@Anonymous wrote:
I was reading the FAQS on the Making Home Affordable website and this particular paragraph is confusing to me:
"If you report a hardship, your servicer will: Apply a value test to determine if the cost of the modification (including the government’s incentive payments) is less costly for the investor than not modifying the loan (loans held by borrowers who have a lot of equity or whose incomes are very low in relation to the value of their homes probably will not pass this value test)."
Questions concerning that statement:
- Would our particular loan be less or more costly than not modifying the loan? - Basically, in a modification the lender and the investor is going to lose income - you're going to be paying less interest than under the old terms of your loan. The investor and the lender are going to try to minimize the amount that they will lose in your situation. If you are in hardship and unable to pay the terms of your current mortgage, they are going to ask: what is the most profitable way out of this situation? Should we 1) modify the loan and take the lower interest payments, or 2) refuse to modify the loan and let the borrower go into foreclosure. In your case, the lender/investor might choose option 2, for a couple reasons. First, they would have to cut your interest rate down to a very low rate in order for your PITI to drop below 31% of your gross income. Second, they also know that if you default on your loan, they will probably recoup every last penny that you owe, because you have a substantial amount of equity.
- We DO have $111,000 of equity, which is 75% LTV. Is that considered "a lot of equity?" - I would have to say yes. There are many people who are underwater by a few hundred thousand dollars. The banks would lose money if they let those people go into foreclosures.
- Is our income "low in relation to the value of our home?" - Yes, your current income would probably be considered low for the value of your home and your current mortgage balance. If you applied for a mortgage of $333,000 today, even if you had $111,000 for a down payment, you probably would have a 0% chance of being approved.
Would anything about what I've told you prevent us from being approved? - As discussed already, in theory you have the equity to refinance, though you don't seem to have the income to qualify. But you also may not have the income to be approved for a modification either. There are many people who have had modifications denied because of insufficient income, despite the fact that they had legitimate hardships that led to their loss of income.
Also, will our loan servicer be able to sell our loan to a servicer that is participating? Does it work that way, or would our current servicer have no say whatsoever in who buys our loan? - If it is a new servicer that is participating in Making Home Affordable, then you might be able to swing a modification, subject to the value test and other criteria.
