People have more questions than answers about the new Making Home Affordable [1] program. A reader, Laura, recently sent me an email looking for help since all she could find was general information.
Unfortunately, I’ve found that many of the details aren’t on the general MakingHomesAffordable.gov [2] site. Instead they are buried in supplemental directives written for the lenders. Luckily, they are all available to us, so we can get the additional information we need.
Here are some of Laura’s questions about the loan modification. I’m sure that many of you considering the loan modification have some similar questions.
Loan Modification Q & A
We have about $10,000 in savings. Are we expected to use up all our savings before we will be considered for a loan modification?
Not necessarily. The loan modification program allows you to exclude an emergency fund, which they define as equal to three times your monthly debt payments. So if the $10,000 is your only cash reserves, then they will not require you to use it first.
We own two vehicles outright that are valued at around $10,000. Do we need to sell those before we apply?
Cash reserves are defined as cash, savings, money market funds, marketable stocks and bonds. Their is no mention of having to sell your vehicles before qualifying for a loan modification.
We have about $25,000 in retirement accounts. Do we need to raid those first before we can get a modification?
Retirement accounts are excluded from the calculation of cash reserves, so they will not expect you to use any retirement money before getting a loan modification.
I remember you had a post about you and your husband possibly applying for a loan modification (Would You Take a Loan Modification? [3]).
But I would imagine that you are not having trouble paying your mortgage since you and your husband seem to be really smart with your finances. What would you write in your financial hardship letter? And do you know if it makes a difference that you leaving your past job was voluntary?
Thanks for the compliment. You are correct, we are not having trouble paying our mortgage. However, one of the hardship choices is a reduction or loss of income that was supporting the mortgage. It does not specify the cause of the lost income. I would reference that hardship reason, and be honest about the circumstances.
When I spoke to some of the servicers, it did not seem to matter that me leaving my job was voluntary (I can see light bulbs going on in people’s heads reading this!) However, three months after I left my job, the position was eliminated, so I would be sure to include that.
I’ll be writing more about our adventures with a possible loan modification in the future…. so stay tuned!
I am hoping to modify my mortgage because it currently takes up 51% of our gross income. We definitely qualify for a modification according to the numbers, but, we haven’t suffered any life changing event such as a job loss, loss of work hours, or sickness.
The hardship criteria is based on “are you having trouble paying your mortgage?” not necessarily a life event.
Here are all the types of hardship from the supplemental directive. You’ll notice that only the first four reasons reference a change of events. Options 5 and 6 reference a shortage of money, but no “life event” so there appears to be a lot of room in the hardship definition.
Hardship Affidavit
Every borrower and co-borrower seeking a modification, whether in default or not, must sign a Hardship Affidavit that attests to and describes one or more of the following types of hardship:
- A reduction in or loss of income that was supporting the mortgage.
- A change in household financial circumstances.
- A recent or upcoming increase in the monthly mortgage payment.
- An increase in other expenses.
- A lack of sufficient cash reserves to maintain payment on the mortgage and cover basic living expenses at the same time. Cash reserves include assets such as cash, savings, money market funds, marketable stocks or bonds (excluding retirement accounts and assets that serve as emergency fund – generally equal to three times the
borrower’s monthly debt payments).- Excessive monthly debt payments and overextension with creditors, e.g., the borrower was required to use credit cards, a home equity loan, or other credit to make the mortgage payment.
- Other reasons for hardship detailed by the borrower.
Making Home Affordable Lender Information
Want to find out all the other details about Making Home Affordable? Check out the materials and website that are targeted to the lenders: