Mortgage and Foreclosure Law Blog

Today I want to continue the series on the Making Home Affordable Program. This part will focus on how to qualify for the program. We will go over the general program requirements, then the next entry will go over some specific issues we have when qualifying our clients.

The first items to determine for qualification can be found in the following five questions; each of which need an affirmative answer for to qualify: 1) Is your home your primary mortgage?; 2) Is the amount you owe on the loan less than $729,750?; 3) Do you have a hardship that has caused you to have trouble making your mortgage payments?; 4) Did you get your current mortgage before January 1st, 2009?; and 5) Is your payment on your first mortgage, including taxes, interest, insurance, and principle more than 31% of your gross monthly income? If the answer to all these questions is yes, then you should move on to the next steps in qualification. If any answers are no, you will not qualify for the MHA.

There are two things to consider in the above questions. First, what is a hardship? Second, what is meant by the 31% of your gross income. A hardship is one of the following; but can be others as well; Loss of Income, Loss of Job, Illness, Divorce, Death in the Family, Increased expenses, etc. Generally the idea is that something has changed, through no fault of your own, that has made it difficult to make your monthly mortgage payment. For instance Gambling losses would not qualify.

Let's take some simple numbers to illustrate the 31% rule. Let's say you make $120,000 a year. This means your gross monthly in come is $10,000 ($120,000/12 months). If your monthly mortgage payment (principle, interest, insurance, and taxes) was $2,400 you would not qualify. If your monthly payment was $4,000 you would be able to proceed.

Next we will discuss more detailed steps in qualification.

Buenos Dias Readers! I'd like to take the next few updates to explain and the Government's Making Home Affordable Program (MHA). This is the program many of you have heard about in the news, that was designed to save homeowners from foreclosure. Over the next few updates we will explain the program, how to qualify, and what to do if you don't qualify.

Back on February 18th of this year, the Obama Administration announced the MHA program. It was expected that it could offer assistance to as many as 7 to 9 million homeowners by reducing monthly mortgage payments and avoiding foreclosure. On March 4th of this year details began getting published about the program. On April 28th, more guidelines were announced and the program was strengthened. By now most lenders have implemented the program and roughly 75% of all loans in the country are covered by the program (although that doesn't mean 75% of them are eligible).

The main goal of this program is to assist lenders and homeowners in modifying or refinancing homeowners mortgage payments to levels that are considered affordable. For this program that means that homeowners are expected to be able to afford a payment that is between 31% and 38% of their Gross Income. For instance if your salary is $120,000 and you make $10,000 a month, you can expect your mortgage to be modified to a payment (including taxes, insurance, HOA) of $3,100 a month.

There is a step process to get this payment down. First the interest rate is dropped to a floor of 2%. If that doesn't lower the payment enough, the loan term is extended up to 40 years. If that still doesn't get the payment down, they do what is called a principle balance forbearance. This means that they will take the difference between the unpaid loan balance and the fair market market value of the home and tack some or all of that amount on the end of the loan, at zero percent interest, due in a balloon payment when the house is refinanced, sold, or the loan becomes due.

The Lender is responsible for any loss for doing the modification up to the 38%. The government will split any loss that results from the above process in lowering the payment from 38% to 31%. This is the basics of the program. Next time we will discuss qualifying for the program.

Good Day Readers! Sorry for the delay in blogging; new priorities will ensure more frequent updates. So, we were talking about how Bankruptcy can help with foreclosure on your home. We went into Chapter 13 a little, so let's take a look at Chapter 7 Bankruptcy. As we have discussed earlier Chapter 7 discharges all debts, including your mortgage.

Unfortunately many situations may require that you’ll have to give up your home no matter what. In that case, filing for Chapter 7 bankruptcy will at least stall the sale and give you two or three more months to work things out with your lender. See prior post in this series regarding publication timing and bankruptcy. It will also help you save up some money during the process and cancel debt secured by your home. You should be able to save money, since the second you decide you are going to file bankruptcy you should stop paying your bills.

During a Chapter 7 bankruptcy, you can live in your home for free during at least some of the months while your bankruptcy is pending—and perhaps several more after your case is closed. You can then use that money to help secure new shelter. We usually recommend that our clients stay in their home for free until they are required to vacate by law. Imagine how much money you could save with no house payment at all for several months!

Thanks to a new law, you no longer face tax liability for losses your mortgage or home-improvement lender incurs as a result of your default, whether you file for bankruptcy or not. This new law applies through the 2012 tax year and is discussed below. However, the new tax law doesn’t shield you from tax liability for losses the lender incurs after the foreclosure sale if:
1)The loan is not a mortgage or was not used for home improvements (such as a home equity loan used to pay for a car or vacation); or
2) The mortgage or home equity loan is secured by property other than your principal residence (for example, a vacation home or rental property).

This is where Chapter 7 bankruptcy helps. It will exempt you from tax liability on losses the lender incurs if you default on these other loans.