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Helpful Facts About Loan Modification
President Barack Obama's administration has put its Home Affordable plan into effect. The plan is designed to aid millions of homeowners avoid foreclosure through loan modification. California, meanwhile has altered state foreclosure law to make the process more difficult. Following are some important facts about loan modification and foreclosure.
Lenders are required to contact you to discuss alternative options before starting the foreclosure process. In section 2923.5(a) (2) of California Civil Code, homeowners are given certain protections should they miss mortgage payments. Lien-holders are not even able to send a notice of default without first contacting delinquent homeowners to discuss available options to avoid foreclosure. This adds at least another 30 days to the foreclosure process which typically lasts 5 or 6 months.
Homeowners cannot be held liable for deficiency judgements. Under California law, lien-holders are entitled to foreclose on a property, but cannot recover the monetary difference in what the property sells for and the outstanding balance on the note. This protection, in some cases, can also apply to second mortgages and home equity credit used in buying the property.
Your loan holder may be required by law to modify your loan. Under the recently-passed Home Affordable Modification Program, any borrower who requests loan modification has to be screened for financial hardship. If a borrower is found to have financial hardship, the lender must conduct an "NPV Test". The test calculates the difference in the net present value of payments made under the modified mortgage and the net present value of the expected cash flow should a modification not be offered. If the NVP with a modification is higher, the lender is required to offer a Home Affordable Modification.
It may be possible to have your monthly payments to 31 percent of gross income. Under provisions within the Home Affordable Modification program, participating loan providers will reduce monthly payments to 31 percent of the borrower's gross monthly income. This will be accomplished by reduces the interest rate of the loan in increments to no lower than 2%. If the 31 percent mark is not reached through interest rate reduction, the lender would then increase the amortization to 40 years. If that fails, the lender would forbear on part of the principal, where the borrower would have to pay back the forbearance upon sale or refinance. At any point during these steps, the lender may also reduce principal.
Marin Real Estate Blog
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