Loan Modification Explosion

By Eric Czarnik
C & G Staff Writer

If you are struggling to pay your mortgage or at risk of going “underwater,” a new government program is casting itself as a life preserver. But experts shared varying opinions over just how much it can help Michigan families.

A new program called Making Home Affordable offers mortgage refinancing or modification to certain homeowners. About 7 million to 9 million homeowners could be eligible for the program, according to the Web site, Makinghomeaffordable.gov.

Because mortgage rates have dipped over the past few years, the plan can adjust a mortgage to make the payments more affordable to people about to go underwater.

Going underwater occurs when they owe more on their mortgage than the actual worth of their house, which can happen when home values drop significantly.

Experts say the program comes with a few requirements. In order to refinance, a homeowner must not be more than 30 days late on a payment within the last 12 months, and the loan must be insured by Fannie Mae or Freddie Mac.

For a modification, the owner must owe no more than $729,750 on a first mortgage, and the current mortgage must be from 2008 or earlier. The mortgage holder must also show proof of hardship, and the payment on a first mortgage must exceed 31 percent of gross income.

To apply for the programs, homeowners must call their mortgage lender and ask about the Making Home Affordable plan. They must also submit information on things like mortgages, income, assets, taxes, credit cards and debt.

Making Michigan affordable

The plan comes during a time when experts say the housing market is the worst in several decades. The California-based firm RealtyTrac Inc. reported in March that home foreclosures rose 30 percent in February compared to 12 months ago.

Michigan’s situation is particularly grim, recently scoring No. 6 in RealtyTrac’s top 10 ranking of states with the most foreclosures. Michigan had 12,564 foreclosures in February, an increase of 10 percent compared to the previous month alone.

Experts were divided on whether President Barack Obama’s plan is enough to prevent foreclosures and stabilize the housing market in Michigan.

Mason Miller, assistant vice president of sales at Flagstar Bank in Bloomfield Hills, pointed out that the refinancing plan was intended for people who owe between 80 percent and 105 percent of their home’s current value. He was concerned that because Michigan took some of the hardest hits with home values in the country, some metro Detroiters might not be able to benefit.

“The values here have dropped more than 5 percent,” he said. “If you paid $200,000 and your house is only worth $150,000, and say you finance 95 percent of it … this (refinancing) program is not going to be a solution for them.”

Matthew Adler, mortgage specialist with North Star Home Lending in Bingham Farms, thought the refinancing option could apply to many homes in need because most home loans are insured by Fannie Mae or Freddie Mac, with FHA loans coming in third and subprime loans being a distant fourth.

“The average Michigan resident can be helped by it,” Adler said. “A Michigan resident who bought a home over a year ago and put less than 5 percent down is probably not going to be able to take advantage of it.”

Drew Sygit, real estate expert and president of The Lending Edge in Rochester Hills, suggested that homeowners would be better served if the government did away with the appraisal process on refinancing altogether.

“They already took over Freddie Mac and Fannie Mae,” he said. “They already own the debt.”