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
Does it state anywhere in the program for modification that the amount of the reduction from your principle will be considered taxabel income? we have a modification of $60,000 and now owe federal tax for the what is considered earned income. this is unreal...we are trying to keep our home and were thankful for the help...only to relize that we have to pay tax on the amount. How can people take a hit on income taxes with that?
Hi anonymous!
Welcome to forums!
The amount of principle debt which is forgiven will be considered as your income. Thus, the IRS will be able to charge taxes on that amount. As far as I can understand, you will have to pay taxes on that forgiven amount.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
The amount of principle debt which is forgiven will be considered as your income. Thus, the IRS will be able to charge taxes on that amount. As far as I can understand, you will have to pay taxes on that forgiven amount.
Feel free to ask if you've further queries.
Sussane
We have found a loan modification online and we are approved, we have not said anything to our bank or asked them to help us. We are not behind but our payments are so big it's getting harder and harder to pay and my husband has been out of work for over a year now. Question is do we tell or ask the bank first or go with someone we found online<
Hi Hooky,
A query similar to yours has been answered in the given page:
http://www.mortgagefit.com/problems/online-modification.html#150302
Take a look at it. I hope it would help you.
Thanks
A query similar to yours has been answered in the given page:
http://www.mortgagefit.com/problems/online-modification.html#150302
Take a look at it. I hope it would help you.
Thanks
I feel your pain, all of you. I was fortunate enough to find a company that is legitimate. Now I know that the banks the news and government say we should to any company that charges, that the banks will modify your loans for free. Well, how many of us on here have had our loans modified by the banks?
A lot have lost their homes, and lot more still will unless you do wha necessary to save your homes from the banks. I went through what most of you have, I was there. Then I was referred to Corey Lassiter of Clear Image Financial Group. They saved my home.
I know I would have lost it to Wachovia if it was for him, Tasha, Denise and the rest of the people who work there. Got me caught up on my mortgage 1st & 2nd, lowered my interested rate & payment, and secured me a 50k principle reduction.
Before anyone else on here loses their homes you need to give them a call. Don't be afraid of hiring a loan modification company, be afraid of the banks, they are the ones who are taking our homes!
I know they get the job done. News and TV made me afraid to even consider a loan modification company because they are all scams and my lender will do it for free (wrong). There hasn't been not one story about a good company and when I tried to contact my local news channel they told me that my success story wasn't news (What!)
So, I am making it my mission to spread the word on this GREAT company!
[Phone number deleted as per forum rules. Thanks.]
A lot have lost their homes, and lot more still will unless you do wha necessary to save your homes from the banks. I went through what most of you have, I was there. Then I was referred to Corey Lassiter of Clear Image Financial Group. They saved my home.
I know I would have lost it to Wachovia if it was for him, Tasha, Denise and the rest of the people who work there. Got me caught up on my mortgage 1st & 2nd, lowered my interested rate & payment, and secured me a 50k principle reduction.
Before anyone else on here loses their homes you need to give them a call. Don't be afraid of hiring a loan modification company, be afraid of the banks, they are the ones who are taking our homes!
I know they get the job done. News and TV made me afraid to even consider a loan modification company because they are all scams and my lender will do it for free (wrong). There hasn't been not one story about a good company and when I tried to contact my local news channel they told me that my success story wasn't news (What!)
So, I am making it my mission to spread the word on this GREAT company!
[Phone number deleted as per forum rules. Thanks.]
I am participating in an incredible program that I was introduced to about 4 months after my home went into foreclosure in south Florida. It is interesting how many options/solutions there really are out there, especially when a foreclosure forces you to put your attention on locating a solution. Anyway, a business associate of mine turned me on to a Program called The Home Ownership Program that helps homeowners confront their lenders to determine if the lender violated any Laws or committed any fraud in the origination of the loan. When I obtained my loan, for approx $455,000, I wasn't even employed. I told the mortgage broker that I was self employed and starting a new business, which was true, and he asked me what I thought I would be making. Based on that they issued me the loan and sure enough, the downturn in the economy sunk my business and my home ended in foreclosure. My home was worth about $150,000 less than the mortgage, and a loan modification with a principal modification was not happening, so I decided walking away through foreclosure would be the best option. Well, that is until I found The Home Onwership Program, and with their help, I have confronted my lender (via documents) and determined that they have in fact violated laws during the origination of my loan. From what I understand such violations occur in more than 90% of loans. Anyway, the end result is that I am exercising my legal remedy to cancel the mortgage providing me with clear title to my home. I can stay in the home or sell it, but the bank will not longer have a mortgage on my property. I have been involved with this for 3 months, and the final documents, The Deed of Reconveyance/Release of Mortgage is getting filed this week with my local county court recorders office. So, since I have had such a positive experience, I thought I would share that there are alternatives to Loan Modifications and Foreclosures, and The Home Ownership Program is the best one I found because it can literally change your financial life by legally giving you absolute ownership of your home in less than six months. Do the research yourself.
[Contact details deleted as per forum rules. Thanks.]
[Contact details deleted as per forum rules. Thanks.]
I am disabled, unable to live in my home and rented it. It was trashed to the cost of $3000.00 and no deposit to fall back on. I have applied at local government free pre-foreclosure counseling and debt counseling to avoid losing the house and not to go into to foreclosure. I have been turned away because I am not a "owner occupied" home. I do not see this as a pre-requesite in your eligibility above. What is the truth?
Hi Guest!
Welcome to forums!
I would suggest you to contact your lender and apply for a loan modification and check out if you can save the property. The local government free pre-foreclosure counseling may have this special criteria that one has to occupy the home in order to get the counseling. You should negotiate with your lender for a modification in order to see if he can help you. It would be a better option rather than going for a pre-foreclosure counseling with someone else.
Sussane
Welcome to forums!
I would suggest you to contact your lender and apply for a loan modification and check out if you can save the property. The local government free pre-foreclosure counseling may have this special criteria that one has to occupy the home in order to get the counseling. You should negotiate with your lender for a modification in order to see if he can help you. It would be a better option rather than going for a pre-foreclosure counseling with someone else.
Sussane
I have paid the loan modification but was denied twice. I lost my modification payment. CAn this be a tax write off?
Hi Guest,
I've given my suggestions in regards to your query at:
http://www.mortgagefit.com/problems/taxes-modification.html
Take a look at it. Hope it helps you.
Thanks
I've given my suggestions in regards to your query at:
http://www.mortgagefit.com/problems/taxes-modification.html
Take a look at it. Hope it helps you.
Thanks
I just recently went through a home loan mod and my interest rate was lowered to 2% which lowered my payment greatly. The draw back is that I now owe $290,000 instead of $274,000 and will have a 37 yr payout instead of 28 years.
Is there any relief in the new rules that would allow the principal to be lowered?
Any info would be very helpful.
Is there any relief in the new rules that would allow the principal to be lowered?
Any info would be very helpful.
Hi Steve,
Your lender will either reduce your interest rates and increase your loan or reduce your principle balance and modify your loan. As your lender has reduced your interest rates, your term of the loan payment will increase as it will help the lender recover his dues.
Take care.
Your lender will either reduce your interest rates and increase your loan or reduce your principle balance and modify your loan. As your lender has reduced your interest rates, your term of the loan payment will increase as it will help the lender recover his dues.
Take care.
Lost my job and got behind on mortgage payments. I have been trying to get a loan modification on FHA loan through Chase for the last year. Finally got modification and loan amount has increased by $27,000 which includes back payments and interest. It is a 30 year fixed at 5% but the payment is only $80. less than original. Take the mod or bail??
Hi Sheila,
If you can afford to pay off the loan after accepting the modification, then I would suggest you to go for it. This will help you in saving your property. If you are unable to pay off the loan after modification, then it's better to get rid of the property. You can apply for a deed in lieu of foreclosure and sell off the property.
Thanks
If you can afford to pay off the loan after accepting the modification, then I would suggest you to go for it. This will help you in saving your property. If you are unable to pay off the loan after modification, then it's better to get rid of the property. You can apply for a deed in lieu of foreclosure and sell off the property.
Thanks
MY LOAN MODIFICATION HAS BEEN APPROVED BUT I HAVE A VA LOAN AND VA WILL NOT LET THE BANK PUT THE ATTORNEY FEES ON THE TAIL END OF THE LOAN. SO THEY ARE ASKING ME TO PAY 7827.76 DOLLARS IN FEES. I DO NOT HAVE THAT TYPE OF MONEY UP FRONT TO GIVE. I REALLY LOVE TO KEEP MY HOME. PLEASE HELP ME.