Record low interest rates are no good if you can’t get the lender to give you the time of day let alone a new mortgage. Government-administered home refinancing programs are mired in red tape. There are two of them right now and none is working. Here is what awaits you and how to avoid trouble.
IMPORTANT UPDATE: In early November 2010, a federal judge granted a La Jolla homeowner by the name of Kaveh Khast his motion for a temporary restraining order…
IMPORTANT UPDATE: In early November 2010, a federal judge granted a La Jolla homeowner by the name of Kaveh Khast his motion for a temporary restraining order against Washington Mutual and JPMorganChase preventing the banks from foreclosing on his house on the grounds that the banks misled him into defaulting on his mortgage. Here is what you can do.
There is HAMP, the Home Affordable Modification Program for homeowners at imminent risk of foreclosure (see: HAMPered Recovery and the Flood of Foreclosures: Why Banks Can’t Lose) and there is HARP, the Home Affordable Refinance Program for homeowners who are insured by Fannie Mae or Freddie Mac and remain current on their payments.
On paper, if your mortgage is underwater even by as much as 25%, you may still qualify for refinancing under the Home Affordable Refinance Program (HARP) so long as you have remained current with your payments and your loan is owned by Fannie Mae or Freddie Mac. How can you find out if it is? You can check this online with Fannie Mae at fanniemae.com/loanlookup/ and with Freddie Mac at freddiemac.com/mymortgage/. Or you could call Fannie Mae at 1-800-7FANNIE and Freddie Mac at 1-800-FREDDIE (8AM to 8PM EST). But don’t get your hopes up.
Filling out your paperwork and having it notarized is just the first step in an arduous process which resembles a minefield.
Many homeowners experienced what can be only described as a pattern of abuse at the hands of their lenders. It goes something like this.
1. You ask your lender about your eligibility for mortgage refinancing under HARP. They promise to send you the paperwork and they do.
2. Some weeks later, you receive your documentation with an overview of your modified payments and other instructions. You follow all instructions to the letter, fill out the paperwork and have it notarized. Your application is soon on the way back to the lender.
3. Weeks go by without any response. You place a call with your lender and inquire about the status of your application. They tell you that you have qualified, you have been approved or something along these lines, and you should be making your modified payments.
4. Months go by while you keep making modified payments. Every now and then you call your lender with an inquiry. They tell you what you already know: you have been approved and you should keep making your modified payments. Until one day you read or hear that your application has been denied after all and you are in delinquency. Why? Because you forgot to answer a letter (one you never received).
5. Your credit rating tanks.
6. You receive a notice of default. Your lender claims that your application has been denied and you owe them the difference. You cannot prove your innocence. Now they can foreclose on you.
Unfortunately, it has happened to many people already. Don’t let this be you.
New Tricks of the Trade
It all looks good on paper. In reality, with HARP or HAMP you are setting yourself up for an uphill battle which can end up a big disappointment unless you get paranoid about pushing it through.
Do not under any circumstances count on HARP as your only strategy to stay in your home. If other applicants’ experience is any indication, the whole process can grind to a halt leaving you in limbo, or even be reversed behind your back at any time and you often cannot do anything about it. And even if you succeed, you still have to come up with the money. If you happen to make your living as a freelancer/independent contractor, the bureaucratic nightmare of HARP/HAMP can diminish your ability to keep a clear head and earn an income, because it invariably takes your focus off your business.
This is the tricky part: Even if you make your trial payments on time and you have every reason to believe that you have been approved, your application can still be denied. Some people were kicked out after having received a written confirmation. A denial at this stage can have severe consequences. Not only do your payments go all the way back up but you will be considered delinquent on the entire amount of your mortgage modification! If you weren’t behind your mortgage payments, now you officially are.
UPDATE: Two months after we published this story, a federal judge granted a La Jolla homeowner his motion for a temporary restraining order blocking Washington Mutual and JPMorganChase from foreclosing on his house on the grounds that the banks misled him into defaulting on his mortgage. If you want to use this precedent, you must be prepared. Collect evidence. There are things you can do to protect yourself:
1. Do not assume the bank is on your side. Make sure you receive a proof of delivery whenever you mail out any documents.
2. If the bank tells you to disregard a letter they sent you, ask to them to retract it in writing (and if they don’t, you know what that means). Unless you recorded the conversation, you don’t have any proof whatsoever should you act on their instructions and get into trouble. Do not let verbal promises lull you into a false sense of security.
3. In 38 states plus Washington DC you can legally tape a conversation of which you are a participant without the other party’s knowledge or consent. Even if such a recording might not be admissible in court as evidence (for example during a foreclosure hearing; a lawyer can clarify this), it could give you some leverage with the lender if things indeed do turn sour.
4. Keep meticulous records of all correspondence and also of your phone conversations, including the phone number you called, the date and time, who you spoke with and what the two of you discussed. This may not necessarily qualify as evidence either, but it will show you if your case is making any progress, if the bank is telling you the truth and whether people do what they promised they would do.
5. Don’t ask your bank about “HARP” and do not click on any HARP links in your online banking system unless you really mean to. A loan modification request which you did not intend to file could show up on your credit report anyway. (If it does, file a dispute with all major credit bureaus.)
Help from Elsewhere
HARP can help, but it can also derail your efforts to get back on your feet. You may encounter indifferent bureaucrats, frustrating delays and dig through piles of time-consuming paperwork to no end. You will write emails to people who don’t return emails and leaving voice messages for people who don’t return phone calls.
Given that there are only so much hours in a day, you may be better served by forgetting about HARP and HAMP altogether and coming up with a business plan to generate the money.
Maybe you can sell some stuff you don’t need, rent your garage as a storage place, sublet parts of your apartment or start a business from home. (Each of these strategies has its pitfalls, though.)
If all else fails, you can still try to find a buyer willing to enter into a lease option agreement (but steer clear of a wraparound mortgage!) and take over your payments for a promise that you will sell them your home at a predefined price within a certain time frame. (We are going to explore this in an upcoming report, so stay tuned.)
Unless it is your last straw to grasp at and you really are not able to make it, don’t waste your time with HARP or HAMP. But if you have already filed and you believe you have been wrongfully denied, or if you need help to curb the viciousness of your mortgage company why you wait for approval, call the Homeowner’s HOPE Hotline of HARP at 1-888-995-HOPE (4673), and ask for “MHA Help”. Get your facts here, straight from the horse’s mouth!
UPDATE: Read about the restraining order blocking Washington Mutual and JPMorganChase from foreclosing on a house on the grounds that the banks misled the borrower into defaulting on his mortgage: Escaping The HAMP/HARP Trap: Federal Judge Grants A Restraining Order To Stop A Foreclosure.