Homeowners seeking mortgage assistance through the home loan modification program from the federal Making Home Affordable Program may be able to receive lower interest rates, principal forgiveness and principal forbearance as part of the plans servicers are using to assist homeowners in finding a more affordable monthly mortgage payment on their home loan. Obviously, there are a wide range of reasons that homeowners have found it difficult to meet their monthly mortgage payment, and as a result, there has been a need for various options to be made available which can help these homeowners avoid foreclosure.
According to the November Making Home Affordable Report, homeowners who are in an active permanent modification have seen a drop in their mortgage payments through the use of interest rate reductions, term extensions, and principal forbearance options as well. However, according to rules from the Making Home Affordable Program, homeowners who are in a permanent home loan modification plan and continue to make on-time payments may also receive principal forgiveness as part of the program.
Understandably, homeowners who may have been unable to refinance to a lower mortgage interest rate when rates were near record lows found themselves in a difficult situation when they were met with a high monthly payment they could not afford. Obviously, some homeowners reached a situation where their monthly payment was too difficult to meet before refinancing was an option, but other factors for homeowners who could potentially afford to refinance through a traditional means stopped homeowners from this opportunity to lower their mortgage payment. Underwater mortgages, in many cases, were one of the main causes of homeowners being unable to refinance their mortgage to a lower rate, but through the Making Home Affordable Program, a lower interest rate can be offered as it’s reported that 100% of permanent modifications made within HAMP did receive an interest rate reduction.
Also, when it comes to affordability, term extensions have been a big part of the process as 57% of homeowners have received a mortgage term extension on their home loans so that their mortgage payment obligation would be an affordable level. Yet, principal forbearance has also been offered to 30% of homeowners who are in a permanent modification and seeking some form of debt relief assistance which can lead to foreclosure prevention.
Obviously though, homeowners with an underwater mortgage who may be offered a permanent modification have also been seeking out the option of finding a principal forgiveness opportunity as many homeowners are severely underwater and struggling as a result. While there have been some options, like the Home Affordable Refinance Program, which has allowed homeowners to refinance to a more affordable underwater mortgage payment, principal forgiveness has been difficult to come by for many homeowners as servicers are hesitant to use this option in some cases.
There are earned principal forgiveness plans offered by some mortgage servicers, but not all. However, homeowners in a permanent modification within the Making Home Affordable Program could see a reduction in their mortgage principal of up $1000 per year for five years. While this may not be a substantial drop in a homeowner’s principle for some, simple modification programs do offer this type of forgiveness on a homeowner’s principal, which can be helpful for underwater homeowners.
Reports have indicated that homeowners are seeing fewer results in the Making Home Affordable Program, but it needs to be understood that both federal modification assistance plans and in-house modification plans directly from servicers are still available to help homeowners avoid foreclosure and advisers are still prompting homeowners who are in need or fear financial difficulties in the future to explore these options before their mortgage situation becomes too troubling to overcome.