Bank of America, one of the largest US based lenders announced yesterday that they are the first to agree to lower or eliminate payments on second mortgages. HUGE HUGE news.
This comes as a welcome update because it is estimated that as many as half of all at risk mortgages have second liens. It is because of those second liens or mortgages, that loan modifications have been a large failure in part due to the fact that lenders have been reluctant to take large losses on those liens.
This federal based initiative, introduced under the Obama administration, has created an incentive for those lenders that work with home owners through the Home Affordable Modification Program along with the Second Lien Modification Program.
Could it be because of guilt that BOA has signed on for this? Or have they finally learned their lesson? Or did they realize that if they don't start helping and cooperating with more homeowners with loan modification requests that they have even more foreclosed properties on their hands and their losses will increase? Whatever the reason, this will help stop some of the bleeding of some homeowners that are trying to keep their homes without going into foreclosure. My Realty Trac Foreclosure report shows that foreclosure fillings are up from 2008 over 20% with California, Arizona, Illinois and Florida accounting for more than half of those filings.
It is estimated that in NJ 1 out of every 55 housing units received foreclosure status in 2009.
The Home Affordable Modification Program has a user friendly website where you can get more information. On it you'll see a simple to fill out questionnaire that will help determine your eligibility under this program. A determining factor under HAMP calls for the borrowers total mortgage payments including taxes, interest, insurance and maintenance fees to total more than 31% of their pre-tax income. You can see examples of how your payment might be reduced on the website. There is also a link where you can request to have a counselor assigned to you if you wish. The website is translated in Spanish for those Spanish speaking owners who have found it difficult to find help.
Unfortunately lenders are overwhelmed with filings which can make this difficult process even more stressful. But certainly this news will shed some light for some. It is unclear whether this Second Lien Modification promise will translate over to short sales as well for those who might not qualify under a loan modification, or simply can't get through to the right people to help.
A common short sale myth is that if a home owner has two loans then they don't qualify for a short sale because the 2nd loan wouldn't receive any money from the sale.
This simply isn't true, many times we can negotiate both first and second mortgages, and in some cases the second mortgage has been completely forgiven.
Just last night I signed on to help a home owner currently struggling to make her payments after BOA and Citibank have both been unsuccessful in helping her with loan modifications and have actually raised her debt due by charging her exuberant fees on what she thought was a modification. After treating her with a lack of respect she turned to me.
She was worried that a foreclosure was her only option but after meeting with her, she is a short sale candidate and I will be working hard to find her a buyer to start the process.
Lenders have to learn to work with homeowners and start to relieve this very very large problem that they partly created..
A treasury spokeswoman on CNN's article was quoted as saying that many more banks are expected to sign on very soon - (let's hope).
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