Mortgage Rewritten to Homes Current Value

Homes in my area have decreased in value. How can I get my mortgage rewritten to its current value?

2 Answers

A decrease in a home's value does not mean your mortgage will be rewritten to the home's current value. Point in fact, in a healthy economy you would have little to no hope of getting your mortgage balance reduced; however with loan modifications in full effect, you may have this opportunity. To see if you qualify you will want to contact your lender's loss mitigation department and discuss a loan modification. To qualify you will need proof of hardship, and even with this proof, there is no guarantee your mortgage balance will be lowered.

You borrowed "x" amount of dollars, with your home as collateral. Just because the value of the collateral has decreased, does not mean you borrowed less money - you still owe "x." With that said, you may be able to lower your tax role, which is usually caluclated off of the purchase price. If the purchase price has fallen, and your home is now worth less than the tax role associated with it, file a reassessment with your county's tax assessor, and you may be able to lower this figure which will save you some money when taxes come due. This is a much more realistic option than getting your mortgage balance reduced.

The Homeowner Affordability and Stability Plan (HASP) does offer a lot of provisions for helping a wide variety of homeowners. However, a decrease in home value isn't on its own a valid reason for your lender to drop your principal balance (this is called a "cram-down"). If your property increases in value, after all, your lender doesn't get to demand that you pay more. That said, here is the short course on this plan, who it can (and can't) help, and  how you qualify for a refinance or loan modification. The rescue comes in two parts: The Home Affordable Refinance Plan and the Home Affordable Modification Plan.

Home Affordable Refinance Plan (HARP) Qualification

This plan is designed to allow homeowners who are underwater on their houses but successfully making their payments to refinance to today's lower rates. It is what's called a streamline refinance with minimal qualifying. To be eligible:

  • Your mortgage must be owned by Freddie Mac or Fannie Mae.

  • The home must be your primary residence. Not an investment or vacation property.

  • You must be in good standing (no late payments in the last 12 months) on your current home loan.

  • Your refinanced first mortgage can't exceed 105% of your home's current appraised value.

Home Affordable Modification Plan (HAMP) Qualification This program is for homeowners in trouble--those whose mortgage payment is unreasonably high for their income. To be eligible:

  • Your housing costs must exceed 31% of your gross income.

  • The unpaid balance of your mortgage must be below $729,750 (multifamily homes have a higher limit).

  • You may be required to attend credit counseling sessions if you have a lot of consumer debt.

  • Modification takes place first by lowering the interest rate (to as low as 2% if necessary), extending the term of the loan (as long as 40 years), and finally to reducing the balance (to no less than the appraised value of the home). You must be able to realistically make a modified payment. If you have little or no income, you won't qualify.

  • Mortgage servicers are not required to make a modification if you're close to defaulting or you are at least 60 days behind on your payments. In that case, the servicer is required by law to determine if modifying your loan will generate more cash flow over five years than not modifying it. If it does, you get a modification. If not, the lender doesn't have to modify your loan and if you default it can foreclose.

These programs have been created with the goal of helping 9 million homeowners. Check with your current loan servicer to see if you might be one of them.