation Services

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CDLoanmod.com offers a step-by-step guide to home loan modification, starting with a free consultation where experts assess the borrower's situation and determine his or her financial needs. The first step is usually determining whether or not a mortgage loan modification is really the best choice, as some homeowners are better off with short sales or other forms of loss mitigation. ....

Details Here: Premier Home Loan Modification Attorney Launches Complete Loss Mitigation Services

When Home Loan Modification Fails: Your Alternatives

Home loan modification is no doubt the most popular way for homeowners to avoid foreclosure and stay off the streets. But let's face it, loan modification doesn't work out for everyone, and some people are simply better off with other forms of loss mitigation. Most people view these alternatives as "last resort" options, but that's not always the case. Depending on your situation, they may work better for you in the long term than loan modification.

That's why it's important to know your options. If you've been turned down or simply want a backup plan, here are some of the most popular home loan modification alternatives to help you out.

Forbearance plan: In this plan, your lender temporarily reduces your monthly payments so that you can get your finances in order. Once you're back on track, you pay off the difference and return to your regular payments. This is usually offered to people who have suffered temporary income loss, have been refused a home loan modification, and who can prove that they can improve their situation within 6 to 18 months.

Partial claim: In a partial claim, your lender gives you a loan to pay off your arrears and reinstate your mortgage. You will then continue paying your existing mortgage as is, and start paying the partial claim once the original loan is paid off, or when the property is sold. This method works best for people who have suffered a temporary hardship and have since recovered, but do not qualify for a regular home loan modification.

Short sale: A short sale, sometimes called a pre-foreclosure sale, involves selling your home for less than the amount owed on it, usually at a price that you and your lender have agreed on. The proceeds of the sale are then forwarded to your lender and considered full payment for the loan. This means you still lose your home, but unlike foreclosure, it doesn’t do as much damage to your credit score.

Deed in lieu of foreclosure: As the name suggests, the deed in lieu of foreclosure allows you to turn over the rights to your property to the bank instead of going through the whole foreclosure process (which ends up with the same thing anyway). This is usually done when home loan modification and other loss mitigation methods have failed to rescue the loan. This is sometimes called "voluntary conveyance of property rights".

Home Loan Loss Mitigation - Steps to get the best deal !

Loss mitigation has become a big business in recent years, as homeowners fight to keep their homes and lenders struggle to help troubled borrowers. But not all lenders work the same way, and not all loans face the same problems. Sometimes, two homeowners in identical situations can get vastly different loan loss mitigation offers, even from the same lender. That’s why it’s important to get to know your situation and take your time to make sure you get the best deal.

Work with professionals
The first and probably most important thing is to get help where you need it. While it’s technically possible to work things out on your own, working with a loss mitigation specialist makes it infinitely easier—and also increases your chances of getting a good deal. Look for specialists who have worked in your area for a long time—they’ll know better how to deal with local lenders and how the local mortgage market works.

Set realistic goals
Many people go into loss mitigation not really knowing what they’re after. Do you want your interest rates lowered, your terms changed, or part of your balance due written off? Is your lender likely to approve your offer? Often, there’s a difference between the results you want and what your lender is likely to agree to. Talk to your loss mitigation attorney and get sound advice on what makes a realistic goal for someone in your situation.

Know your methods
Loss mitigation takes on a vast number of forms; some of the most popular these days are short sales and loan modification. Each method suits a different type of homeowner, and it’s up to you to decide on the best course. Before taking any steps, ask around to see if you even qualify for the program you’re going after. Again, working with a professional can go a long way in helping you find the right kind of loss mitigation help.

Follow the rules
Once your application is under way, things are pretty much at the hands of your lender. But there are things you can do to tilt the odds in your favor and increase your chances of getting approved. For one thing, be punctual with your replies—if they request additional documents, don’t wait until the deadline to send it in. Showing that you’re willing to cooperate (it’s your loan and your home, after all) tells them that you’re easy to work with and are more likely to stay on track once you get the help you need.