Mortgage Rate News

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Even though there are signs that the housing market is stabilizing, there are still a great many people in danger of foreclosure. If you are trying to figure out how you can stave off foreclosure, you might consider loan modification. Under the Making Home Affordable plan, there are provisions for those who are interested in saving their homes through loan modification so that they can afford their mortgage payments. Here are some of the requirements to qualify for a loan modification under making home affordable:

1. Housing costs must exceed 31% of your income. This is your income before payroll deductions. Housing costs include mortgage payment, homeowners insurance, property taxes, condo fees and other similar costs.
2. 3 month trial period. The new payment, which is adjusted — using interest rate deductions or loan term extension — so that it is 31% of your income or less, gets a trial run. If you make the new payment on time, then the payment is locked in for five years. Mortgage lenders can’t raise the rate any more than 1% per year. The rate caps out at the prevailing market rate at the time of the loan modification.
3. Unpaid principal less than $729,750.

Loan modification can be a great tool for those who are experiencing temporary difficulties, but are trying to get things back in train. It is important to realize, though, that loan modification will do little for those who couldn’t really afford their homes in the first place. Once the five years is over, home owners may find themselves in the same place. Loan modification works best for those who could afford their homes originally, but fell into difficulty due to the economic climate.

In the end, you will have to prove that you can make the new modified payments. In some cases it just won’t work. But for those who can use a loan modification to ride out the economic troubles and get back on their feet, this may be just what is needed.

As one might expect in these economic times, as people become desperate for help, scams are popping up all over the place. There are foreclosure prevention scams, in which the unscrupulous take money from the unsuspecting and promise to help them halt foreclosure, and there are a number of other scams at work. With all the attention lately on loan modification, it is little surprise that scams related to this practice are also on the rise.

Paying fees for loan modification

There are “companies” that offer to help you negotiate a home loan modifcation with your mortgage lender. You pay high fees (sometimes close to $2,000), and the company claims that it will help you save money — and your home — through home loan modification. However, many of the companies do no such thing. They reel in desperate homeowners, collect the fees, and then disappear. Homeowners are left in the same place, but with even less money to work with as they try to save their homes.

If you are interested in getting a home loan modification, you should consider visiting the Web site of Consumer Credit Counseling Service. This organization helps people figure out if they qualify for federal programs, and then offer some help when it comes to home loan modification and refinance. You can also go straight to your mortgage lender. Government incentives aimed at encouraging mortgage lenders to help homeowners — not to mention the concerns over foreclosure — are making these lenders much more amenable to loan modification and refinance.

In the end, you should be wary of companies that promise to help you for an upfront fee. Mortgage lenders may charge loan origination fees and closing costs for a refinance or loan modification, but these are not usually required to be paid up front; many lenders will roll these costs into the new terms of the loan.

It is important to recognize that in many cases the debt forgiveness you receive is taxable. Even though you do not actually receive any money when a debt — or part of a debt - is forgiven, the IRS taxes you like you did. However, there are some instances in which debt forgiveness is not taxable. Wade Young at Lenderama offers this exceptions to taxable debt forgiveness:

1. Title 11 case.
2. The extent you are insolvent just before the cancellation.
3. Qualified farm debts.
4. Debt connected with business real estate.
5. Qualified principal residence.
6. Issues related to qualified disasters in the Midwest.

However, in some cases the issue of qualification, or the extent to which you are insolvent, are in doubt. This usually means a great deal of paperwork and some expense as you hire someone qualified to take care of this business.

Debt settlement and debt forgiveness

In many cases, if you go through debt settlement, you are agreeing to debt forgiveness. Your creditors agree to accept less than you actually owe. They do this because, in some cases, you have already more than repaid (through interest) the amount originally borrowed. This means that if you pay another 20% to 60% more, the creditor still comes out ahead overall. But for you, debt settlement could mean damage to your credit score, as well as the necessity of paying income taxes on the amount of debt that was forgiven.

In some cases, it really is best for all parties to come to a settlement and move on. Depending on your situation, debt forgiveness might be the way to go. However, you will need to make sure that you weigh the costs, and consider the drawbacks. You should also be aware of the penalties you may have to pay. Consider consulting a professional before you take this step. You should always look at your options before making such a large financial decision.