With the recent government involvement, fewer home loans are now being foreclosed. FHA, VA, FNMA and FHLMC require that all options to avoid foreclosure must be explored. Investors / Mortgage Insurers / Mortgage Guarantors (the "lenders" or the "banks" in common vernacular) have a cost of about 1.5% per month when a home goes into foreclosure... and that does not include the depreciating value of the home.
| Option | Characteristics | Who it is good for |
|---|---|---|
| Reinstatement Plan (Become current) |
All past due amounts, late fees, and attorney's fees are paid, in a lump sum, by a specific date,
to bring your loan current. This is often combined with forbearance |
When you are capable of paying your mortgage obligation and have a sufficient liquidity to repay all delinquency, but for some reason, had a temporary inability to pay. For example, a commissioned sales person who missed a month or two of work, but is now back up to speed and has already generated cash reserves. |
| Repayment Plan (Catch-up over time) |
Agreement to repay part of past due amounts each month, along with the regular monthly payments. | When after once having fallen behind on payments, you are now again capable of paying your mortgage obligation but cannot immediately repay all delinquency. For example, a salaried employee who missed a month or two of work, is now back on the job, but only makes "a little extra" each month with which to play catch-up. |
| Loan Modification (Permanant change to loan) |
Agreement to change one or more of the terms of your loan in order to make your payments affordable.
|
When your adjustable rate has reset and your monthly payment has jumped outside your capacity. For example, if you got an unnaturally low teaser interest rate and it reset (or will reset) to a higher rate adding from several hundred to as much as doubling your monthly payment |
| Refinance (traditional) | Get a new loan at todays rate to replace existing loan. The highest loan to value (LTV) possible currently is 105%, for conforming loans. This option is available to only a few people in Southern California because most have home prices above the conforming loan limits or else we are so upside-down that 105% is not enough to get the job done. | When you are current on your mortgage, have income you can document, and have sufficient equity and income to qualify. |
| Short-Refinance | Agreement with existing lender to take less than the full amount owed while you refinance at today's interest rates and most likely with a 30 year fixed rate loan. Effectively this is a loan modification with a principal reduction, but it might be with a different lender. | Everyone! Woot! But, well, the banks aren't very keen on this. It may occur in the off chance that you have first tried a loan modification and been unable to get sufficient cooperation, and you are ready and willing to do sale. In rare occasions, we can turn the bank's willingness to accept a short sale as evidence that they ought to be able to perform a similar loan modification - hence we get a short-refi |
Fannie Mae and Freddie Mac Helping More Homeowners - Loan Modifications Increasing http://rismedia.com/2009-04-16/fannie-mae-and-freddie-mac-helping-more-homeowners-loan-modifications-increasing/