Many homeowners are faced with dire decisions today regarding keeping their homes through these difficult economic times. There are several options available to financially troubled homeowners who wish to keep their homes. According to Mark L. Strombotne, who practices real estate law in the Bay Area, these options include:
1. Refinance - Federal Homeowner Affordability Refinance Program
- Fannie Mae or Freddie Mac loans
- Owner occupied 1-4 units, primary residence
- Amount owed on 1st mortgage does not exceed 125% of fair market value
- Not delinquent on mortgage payments
- Acceptable mortgage history
- Ability to pay
2. Loan Modification - Federal Homeowner Affordability and Stability Plan
Program will reduce interest rate or lengthen loan term to lower debt-to-income ratio to 31% for 5 years. A participating lender may elect to reduce the interest rate on a loan down to a 2% minimum. If the borrower’s debt-to-income ratio is still above 31%, the next step for the lender is to increase the amortization period up to 40 years. If the borrower’s debt-to-income ratio is still more than 31% then the lender must forbear (defer) principal. A lender may always elect to forgive principal rather than lower the interest rate, extend the amortization, or forbear on the principal balance. However, loan servicers are not required to offer permanent principal reducions.
- Owner occupied 1-4 units, primary residence
- Applies to 1st deed of trust
- Monthly PITI is more than 31% of monthly gross income
- Borrower has experienced significant decline in income and can’t pay
- Loan originated before 1/1/2009
- Loan is less than $729,000
- Loan is held by a participating lender
3. Forbearance Agreement - must be in writing and signed by lender
4. Rent the home
5. Equity Share
6. Bankruptcy - Chapter 13 (reorganization plan)
amortization period debt to income ratio fannie mae loan modification loan servicers
