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.
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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
I spoke to the loan company today, he stated that since they started the foreclosure procedure before they got my packet that was why we got the paperwork. I asked him why did it continue "AFTER" I sent in the paperwork since the lawyer sent the paperwork well after I got my approval but that it meant they were working on it while considering it but he dodged that question. He told me when I make my first trial payment that is when they cease foreclosure actions. So even though I'm approved they can still foreclose until they receive the first payment that is due in August. The law firm not only sent us a copy on Saturday we got THREE more exact same copies today each one costing over $5.00 in postage not to mention certified mail and return receipt on two of them. why they sent way more copies then necessary is beyond me. I can understand the first two one written to me and one written to my husband, I do not understand the other copies of identical paperwork.
First my firm stopped paying overtime and I lost about 300 a month in income and a family member died who helped me meet my bills each month. At that time (one year ago) they modified me by $100.00 only. Since then I was out of work for 2 months and fell behind, took a fall and will loose all my front teeth if not taken care of. That with other serious
dental problems is almost 10,000.00. Would rather have teeth and rent and lose home though do not want to lose. Upside down mortgage about $137,000 and house might be able to sell for $60,000 maybe! What does bank need to see as a ratio on a financial statement? Bank advised they would now consider modification again, I only earn 60 a month more than all bills including mortgage and dentist for which I need 300 a month but this does not include assessments which we are looking at for roof or other emergencies or entertainment. Does include current mortgage & maintenance, drs. utilities, prescriptions, food, insurances, tolls, parking, gas, car, personalities (professional for work) Any advice?
dental problems is almost 10,000.00. Would rather have teeth and rent and lose home though do not want to lose. Upside down mortgage about $137,000 and house might be able to sell for $60,000 maybe! What does bank need to see as a ratio on a financial statement? Bank advised they would now consider modification again, I only earn 60 a month more than all bills including mortgage and dentist for which I need 300 a month but this does not include assessments which we are looking at for roof or other emergencies or entertainment. Does include current mortgage & maintenance, drs. utilities, prescriptions, food, insurances, tolls, parking, gas, car, personalities (professional for work) Any advice?
The lender will send you a loan modification package which you need to fill out and return back to the lender. You may have to include your income, expenditure and savings while filling out the documents. Depending upon your income and expenditure, the lender will let you know whether or not you would get a mortgage modification.
i'm in the middle of a divorce. i'm also trying to get the mortgage company to modify my mortgage. the mortgage company is now requesting a quit claim deed or interspousal deed transfer. we haven't gotten that far yet in the divorce proceddings . is this an expensive form to file?
Welcome Guest,
It is not very expensive to file a quit claim deed or inter-spousal deed transfer. You can contact an attorney and he will guide you in drafting and filing the deed.
It is not very expensive to file a quit claim deed or inter-spousal deed transfer. You can contact an attorney and he will guide you in drafting and filing the deed.
husband left for 3 years wife paying all bills herself husband has no contact number nor address
I am a family daycare provider. My business is done out of my home > I don't know what they really want to know on a p&l statement. I am just a small place, so don't have an accountant. How can I do one that they will accept so I can get approved for a modification. Should I include any of my house payment since I do use my home for daycare? Any help would be sooooo appreciated. Thank you
Hi!
Welcome to forums!
To nila,
If the wife wants divorce from her husband, she should contact an attorney well versed with the domestic laws of her state. The attorney will help her take the required legal steps.
To Elaine,
As you're earning a living from your home, in my opinion, you should should include it in your profit and loss statement. Also, you can contact your lender and he may guide you as to how you can fill out the statement.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
To nila,
If the wife wants divorce from her husband, she should contact an attorney well versed with the domestic laws of her state. The attorney will help her take the required legal steps.
To Elaine,
As you're earning a living from your home, in my opinion, you should should include it in your profit and loss statement. Also, you can contact your lender and he may guide you as to how you can fill out the statement.
Feel free to ask if you've further queries.
Sussane
HI!
We are behind on our mortgage for 11 months with Wells Fargo. They agreed for a loan modification, but we have to make first 4 payments before they will set up our final payment.They don't gave me an answer how much will be my final payment after the trial four months. How can i know they will not raise it to the double what i have to pay the next months? Or as I red earlier make us pay a large mount after the 4th month? Please help me!!!!
We are behind on our mortgage for 11 months with Wells Fargo. They agreed for a loan modification, but we have to make first 4 payments before they will set up our final payment.They don't gave me an answer how much will be my final payment after the trial four months. How can i know they will not raise it to the double what i have to pay the next months? Or as I red earlier make us pay a large mount after the 4th month? Please help me!!!!
Hi lilike!
Welcome to forums!
You will have to make trial payments before the lender accepts your request for permanent modification. If you make the trail payments in a proper way, the lender may consider your request for a permanent loan modification. It will depend upon your financial hardship as to what your payments will be.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You will have to make trial payments before the lender accepts your request for permanent modification. If you make the trail payments in a proper way, the lender may consider your request for a permanent loan modification. It will depend upon your financial hardship as to what your payments will be.
Feel free to ask if you've further queries.
Sussane
Thanks Sussane, so as it looks like wright now my financial situation will not going to change in the close future, this is why I was concerned if they going to raise my payments after the trial period. Do you think if i have to pay around $700 in the trial period they will keep it around this amount after the loan modification is over. I just want to make sure if my financial situation is the same they will not raise my payment to the double. I appreciate your help,thanks lilike
Hi lilike,
If you successfully pay off the dues during the trial period, there are chances that the lender will offer you a similar amount while modifying your mortgage permanently.
Thanks
If you successfully pay off the dues during the trial period, there are chances that the lender will offer you a similar amount while modifying your mortgage permanently.
Thanks
If anyone is looking to modify their loan i suggest that they look into the government HAMP program. You can deal directly with the banks but they just gave me the run around. I went with a non profit company who assisted me through the whole process. I only spent $795. (I know, its free to apply) My rep was always available when i called or would call me back and they got it done in only 4 weeks. My monthly payment dropped$600 and my interest rate went from 6.5 % to 2.5 % Whether you do yourself or you have a professional assist you at least attempt this type of modification before you do one that the bank suggest.
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Hi mortgage!
Welcome to forums!
If you're unable to pay off the mortgage dues during the trial period, then you will not qualify for a loan modification. In that case, the lender will foreclose the property.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you're unable to pay off the mortgage dues during the trial period, then you will not qualify for a loan modification. In that case, the lender will foreclose the property.
Feel free to ask if you've further queries.
Sussane
BE AWARE! If you accept a loan modification, you MUST accept an "alternate" pay schedule while your modification is being approvied.
This loan schedule is often less than what you pay, but it WILL result in 30 and 60-day overdue reports to your credit, even if you pay exactly as the bank instructs. Wells Fargo did not tell me about this, and I only found out a year later.
If you get a 60 day past due hit to your credit anyway, you might want to consider short-sales, and other things that may harm your credit, but will erase the underwater debt entirely.
This loan schedule is often less than what you pay, but it WILL result in 30 and 60-day overdue reports to your credit, even if you pay exactly as the bank instructs. Wells Fargo did not tell me about this, and I only found out a year later.
If you get a 60 day past due hit to your credit anyway, you might want to consider short-sales, and other things that may harm your credit, but will erase the underwater debt entirely.