A new law in Michigan will try to push borrowers and lenders toward mortgage loan modifications instead of foreclosures. The law will help ensure meetings between the parties occur, and that mediation will occur as well when needed.
There will be increased disclosure requirements from banks and lenders to borrowers who are facing foreclosure, including the lender needs to provide the phone number and name of a bank representative with the authority negotiate and modify the loan. In addition, a mechanism to set up meetings and foreclosure mediation sessions between the homeowner and the homeowner is now in place, with the goal of negotiating mortgage modifications. If a borrower does decide to request a meeting, the foreclosure cannot proceed until 90 days after the initial notification occurs. The borrower can also request mediation during the foreclosure process.
Many experts, both from banks and the Michigan state government, have expressed optimism that the new law will help homeowners get a loan modifications instead of losing their home to foreclosure, and it will help ensure all possible solutions are explored.
Michigan is following some of the federal government guidelines in regards to mortgage modifications. The rules follow Federal Deposit Insurance Corp. loan workout guidelines, and the goal of the assistance is to reduce homeowners' monthly payments to only 38 percent of their total household incomes. In addition, the law specifies that interest rates can be adjusted down to 3 percent, and that repayment terms can be extended out to no more than 40 years from the date of the loan modification. The last component of the aid being offered is that up to 20 percent of loan principal can be deferred.
Some of the other key components to the new Michigan foreclosure mediation program include:
• Lenders and banks that are foreclosing need to notify borrowers of foreclosure by mail.
• This notification needs to include the name of a person from the lender who has the power to modify the mortgage, and it must also contain a list of approved housing mortgage counselors.
• If a borrower wants to meet with a lenders, they need to contact a mortgage housing counselor first. The counselor will then schedule that meeting with the lender or bank.
• Any loan modifications provided would follow the federal workout program as noted above, with the goal of the modification being to reduce the payments to 38 percent of household income by lengthening terms of the loan by up to 40 years, deferring payments, and also reducing interest rates to a floor of 3 percent.
You need to receive a written notice from your lender or bank notifying you of the foreclosure. When they send you this notice, there also needs to be a list of Michigan based housing and mortgage counselors included on the notice that provide foreclosure mediation. Click here to contact one of the Michigan HUD counselors to initiate the mediation process or to learn more about the program.
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