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Mortgage Refinancing Can Be Full Of Surprises

April 19, 2010

Many homeowners participating in the federal “Making Home Affordable” program, a federal mortgage assistance program, have found that the program benefits have not lived up to the political promises.  Homeowners have discovered that this refinance process is not only difficult, but in some cases can be destructive to their credit.


The Making Home Affordable program is a $75 billion dollar loan modification program aimed at helping homeowners refinance their mortgages to terms they can afford.  The program is actually two refinance processes: first, a refinance program for homeowners with Fannie Mae and Freddie Mac loans; and second, a modification program for everyone else.  The “everyone else” program is the “Home Affordable Modification Program” (HAMP).  Under HAMP, homeowners who have experienced financial difficultly (e.g. a job loss or high medical bills) and are struggling with their current mortgage payments can reduce their mortgage payment by lowering their interest rate up to two percent and extending the repayment period up to 40 years. 


While the promise of refinance sounds like a blessing, the process can be both slow-moving and full of unexpected surprises.  For instance, to qualify under HAMP the homeowner must, among other requirements, make all mortgage payments on time for a three-month trial period.  In essence, the program requires timely payments that you can’t afford before the loan can be modified to a payment you can afford! 


Homeowners who seek assistance under HAMP are also surprised by an immediate reduction of their credit score during the three month repayment period.  By applying for a home loan modification, you are announcing to the credit industry that you are experiencing financial difficulty.  This can lower your credit score by up to a staggering 150 points, making it difficult to obtain other types of credit including auto loans.  This initial drop can only be rectified over time.


If you are experiencing financial difficulty, educate yourself to all your legal options.  Only an attorney can advise you regarding your legal options including bankruptcy, debt settlement options, and government assistance programs.  An experienced bankruptcy attorney can help you evaluate your financial position and choose the right option for your family.



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