Posted on: 13th Nov, 2007 03:08am
If you're facing financial hardships and almost on the brink of foreclosure, then you can negotiate with your lender for a workout plan to avert foreclosure. You have few options available before you to avoid foreclosure. These options are deed in lieu, short sale, forbearance and of course loan modification.
- What is a loan modification program?
- Are you eligible for mortgage modifications?
- What are the different loan modification programs?
- When is loan modification right for you?
- What are the benefits of loan modification program?
- What should you remember at the time of loan modification?
- What are the outcomes of a mortgage modification?
- How much time does loan modification take?
What is a loan modification program?
Mortgage loan modification is a program where your lender agrees to reduce your mortgage rate, extend the loan term, change the type of the loan etc in order to lower down your monthly payments.
Are you eligible for mortgage modifications?
You may be eligible if:
- You're at least 3 months delinquent on the loan.
- You took out the loan more than 12 months ago.
- You have stable income.
- The property has not been sold at a sheriff's sale.
- The property is in good physical condition.
What are the different loan modification programs?
There are a few modification programs which have their unique features. Here we briefly discuss about 2 most prevalent programs.
Treasury Loan Modification Program
This program has been designed by the Obama administration in association with the US Treasury. This is a very inclusive program in the sense that it is not only helping the homeowners currently in financial difficulties but also assisting the homeowners who have lost significant equity in their homes and who are foreseeing tough financial times ahead.
Federal Housing Finance Agency Loan Modification Program
This is the newest mortgage modification program offered by the Federal Housing Finance Agency (FHFA). FHFA serves as the supervisory regulator of Freddie Mac and Fannie Mae. This program is only applicable to the mortgages held by Freddie Mac and Fannie Mae.
Treasury Loan Modification Program
This program has been designed by the Obama administration in association with the US Treasury. This is a very inclusive program in the sense that it is not only helping the homeowners currently in financial difficulties but also assisting the homeowners who have lost significant equity in their homes and who are foreseeing tough financial times ahead.
Federal Housing Finance Agency Loan Modification Program
This is the newest mortgage modification program offered by the Federal Housing Finance Agency (FHFA). FHFA serves as the supervisory regulator of Freddie Mac and Fannie Mae. This program is only applicable to the mortgages held by Freddie Mac and Fannie Mae.
When is loan modification right for you?
Loan modifications are right for you when:
- You have experienced a long-term reduction in income.
- Your monthly expenses have increased.
- You don't have enough income to pay off mortgage dues.
What are the benefits of loan modification program?
This mortgage program alters the terms and conditions of a loan that has been agreed upon between you and your lender. Some of its benefits are listed below.
1. Averts foreclosure
With this you can avoid the severe negative consequences of foreclosure and short sale.
2. Restores credit score
With this you can protect your credit score. Foreclosure damages your score badly and it remains on your credit report for around 7 years.
3. Lowers principal balance
Principal balance is the amount of the loan amount (without interest) that has to be still repaid. Sometimes, be negotiating with the lender, you can lower down the remaining principal balance.
4. Reduces rate of interest
This mortgage program may help you lower down the rate on the loan. This in turn makes payments more affordable for you.
5. Extends the loan term
Loan modification may extend the term of the loan. With extension of the loan term, rate gets lowered. This actually helps you make payments easily.
6. Converts ARM to FRM & vice versa
This offers you the chance to convert an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM) and vice-versa. You may be willing to switch to the safety of making fixed payments offered by FRM from your existing ARM. Again, the rate on your existing FRM may be too high. In such case, you may want to convert FRM to ARM.
7. Waives off late charges
Your late charges may sometimes be waived off by your lender.
1. Averts foreclosure
With this you can avoid the severe negative consequences of foreclosure and short sale.
2. Restores credit score
With this you can protect your credit score. Foreclosure damages your score badly and it remains on your credit report for around 7 years.
3. Lowers principal balance
Principal balance is the amount of the loan amount (without interest) that has to be still repaid. Sometimes, be negotiating with the lender, you can lower down the remaining principal balance.
4. Reduces rate of interest
This mortgage program may help you lower down the rate on the loan. This in turn makes payments more affordable for you.
5. Extends the loan term
Loan modification may extend the term of the loan. With extension of the loan term, rate gets lowered. This actually helps you make payments easily.
6. Converts ARM to FRM & vice versa
This offers you the chance to convert an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM) and vice-versa. You may be willing to switch to the safety of making fixed payments offered by FRM from your existing ARM. Again, the rate on your existing FRM may be too high. In such case, you may want to convert FRM to ARM.
7. Waives off late charges
Your late charges may sometimes be waived off by your lender.
What should you remember at the time of loan modification?
While negotiating on a mortgage modification, you should keep in mind the following points:
- Check out your financial health: You need to review your finances carefully. Lender may ask a personal financial statement from you. You need to keep that ready. Your financial statement should contain a comprehensive list of all your expenses such as credit card bills, utility bills, food expenses and other financial obligations. You should estimate the average expenses on each item for the 3 months in order to better assess your financial health.
- Prepare a hardship letter: In order to apply for a loan modification, you need to prepare a hardship letter . The hardship letter should satisfactorily explain the reasons behind your inability to pay off the mortgage. It should also explain why you are looking for loan modification.
- Gather necessary documents: Before offering you a mortgage modification deal, lender asks for certain documents. You need to keep these documents ready. These documents include :
- Your bank statements and pay-stubs of last 2 months
- W-2 form of last 2 years in support of your annual wage and taxes
- 1040 Form of last 2 years as a proof of annual income tax returns
- Latest mortgage statements
- Hardship letter
- Current property tax statements, if available
- Intimate your lender about your position: It is wise to intimate your lender about your financial position. If you are unable to keep up with the mortgage payments, lender may offer you a loan modification program. But, for that you need to contact your lender
- Complete the necessary paperwork: Before approving your loan modification appeal, lender sends a financial worksheet to you. You need to fill up that worksheet carefully and send it to the lender along with other necessary documents. After receiving all these, lender assesses your financial health and determines whether you can repay your mortgage after modification.
What you need to show is that you are still able to repay your mortgage even if you are not able to meet your current monthly payments. - Get a written agreement: Â If the lender agrees to modify your loan, you should obtain a written confirmation from the lender. Mere verbal confirmation won't suffice .
- Follow the stop gap repayment arrangement: If you apply for loan modification program, lender can't offer it to you with immediate effect. It requires some time (maximum of 60 days) for the lender to make the offer. This time gap is required to check your financial statements, loan status and other documents. During this time, lender wants you to follow a stop gap repayment plan.
What are the outcomes of a mortgage modification?
- You can keep up with mortgage payments.
- You can convert your ARM into a fully amortized FRM.
- The principal, interest, taxes and insurance (PITI), may be or may not be included in the current loan balance.
- If the past dues are added, the modified principal balance amount may be more than 100% of the LTV of the original principal balance.
- Modified loan balance may include administrative charges caused due to the cancellation of foreclosure.
How much time does loan modification take?
You have to wait several hours to file your loan modification appeal. When your turn comes, you have to present your case confidently. You should have all the relevant documents ready with you. This is not a very easy task.
You may have to wait for several weeks to get the final modification offer after your case gets registered. Your lender may tell you about your course of action in the meanwhile. You may be told by the lender to keep on making payments so as to qualify for loan modification. You need to follow it seriously so as to get the approval.
The purpose of loan modification is to ensure that you can better afford your mortgage payments. Make sure you don't miss payments under the modification agreement, as the lender will consider it a new default and it will be harder to negotiate a second modification. With each default, the chance of losing the home in foreclosure rises.
You may have to wait for several weeks to get the final modification offer after your case gets registered. Your lender may tell you about your course of action in the meanwhile. You may be told by the lender to keep on making payments so as to qualify for loan modification. You need to follow it seriously so as to get the approval.
The purpose of loan modification is to ensure that you can better afford your mortgage payments. Make sure you don't miss payments under the modification agreement, as the lender will consider it a new default and it will be harder to negotiate a second modification. With each default, the chance of losing the home in foreclosure rises.
Related Readings
I was out of work for 3 months back in the late spring and early summer. After I obtained a new job I spoke with my lender and they wanted me to pay a three month "good faith" payment which was only a little above my current payment. I paid those 3 "good faith" payments and now I received a loan modification letter. The letter sets my loan back to 360 months and totally offsets the 2 years I have been paying on the loan. I owed 78,000 on my home and now according to this i will now owe 84,000. THis also increased my monthly payment by over $105 a month. THere is no way I can afford this. I thought a mortgage modification is supposed to help not hurt?? Any ideas on what I should do, I am very confused and lost. THanks in advance.
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Mortgage loan modification
Can they forclose while your home is in review for loan Modification? I have a sale date of 11/12/2009 and they told me that the only way to stop a foreclosure is to pay the $ and that a review doesn't put anything on hold.
Hi Shell-RoK!
Welcome to forums!
If the lender agrees to review your home loan for loan modification purpose, then he will definitely stop the foreclosure procedure. If he is not ready to accept your request, then he won't stop the foreclosure procedure.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If the lender agrees to review your home loan for loan modification purpose, then he will definitely stop the foreclosure procedure. If he is not ready to accept your request, then he won't stop the foreclosure procedure.
Feel free to ask if you've further queries.
Sussane
Banks are refusing to do loan modifications. Even the few they have started under the "trial" period, they are continuing to foreclose. We need clear regulation and oversight with specific recommendations. Please sign a petition that will help convince the government we need transparency, and we need to have a moratorium on foreclosures.
[Link deleted as per forum rules. Thanks.]
[Link deleted as per forum rules. Thanks.]
Can I file bankruptcy while I am in the modification program or do I have to wait until the loan modification has been approved?
Though your loan modification has not been approved, you can still file bankruptcy. Once you file bankruptcy, the creditors would stop all legal actions against you to recover their debts.
can my husband obtain a home mortgage loan modification without my signature if I am on the original loan and deed?
Welcome Guest,
If your name is mentioned on the mortgage docs and property deed, then your husband would require your signatures to get a loan modification.
If your name is mentioned on the mortgage docs and property deed, then your husband would require your signatures to get a loan modification.
Comments : Indymac - have you had any success with getting Indymac loans
modified ? They turned us down once, and are known for being difficult to work
with.
Loan is $725,000 @ 6.75 %, interest only, payment is $4911/month including
escrow for taxes. Much greater than the 38% of our gross income required for
modification. Currently behind 1 month, but may fall further behind. Wife is
considering separation.
Need immediate help.
Daryl Deliman
[Email address and phone number deleted as per forum rules. Thanks.]
modified ? They turned us down once, and are known for being difficult to work
with.
Loan is $725,000 @ 6.75 %, interest only, payment is $4911/month including
escrow for taxes. Much greater than the 38% of our gross income required for
modification. Currently behind 1 month, but may fall further behind. Wife is
considering separation.
Need immediate help.
Daryl Deliman
[Email address and phone number deleted as per forum rules. Thanks.]
If you have a loan going through the federal MHA program the banks are not allowed to continue with the foreclosure process while you are in the modification process. However if you were behind on payments before starting and are denied a loan modification they are able to pick up where they left off with the foreclosure process.
Back in August my husband I a were current on our mortgage, our payments started out last September 2008 at 1400 per month and had gone up to 1550 a month by June. We were told we were 40$ short in our escrow account. Anyhow, due to the economy my husband who is self employed ran out of work and he was getting very little work on the books. We called CitiMortgage in August because we knew that our next payments would be really difficult and were hoping to qualify for the new government HAMP program. Our loan was 162,569.46. When they finally called us back, we still hadn't made a payment late, ever. The lady said that they could cut our payments down to $800 a month for four months and in November we would be able to rework our loan then. We were so excited. We paid every payment on time (stopped paying some CC's which stunk but we do what we have to).
I started calling at the beginning of November and our case worker would not answer the phone or call us back. The week before thanksgiving I googled some topics related to this and found a different number. The guy was super nice and said not to worry he'd take on our case from then on. He also informed me that our house note was now 4 months behind and in danger of foreclosure. We had received notices but were told to ignore them. At first he said they had made a mistake and then he said that she put us behind on purpose. He called back and said they had reworked the loan it would be to us by the friday after thanksgiving and we had to get it in by that Monday or else we would have a down payment. I asked him if this was part of the HAMP program because I was under the impression it was and he said no, that they do not do FHA loans in the HAMP program. I was stunned because our payments were exactly the same as they were before. We never received the paperwork and so I started calling him and he didn't get back with me for over a week. When he finally did he said we would have a down payment because we didn't get the paper work back by that Monday. I explained how could we when you didn't send it. Any how, he said it'd be here the following week, this week. I received it today and I am so disappointed. I found out the $800 we had been sending in was never applied to the principle. The loan is now for 173,045.67. It has gone up over 10K!! They added $4656 for delinquent interest and 5819$ for escrows. Had we known in the beginning that this was going to happen we would have found another option.
Is this the norm? I feel trapped in this and I guess we have to do it. Our 1550$ payments are now 1548$. Our interest rate is now 4.75 which is good because it was 6.87.
This has only hurt us. I feel betrayed.
I started calling at the beginning of November and our case worker would not answer the phone or call us back. The week before thanksgiving I googled some topics related to this and found a different number. The guy was super nice and said not to worry he'd take on our case from then on. He also informed me that our house note was now 4 months behind and in danger of foreclosure. We had received notices but were told to ignore them. At first he said they had made a mistake and then he said that she put us behind on purpose. He called back and said they had reworked the loan it would be to us by the friday after thanksgiving and we had to get it in by that Monday or else we would have a down payment. I asked him if this was part of the HAMP program because I was under the impression it was and he said no, that they do not do FHA loans in the HAMP program. I was stunned because our payments were exactly the same as they were before. We never received the paperwork and so I started calling him and he didn't get back with me for over a week. When he finally did he said we would have a down payment because we didn't get the paper work back by that Monday. I explained how could we when you didn't send it. Any how, he said it'd be here the following week, this week. I received it today and I am so disappointed. I found out the $800 we had been sending in was never applied to the principle. The loan is now for 173,045.67. It has gone up over 10K!! They added $4656 for delinquent interest and 5819$ for escrows. Had we known in the beginning that this was going to happen we would have found another option.
Is this the norm? I feel trapped in this and I guess we have to do it. Our 1550$ payments are now 1548$. Our interest rate is now 4.75 which is good because it was 6.87.
This has only hurt us. I feel betrayed.
Hi Hosed,
I can understand what you must be going through. It is the lender who did not send you the required docs which has now badly affected your mortgage payments and your home loan has gone up by $10K. I would suggest you to try and negotiate with your lender so that you can get a better plan to pay off the mortgage dues.
I can understand what you must be going through. It is the lender who did not send you the required docs which has now badly affected your mortgage payments and your home loan has gone up by $10K. I would suggest you to try and negotiate with your lender so that you can get a better plan to pay off the mortgage dues.
After 90 day a letter came in stating the loan modification was turm down
reason state fail to meet the occupied test Home Eq ask for a copy of driver license also gas and other utilities showing that the the property is owner occupied all shown was just what they ask for still turn down any advice!!!
reason state fail to meet the occupied test Home Eq ask for a copy of driver license also gas and other utilities showing that the the property is owner occupied all shown was just what they ask for still turn down any advice!!!
Hi LSBENZ,
In my opinion, you should contact the lender and clarify the whole issue. You've given sufficient proofs to the lender to let him know that the property is owner occupied. In that case, he should have accepted your request for modification.
Thanks
In my opinion, you should contact the lender and clarify the whole issue. You've given sufficient proofs to the lender to let him know that the property is owner occupied. In that case, he should have accepted your request for modification.
Thanks
My husband recently lost his job, due to layoffs. We decided to get a loan modification to help us make our monthly mortgage payments. As of today we have never been late on a payment or delinquent. My understanding of the terms with the loan modification is that even though we call in to make our payment the mortgage company will "claim" it as delinquent. So, yes we will be able to afford our monthly payments, but our credit takes a big hit. Is this the way a loan modification should work?
Hi lauraliew,
If you make regular payments as per the modified plan given to you in loan modification, it will not affect your credit score in any way. However, if you were already delinquent in your payments prior to applying for modification, then it would have affected your credit score as the lender would have reported it as late payment to the credit bureau.
Take care.
If you make regular payments as per the modified plan given to you in loan modification, it will not affect your credit score in any way. However, if you were already delinquent in your payments prior to applying for modification, then it would have affected your credit score as the lender would have reported it as late payment to the credit bureau.
Take care.