Want a Principal Reduction Loan Modification? The New Home Affordable Modification Program (HAMP) Rules You’ll Have to Live By
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Are you late in paying your mortgage? Are you about to be? Is your home worth less than the mortgage balance?
If you answered yes to any of these questions, then you may be eligible for a new program that would reduce the principal balance owed on your mortgage under the Home Affordable Modification Program (HAMP).
The new principal reduction program divides your underwater mortgage into two pieces. The first loan would be for 100 percent of the current value of your property. The second loan would be a zero-interest loan that would be forgiven over a three-year period at a rate of one-third per year.
Sounds good, right? Don’t get your hopes up just yet.
There are a number of complicated rules and regulations that you’ll have to meet just to determine if you’re even eligible for the program.
Here are some of the new HAMP rules:
The good news is that you’ll find out within thirty days whether you’re eligible for a loan modification. Up until these new rules went into effect, borrowers had been waiting months (or longer) to find out if they qualified for a trial loan modification and if that trial loan mod would be turned into a permanent loan modification. (Very few have been converted to permanent.)
The bad news is it doesn’t look like many homeowners who are applying for a principal reduction modification will qualify under the new rules.
Some lenders are creating their own principal reduction programs for homeowners who don’t qualify for the HAMP principal reduction program. Bank of America announced its own principal reduction program that offers principal balance forgiveness over five years instead of the three years required by the government program. Borrowers will be tested for both programs, bank officials said.
Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.
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