Dealing with the Housing Crisis

Understanding the Options for Keeping Your Home or Transitioning

to a New Residence

presented by Community Action House1

First and Foremost…• Thank you for coming! This is an important first step

to understanding the process.

• We have a lot of material to cover – for this reason, please make a note of questions that might arise during the presentation – we will have a Q & A session at the end.

• Please remember that we are not attorneys and do not offer legal advice.

• Thank you to the City of Holland Human Relations Office for hosting our workshop! 2

Key Words/Definitions

• Borrower/Co-Borrower: Person(s) responsible for making payment on loan.

• Servicer: Company you make your payment to• Lender: Company who originally did your loan • Investor: Owner of your loan• Modification: Changing some terms of your

loan without doing a whole new loan• Refinance: Taking out a whole new loan to

payoff the current mortgage. 3

Why So Many Phone Calls??Different Mortgage Company Departments • Customer Service – friendly reminders• Collections – Will continue to call until final

work-out is approved and implemented• Loss Mitigation – works with you to “solve”

the problem (May take 60 to 120 days to review your file/request for modification)

• Foreclosure – handles file after sheriff’s sale

See attached « Understanding the Foreclosure Process » for more detail4

What Housing Counselors do:

• Assist client in analyzing the situation and explaining the foreclosure process

• Assist in the development of a spending plan and/or crisis budget

• Present and explain practical options to the homeowner so that they can make an informed decision

Community Action House Foreclosure Prevention Program

What Housing Counselors do:

• Communicate and negotiate with the lender• Identification of, and referrals to, additional

resources • Support the homeowner’s decision and assist

in the resolution• Protect confidentiality and provide honesty,

respect and professionalism in all services

Community Action House Foreclosure Prevention Program

Where to Start: Asking Yourself the Tough Questions

• Is the financial difficulty likely to continue, or is a solution in sight?

• Is homeownership still a viable and affordable option?

• Is renting a better option?• How much flexibility is there in the budget?• How long can a “crisis budget” be tolerated?

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KEEP AN OPEN MIND AND BE REALISTIC

Based on the answers to these questions –

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What are my OPTIONS?

Curable Options

Allows borrowers to stay in their home.-------------------------------------

• A FINANCIAL ANALYSIS SHOWS A REALISTIC ABILITY TO AFFORD THE HOUSE

• THE HOMEOWNER WANTS TO STAY IN THE HOUSE

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Curable Options• REPAYMENT PLAN

• 3 or 6 month period negotiated with servicer to bring loan payments current• Normally at a higher payment than borrower is currently paying

• FORBEARANCE• 3 or 6 month period negotiated with servicer to lower payment temporarily

during time of financial crisis and allow borrower to recuperate. • Sometimes requires a balloon payment at the end of the forbearance period

• LOAN MODIFICATION• Modification of original terms of loan based on lowering interest rate,

lengthening term of loan, forgiving part of principal balance• Results in lower total monthly payments so that borrower may keep home

• PARTIAL CLAIM• Requesting that mortgage insurance set aside a portion of the principal

balance in separate account • Becomes a second lien on the property, must be paid off when home is sold

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Incurable Options

Borrowers will be required to leave their home within a set period of time.

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• FINANCIAL ANALYSIS INDICATES THAT THERE IS NO REALISTIC ABILITY TO CONTINUE MAKING PAYMENTS ON THE HOUSE.

• THE HOMEOWNER INDICATES THEY DO NOT WANT TO KEEP THE HOUSE.

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Incurable Options• FULL SALE (equity in the property)

• Selling home for a profit, or breaking even – paying off all loans against the property

• SHORT SALE (no/negative equity)• Selling home for less than what is owed• Must be negotiated with the servicer

• DEED-IN-LIEU OF FORECLOSURE (no/negative equity)• Must be negotiated with the servicer• There must be only one mortgage on the property

• FORECLOSURE (“letting the house go back to the bank”)

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Understanding the Foreclosure Process Day 1 to 15 Day 16 to 30 Day 45 to 60 Day 90 to 105 Day 150 to 155 Redemption Period

Payments due on the 1st

Late fee after the 15th dayBegin communication bycontacting your Lender.Contact a MSHDA approved lender for refinance options.

Late charges are assessed. Loan is in default at 30 days.Lender sends notice of delinquency. Negotiate a work out plan “what are my options?”

Lender attempts phone contact.Lender sends “demand” or “breach” letter to the borrower pointing out that terms of the mortgage have been violated.Once the “demand” letter goes out all delinquent payments are due. Partial payments are not accepted.

Lender hires local attorney or other firm to initiate foreclosure proceedings.Adds about $1,500 to $2,500 to your costs.Interest continues to accumulate.Public Notification - Notice of Foreclosure at the local courthouse, details of the debt published in local paper for 4 consecutive weeks and notice posted on the home. Sheriff Sale - House sold at foreclosure sale or auction.

Title transferred subject to Redemption Rights of the owner. The “sheriff’s deed” list the last date the property can be redeemed. Redemption period is generally six months, but can be up to 12 months if property is over 3 acres or there is more than 50% equity in the property.Warning: If you vacate the home the Lender can accelerate or shorten the redemption period.To get the property back you must pay:Mortgage + interest + late fee + court costs + attorney fees.

LIVE in the houseNo paymentMaintain utilitiesMaintain InsuranceGeneral upkeepEVICTION - At the end of the Redemption Period you will receive an eviction notice.LEGAL NOTICE - You will be served with legal notice of action. You can appear in court.Date is set to actually have the Sheriff move your belongings to the curb.

As soon as possible contact a LINKS Certified Housing Counselor @

http://www.michigan.gov/mshda

During this time if you can make a partial payment – make it.Don’t commit to a workout plan if you cannot maintain it or make the payments.In most cases, the collection and foreclosure process continues while your request for a workout is under review.Make sure you are communicating with someone who has the authority to do a workout and get it in writing.Refinance - If you have an Adjustable Rate Mortgage (ARM) or if you have late payments find out if you are eligible for MSHDA’s “SAVE THE DREAM” Refinance Programs or the FHA Secure Product.Payments can be made beyond the 15 days, but 30 days late raises a red flag and can hinder your ability to refinance.Be Realistic – if you cannot afford to keep your home, list it with a reputable Realtor and sell it.

To SELL the house – you must pay everything listed above or in the case of a short sale, get permission and a waiver of deficiency from the bank.Save Your Money to help you move.Avoid Rescue ScamsDon’t give someone money who says they can prevent a ForeclosureDon’t sign paperwork you aren’t familiar with

 

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The Home Affordability and Stability Plan

• Home Affordable Refinance (HARP)• Home Affordable Loan Modification

(HAMP)• Home Affordable Unemployment

Program (UP)• FHA-Home Affordable Modification

Program

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To Determine if your loan is eligible for a Home Affordable Refinance or

Modification:(FANNIE MAE AND FREDDIE MAC ONLY)

1 800 7FANNIE (8am-8pm)www.fanniemae.com/homeaffordable

1 800 FREDDIE (8am-8pm)www.freddiemac.com/avoidforeclosure

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Home Affordable Refinance Program(HARP)

• Goal of this program is to assist homeowners who are currently locked out of the re-fi process due to declining home values

• For a regular refinance in today’s market, lenders are requiring loan-to-value (LTV) of no more than 70-75%. This program allows a refinance at 125% LTV. (effective mid-October - 2009)

• Interest Rate is based on current market rate - around 5%

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HARP Eligibility

• Owner Occupied• Must have sufficient income to support loan• 1st mortgage cannot exceed 125% of current

value• Total Debt (2nd Mort.) can exceed 125%, as

long as the junior liens will subordinate to the new re-fi loan

• No Cash Out• Mortgage must be current for last 12 months

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Home Affordable Modification Program(HAMP)

• Many loans are eligible, depending on Servicer and Investor participation.

• Main goal of this program is to help borrower stay in their home and get current on their payments by:

• Lowering interest rate • Extending the term of the loan in order to lower

monthly payments • Adding arrearages to the end of the loan (capitalize arrearages)

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HAMP Eligibility• Owner Occupied• Current Mortgage Payment exceeds 31% of

Gross Income• Needs to be Delinquent • If not currently Delinquent, Must provide

proof of Imminent Default• Death of a borrower or co-borrower• Long-term or permanent disability or illness of borrower, co-

borrower or dependent family member• Legally documented divorce or separation of the borrower and

co-borrower• Separation borrowers unrelated by marriage, civil union, or

similar domestic partnership under applicable law

• Must have “hardship” that is involuntary (loss of Income/Increased Medical Expenses)

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How does the lender figure out the terms of the modified loan?

• Must lower total house payment to 31% of Gross Monthly Income by one or more of the following:

– Interest rate reduction (floor of 2%)

– Amortization (maximum of 40 years)

– Principal Forbearance

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In addition…• Lenders are not allowed to charge fees

• A trial modification will be established for approximately 3 months. If borrowers make all of their payments on time, the modification may become permanent

• After 5 years, if the modified rate is below the market rate, it will “step up” a maximum of 1%/year until it reaches the market rate for the year it was created

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For Example:

Beginning Rate at Modification: 2% Years 1 through 5 Step Up Rate: 3% Year 6

Step Up Rate 4% Year 7 Final Fixed Rate: 5% Years 8 through 30

FHA HAMP Eligibility

• FHA mortgages must be less than 12 months delinquent

• Partial Claim may go up to 30% of principal balance

• Loan must be at least 12 months old.• Total debt to income ratio cannot be greater

than 55%• Primary residence only

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Home Affordable Unemployment Program (UP)

• As of July 1st, 2010 - Unemployment benefits are no longer accepted as income for HAMP

• Applies to non-GSE 1st lien mortgages only• Borrowers must be considered for UP before being

considered for HAMP• UP grants borrowers a forbearance period where

mortgage payments are reduced or eliminated• Following UP Forbearance or after 30 days

employment borrowers will be evaluated for HAMP

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UP (Continued)

• Foreclosure activity may not continue while a borrower is being evaluated for UP

• Borrowers must request consideration for UP forbearance - by phone, mail or email

• Servicers must document request and provide receipt of the request within 10 day

• Servicers may require borrower to have received benefits for a minimum of 3 months prior

• Borrowers must be entitled to receive unemployment benefits in the month the UP forbearance plan begins

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UP Forbearance

• Minimum forbearance period of 3 months• Forbearance - a written repayment agreement which

may allow you to postpone monthly mortgage payments, or make a reduced payment for a set period of time.

• Mortgage payment must be reduced to 31% of GMI or less

• Stated or documented income• Mortgage payment may be suspended

altogether 25

Help for Hardest Hit – H4HH• $154.5 million to help MI homeowners• 3 Programs:

– Unemployment Mortgage Subsidy– Principal Curtailment– Loan Rescue

• Participating Servicers: • Fifth Third Bank, First Place Bank, Flagstar Bank, Huntington

National Bank, Independent Bank, Macatawa Bank, Members First Mortgage (Credit Unions) , United Bank & Trust, United Bank Mortgage Corporation

• For a more complete list of participating servicers, see:

http://www.michigan.gov/documents/mshda/H4HH_Lender-Servicer_List_7-12-10_327551_7.pdf 26

1) Unemployment Mortgage Subsidy-Must be receiving Michigan Unemployment Benefits-Monthly subsidy, 50% of mortgage payment or $750, whichever is less-Maximum of 12 months ($9000)-Ceases 2 months after homeowner goes back to work

2) Principal Curtailment-For homeowners with severe negative equity (≥115%)-H4HH maximum curtailment of $10,000 + lender curtailment $10,000-Servicer re-amortizes lower balance

3) Loan Rescue-For homeowners who have experienced a documentable hardship along with a recovery- Assistance up to $5,000 to go towards delinquent mortgage payment, property taxes and escrow shortage

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For All Three H4HH Programs

• Lender/Servicer executes a secured subordinate lien mortgage and note that is 0% non-amortizing and forgivable over 5 years at 20% per year.

• The home must be an existing single-family home or condominium

• The home must be an existing manufactured home that is permanently affixed to real estate (no mobile homes in parks)

• The home must be owner-occupied, primary resident

• No second homes or investment properties

• Homeowner cannot have cash reserves exceeding 3 months PITI28

For H4HH Programs -All lenders will require a “workout” package.

• Documents required include:

– Making Home Affordable modification request– A hardship letter – See “tip sheet” in packet– Financial Worksheet (specific to servicer)– Verification of household income (i.e. 2 months pay

stubs, W-2’s, 1099’s, award letters from SS/pension)– Bank Statements – 2 most recent months– Tax returns – Last two years – all attachments

Some lenders may also require signed 4506-T form, proof of occupancy, such as a utility bill, and a copy of the front and back of your driver’s license or state ID card.

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To Request a Modification:

• Start by finding out who the investor is on your loan

• Fannie Mae 1-800-7FANNIE (8am to 8pm EST)• www.fanniemae.com/loanlookup• Freddie Mac 1-800-FREDDIE (8am to 8pm EST)• www.freddiemac.com/mymortgage

• Then determine your eligibility at http://www.makinghomeaffordable.gov/eligibility.html

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To Request a Modification (Continued)

• Submit an “Initial Package” to your mortgage company. The Initial Package includes:

– Making Home Affordable modification request (see link)

– A hardship letter – See “tip sheet” in packet– Financial Worksheet (specific to servicer)– Verification of household income (i.e. 2 months pay stubs, W-

2’s, 1099’s, award letters from SS/pension – see attached)– Bank Statements – 2 most recent months– Tax returns – Last two years – all attachments

Some lenders may also require signed 4506-T form, proof of occupancy, such as a utility bill, and a copy of the front and back of your driver’s license or state ID card.

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Proof of Income ChecklistYour mortgage servicer needs the documents listed below toverify the income of each borrower.

• For each borrower who receives a salary or hourly wages:– Copy of your two most recent pay stubs that show year-to-date

earnings. • For each borrower who is self-employed:

– Most recent quarterly or year-to-date profit/loss statement.

• For each borrower who has income such as social security, disability or death benefits, pension, adoption assistance, public assistance, or unemployment:– Copy of benefits statement or letter from the provider that states the

amount, frequency and duration of the benefit, or– Two most recent bank statements showing receipt of such payment.

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Proof of Income Checklist (Continued)

• For each borrower who is relying on alimony or child support as qualifying income*:– Copy of divorce or other court decree; or separation agreement or

other written agreement filed with the court that states the amount and period of time over which it will be received, or

– Two most recent bank statement showing receipt of such payment.

* You are not required to disclose Child Support, Alimony or Separation Maintenance income, unless you choose to have it considered by your servicer.

• For borrowers who are current on their mortgage payments: – Copies of the most recently filed and signed federal tax return with all

schedules, including Schedule E—Supplemental Income and Loss.

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Working with Your Servicer• Remain calm. We understand that this is a very

difficult situation; however, we recommend that you use good judgment, discretion, and tact when speaking with your servicer.

• Keep in contact with the servicer and apprise them of any and all changes to your situation.

• REMEMBER: Your servicer WANTS to help you – they do not want to take your home.

• Do not wait to open mail and other correspondence from the servicer and their attorney – open it immediately.

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Working with Your Servicer• Document all conversations with the servicer

• Date and time of call• Name of person that you spoke with and their ID #• Information discussed

• Request all information be provided in writing• Be aware of deadlines –provide all information

within the time frame given by the servicer• Provide all documentation requested,

including all pages of tax returns and bank statements.

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What about Bankruptcy?

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Foreclosure Rescue Scams

DANGER / BEWARE!!!

• Legitimate agencies never ask for money• Avoid anyone who says they can save a house for a

fee• Beware offers to purchase the home and sell/lease it

back• Any unsolicited offers for assistance should be

reviewed with EXTREME CAUTION

For More Information, go to: www.LoanScamAlert.org37

Renting a home that is going into foreclosure?

What are your rights?• New Law went into affect May 20, 2009• Requires 90 day pre-eviction notice if new

owner will be using the home as a primary residence.

• May be able to stay until the end of your lease if you continue to pay rent

• Tenant must have a lease/rental contract• http://www.nlihc.org/template/page.cfm?id=227

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Reminders:

• When considering your options, keep an open mind and be realistic.

• Be patient - this process can take several months to complete.

• There are many options and help is out there for those who qualify.

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For more information go to:

www.financialstability.gov

www.makinghomeaffordable.com

http://www.michigan.gov/mshda

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Questions?

Please visit our website:

www.communityactionhouse.org

Or Call:616-738-1170

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COMMUNITY ACTION HOUSE665 136TH Avenue, Holland, MI 49424

616.738.1170www.communityactionhouse.org

A MICHIGAN STATE HOUSING DEVELOPMENT APPROVED

HOME OWNERSHIP COUNSELING AGENCY

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