Americans’ mortgage modification options


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Dear Dr. Don,
We are in the seventh year of a 30-year mortgage. We pay interest only for the first 10 years. We are sweating because the house is worth around $550,000, but we owe $480,000 on the first mortgage and $80,000 on the second. So the total owed is $10,000 above the actual value.

We have talked to numerous mortgage companies and have also looked into credit counseling. Ironically, it seems no counselors want to talk with us because we have never missed a payment. We haven’t even been late.

Do you have any advice on how we can keep our current $3,900 monthly payment from going above $5,000? Help!

— Katie Conundrum

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Dear Katie,
If your loans qualify, your best alternatives likely involve the federal government’s Making Home Affordable program, or MHA. Modifying the first mortgage under the Home Affordable Modification Program (also known as HAMP), and doing a Second Lien Modification Program (2MP for short) would restructure your loans and help you avoid the looming increase in the payment on your first mortgage.

Another option involves the Federal Housing Administration refinancing for borrowers with negative equity combined with the Treasury/FHA Second Lien Program. Details about these two programs are available on the government’s Making Home Affordable website.

Here’s what the site says about the FHA programs:

“If you have a second mortgage and your first mortgage servicer agrees to participate in FHA Short Refinance, you may be eligible to have your second mortgage on the same home reduced or eliminated through the FHA Second Lien Program (FHA2LP). If your second mortgage servicer agrees to participate, the total amount of your mortgage debt after the refinance cannot exceed 115 percent of your home’s current value.”

One of these two programs might work for your situation. I’d urge you to look quickly. These programs are scheduled to end in late 2016. So, you have a two-year window to take advantage of the modification programs. During that time, it is possible that the price of your home might also rise. Here’s hoping you have built up some equity in the property by then.

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