Recast is a little-known, seldom-used tool in the mortgage world. But recast mortgages could be just-the-right answer to attracting more big-name servicers to the Principal Reduction Program – and helping more homeowners.
Now, many servicers — including Bank of America and Wells Fargo – offer to recast mortgages, but the practice is seldom used. Instead, loan modifications and refinancing often take center stage.
But recast offers a no-muss, no-fuss solution for homeowners, servicers and Keep Your Home California. The state-managed mortgage assistance program will begin recasting mortgages within the next several weeks after U.S. Treasury officials approved the plan in mid-July.
A recast allows a large chunk of money to lower mortgage principal without affecting the interest rate or the length of the loan. For example, if you owe $300,000 on your current mortgage and Keep Your Home California approves $75,000 to lower your principal, then your current monthly payments would be based on $225,000 and the same interest rate. Plus, no additional time is added to the mortgage.
Recast could save the average homeowner hundreds of dollars every month in mortgage payments – and thousands of dollars every year. Over the life of the loan, well, you get the idea.
Homeowners benefit with a lower monthly payment, the same interest rate and reduced principal. Some homeowners could even qualify to refinance their mortgages under the Home Affordable Modification Program (HAMP).
And servicers, basically the companies that oversee the mortgages (the ones you send the money to every month) have very little to do with the process. Under the recast plan, Keep Your Home California will handle the documentation, from checking the homeowner’s credit report to determining the value of the property.
Plus, Keep Your Home California eliminated the dollar-for-dollar match by servicers this spring, with the federally funded program accepting 100 percent of the financial roll. So, Keep Your Home California – a $2 billion, federally funded program – will commit as much as $100,000 per homeowner, handle the application and documentation, and oversee the process.
Sounds like a win-win for everyone, right? Well, we would like more servicers, especially the major players, to join the game. The more servicers enrolled in the Principal Reduction Program, the more homeowners we can help.
Currently, only Bank of America among the Big Five mortgage servicers is participating in the program.
Overall, more than 25 servicers are participating, with about 10 joining in recent weeks – including GMAC and Ocwen Loan Servicing LLC – after the elimination of the dollar-for-dollar match. But we want more servicers to enroll in the program, from the big-name banks to the community-focused credit unions.
Keep Your Home California is excited about the groundbreaking changes, with the recast model serving as a role model for other states. Now, we just need more servicers to step up to the plate – and more homeowners eligible to apply for the program.
You can get more information about the Principal Reduction Program at http://www.keepyourhomecalifornia.org/prp.htm. Also, please remember that your servicer must participate in the program in order to apply. You can check out the complete list of participating servicers at http://www.keepyourhomecalifornia.org/participating.htm.
If you would like more information about Keep Your Home California, check http://www.keepyourhomecalifornia.org/ (or http://www.conservatucasacalifornia.org/ in Spanish) or call 888-954-5337. The processing center is open 7 a.m. to 7 p.m. weekdays, and 9 a.m. to 3 p.m. Saturdays.
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