Changes To Refinance Rules May Help Chicago Residents Modify Upside Down Loans

14-Nov-2011 One of the biggest problems facing homeowners is that when home values dropped many people were left owing far more on their mortgages than their home is actually worth. This makes the idea of walking away from the debt of the home very appealing. In the past people with this type of loan situation were not eligible to refinance. 

According to the Chicago Tribune the Obama administration has reworked The Home Affordable Modification Program, a program that will help homeowners refinance even if they are upside down on their mortgage. In the past there has been little competition between lenders to help homeowners refinance existing mortgages. This voluntary program offers lenders an incentive to work with upside down homeowners because the new system will eliminate lender warranties. The government believes that creating a reason for banks to compete for people to refinance with them will improve the situation for borrowers.

The article in the Chicago Tribune stated that since the peak of home values in September of 2006 they have dropped 30% in Chicago. In the past you were unable to refinance with a loan to value ratio of more than 125%.

The program has also been extended from June 2012 to the end of 2013.

Program details are going to be sent to lenders on November 15th. However it will still take some time to get things up and running. Lenders will have to determine what requirements they may need to meet in order to offer this program to customers.

One requirement that homeowners should be aware of this that this program is only available to borrowers who are current on their mortgage and they cannot have had more than one late payment in the last 12 months. They cannot have used the government's HARP program in the past. The loans have to have originated before May 31, 2009 and have a loan to value ratio higher than 80%. The program is only applicable to Fannie and Freddie mortgages however it is hoped that the program will make it easier for borrowers who have loans backed by other lenders as well.

A foreclosure attorney in Chicago will tell you that because this program is for people who are upside down on their home but still current on payments it is probably not going to help anyone stop foreclosure. However it can help them save a great deal of money. The government hopes that these families will use that money to further stimulate the economy by spending it elsewhere.

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