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Use the HAMP standard modification waterfall to reduce your payments with a loan modification in Cleveland Ohio.

Waterfalls are beautiful in nature.   We love how they look.  We love the mist.  We love pictures of them.  We record the ancient roaring sounds of a waterfall and play them back at night to bring calm and help us fall asleep.

No one had heard of using a waterfall as a description or metaphor for any aspect of the mortgage industry until Making Home Affordable and the Home Affordable Modification Program (HAMP) came along.  Even though this term may describe one of the most essential processes to know in the HAMP program, most people do not understand it.

Loan Modification Waterfall Cleveland OH

Facing foreclosure in Cleveland Oh? Hopefully the HAMP loan modication waterfall can help you. Stick with us for more info on the standard modification waterfall.

Helping you understand the standard modification waterfall will hopefully mean if you have to climb in a bucket and go over the Niagra Falls that you make it out alive on the other end.  Not understanding the waterfall is kind of like swimming at the top of Niagra Falls and waiting to go over the edge.  You are putting yourself even more at the mercy of awesome forces (i.e. your lender).

The waterfall is really just a sequence of steps that MUST be followed in order by your lender, if you otherwise qualify for a HAMP loan modification, to reduce your payments in order to meet the “target monthly mortgage payment” standard.  Maybe the person who came up with the name waterfall was thinking of a cascading or terraced waterfalls.   Who knows.  Enough with the useless why questions and onto the HOW.

The standard modification waterfall will use the following steps, in order, to reduce your payment so that the ratio of the first mortgage payment (principal, interest, taxes and insurance- PITI) to gross borrower income is as close to 31% as possible with out being lower than 31%.  Then you will have achieved HAMP’s “target monthly mortgage payment” that the Treasury Department has deemed as a reasonable housing payment.

Standard modification waterfall sequence:

  1. Capitalize the loan amount- This basically means figure out what you owe.  It’s a little bit more complicated than you might think however and there are some rules to use for the purposes of loan modification.  Also it is important to note that the lender is not required to, but may voluntarily, reduce the balance owed at this step of the waterfall or at any of the steps. I will include a at least one blog post just discussing this element of balance reduction.  Understanding the possibilities in the standard modification waterfall will allow you to be proactive in getting a balance reduction.
  2. Reduce the interest rate- The first mandatory step to reducing payments in the HAMP program is interest rate reduction.  If interest rate reduction achieves the coveted “target monthly mortgage payment” then your lender can stop there.
  3. Extend the term and re-amortize- After taking steps to reduce the payments in by adjusting the interest rate your lender may choose to extend the period you have to pay your loan up to 40 years from the first payment of the new loan modification.
  4. Principal forbearance- After everything else has been tried and you don’t have that well beloved “target monthly mortgage payment” you can do principal forbearance.  Principle forbearance is different than principal forgiveness.  It actually involves taking a portion of the balance owed and neither requiring payments towards the principal on that amount nor charging interest on that amount.  That “forbeared” principal will typically be paid as a lump sum at the time the rest of the mortgage is paid off or whenever the home is sold.

That is a good summary of the standard modification waterfall.  This is a series on the standard modification waterfall and you will soon see more posts giving you the details so that you can keep your lenders on task.  This knowledge is vital in making sure your lender follows the guidelines in offering you a modification.  More often than not your lender will get the waterfall wrong so as to turn you down and foreclose on you.

Don’t go over the falls with out at least a wood barrel.

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Andy Morris is an Ohio real estate broker with an expertise in selling homes on a short sale. If your Ohio home is heading towards foreclosure or you owe more than your property is worth, please call Andy at 888-4-STOP-IT to see if you qualify for a short sale with your lender. Are you not in the North Eastern Ohio area? His team can negotiate short sales across the United States.

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