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The pros and cons of loan modifications

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From our loan modification live chat last Friday, it’s clear that homeowners able to pay their mortgages want a bite of bailout. Less obvious is how they can get relief when most programs are reserved for people with hardships. But consider the following:

-Broad definition of “hardship”: Food and other prices have gone up while your income remains the same or gone down. That can be a hardship for some, said live chat guest Joan LaFemina, who runs foreclosure prevention efforts at the nonprofit Community Development Corp. of Long Island. A hardship doesn’t have to be a one-time dramatic break, such as a layoff or health emergency, she said: “Sometimes I’ve had people say they haven’t had a hardship, and then they’ll tell me their property taxes went up. The same with energy costs. Somebody working as a salesman and doesn’t get reimbursed for gas, that’s a hardship.”

Pros: When earnings and expenses change, homeowners can apply for help on hardship grounds again, even if they’ve done so several times and been turned down.

Cons: Could take months and even years for lenders to approve relief.

-Home Affordable Refinance Program. Under President Barack Obama's Making Home Affordable rescue plan, lenders get incentives to lower interest rates for homeowners who have little or no equity now that property values have fallen. This applies to borrowers who have not been late on payments, whose mortgages are insured by Fannie Mae or Freddie Mac, and whose mortgages do not exceed 125 percent of the property value.

Pros: You don’t need show hardship. Nor do you need 20 percent equity in the home, which is what lenders want to see these days before refinancing.

Cons: Refinance closing costs and other fees, such as appraisal.

-Extra payments on mortgage. You want to take advantage of lower interest rates but no one is willing to give you a refinance. Instead, make an extra payment a year. Or pay $100 more each month. That’s like giving yourself a lower interest rate over the life of the loan.

Pros: Making a 13th payment each year on a 30-year loan knocks off six years of interest costs, LaFemina said.

Cons: Ties up more of your savings into the home. Hence the phrase, “house rich, cash poor.”

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