Expert Q&A Archive
I have a question about the short sale process and loan modifications.
Iím going through the short sale process currently. We have our mortgage through Wachovia. We did receive a buyer, and are going to be closing soon. The problem is that we do make at least enough to rent, so I was thinking a modification may be appropriate. Since Wachovia has done all the loss mitigation through the short sale, wouldnít they already have that paperwork to talk to us about this program thatís available now--this Home Affordable Modification--or are they completely separate departments and donít really communicate in-house [between departments]?
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More than likely, the loan modification department will be a totally separate department from the short sales department, as Wachovia is a very big bank. Youíre right. They should communicate in-house, but generally speaking that is not the case.
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The Making Home Affordable (MHA) modification program is designed to help borrowers who are behind or in immediate danger of falling behind on their mortgage modify their mortgage so that their new payment is at 31% of their gross income. In order to get your payment to 31%, if your lender is participating, and the investor on your mortgage has no specific exclusions preventing you from qualifying, they will start by reducing the interest rate until they hit a minimum of 2%. If after they adjust the interest rate, your payment still isn't at 31%, they can then lengthen the term of the loan...for example from 30 years, up to 40 years. Finally, if it still isn't at 31% they can consider a principal balance reduction as long as you aren't failing the net present value test. If between these three options, it isn't possible to get your payment to 31%, then MHA won't work for you.
Your mortgage company is also going to want to see that after reducing your payment to 31% that the rest of your monthly expenses and debt are affordable. It's quite possible that you could afford a rental but that bringing your mortgage payment to 31% would still not be an affordable option for saving the home. I would recommend that you talk to your lender and inquire about the possibility of a loan modification based on what you would be willing to afford. It may be difficult this late in the game to get a modification, but if the numbers work, it may be possible. You should meet with a housing counselor from a HUD-approved housing counseling agency to help you contact your lender and find out if it might be a possibility. Good luck.
[Editorís Note: For further information, see the Borrower Frequently Asked Questions on the Making Home Affordable Web site at www.financialstability.gov/docs/borrower_qa.pdf