To date, mortgage modification when available involved lowering interest rates and deferring arrearage in order to lower monthly payments but without any reduction of principal toward current market value. Soon, many homeowners will find their mortgage lenders willing to reduce principal balance as part of mortgage modification. The government’s mortgage modification program known as HAMP (Home Affordable Modification Program) issued a Supplemental Directive 10-5 which encourages lenders to offer principal reduction to underwater homeowners. The Directive is effective October, 2010.
Supplemental Directive 10-5 states theat mortgage lenders must evaluate any loans being considered for mortgage modification using an alternative analysis which reduces unpaid principal to a level that helps the homeowner achieve the target monthly payment of 31% of gross monthly income. Principal can be reduced until the loan balance is 115% of current market value.
Mortgage lenders must consider modification of loans on primary residences for people 60 days delinquent in mortgage payments. It helps to understand the guidelines before discussing mortgage modification with your mortgage lender. The HAMP program rules are available on the internet. If you cannot understand the HAMP guidelines you should get help from someone in the real estate business who does understand.