What is a Loan Modification?

A loan modification is a process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (mortgagor and mortgagee). back up

What is the difference between a Loan Modification and Refinancing?

A loan modification is preferable to refinancing primarily due to the cost to the homeowner. Refinancing costs average between 3% to 6% of the amount financed.  For example, on a $150,000 mortgage, for example, the homeowner could pay between $4,500 to $9,000 in closing costs, attorney fees, points, appraisal fee, prepayment penalties of your current mortgage, and other costs associated with the type of mortgage you have. Additionally, you must meet credit check standards, FICO score requirements, and equity requirements. The time frame to complete refinancing is at least the same as your original loan, though (with the current mortgage industry constraints) it will probably take longer.

With a loan modification, your only external cost would be a minimal processing fee (between $200 to $500) and a title fee.  However, many lenders do not charge any fees for a modification. Also, a loan modification does not take into consideration your credit scores.  The time frame to complete a modification can range between 30 days to 120 days depending on the lender’s volume and the urgency of your situation (homes pending sale or in foreclosure are usually given a priority). back up

How do I qualify for a loan modification?

To qualify for a loan modification, the homeowner must have a source of steady income. In addition, the homeowner must be facing a current hardship.  Other additional eligibility requirements may include:

What kind of loans can be modified?

Loan modification are available for most types of loans including Arm, 80/20 HELOC, FHA, Rural Administration, VA, Freddie Mac, Fannie Mae, conventional. back up

What is a loan workout?

A loan workout is just another term for loan modification. back up

What is the most commonly approved loan modification?

The most common modification approved by lenders is modifying your adjustable rate loan that is affordable now but will not be affordable when the loan adjusts. back up

Can I reduce my principal balance with a loan modification?

While it is possible, it is not common for lenders to approve this loan modification. Except in extremely rare cases, lenders have generally not begun to offer homeowners principal reductions as of yet. There is some proposed legislation that may cause lenders to begin to do this in the near future. back up

Have you experienced and unavoidable increase in expenses? How about loss of income? You will need to demonstrate that a hardship makes it difficult for you to meet your current monthly mortgage payments. A hardship can be defined as a recent increase in your interest rate, divorce or separation, death of a spouse, loss or reduction of income, illness, military service, and job relocation. back up

Banks and other lending institutions normally do not want to foreclose on your home.  The cost to them to modify your loan is usually less than the cost of foreclosing.  This is all good news for you because it means the lender may be highly motivated to work with you on a loan workout program. back up

Once a borrower successfully negotiates a loan modification, the loan is completely brought current. If the borrower defaults on the new revised loan then the lender will have to start default and foreclosure proceedings applicable to the laws in the state the home resides. back up

What is needed from me to get the process started?

Documents relating to your financial situation, income, and mortgage details help legal professionals to draft the papers your lender requires for a need based loan modification approval. Upon receipt, the terms of the mortgage are renegotiated to reflect a lower monthly payment. Best of all, the paperwork is handled in its entirety by the professionals in charge of negotiating the deal and you are not required to attend a closing or any such meeting. back up

What happens during a Loan Modification?

During the review of a loan modification, the lender determines a payment based on a percentage of your gross monthly income.  If this payment is affordable to you based on your financial situation and cost effective to the lender/investor, your loan may be modified to that payment amount. back up

How long is the Loan Modification process?

You will see relief in as little as two weeks or a couple of months if FHA guaranteed loans are involved. In the meantime, lenders may be amenable to halting foreclosure proceedings and even the sale of a home! The added benefit of this process rests in the fact that you may be able to skip one mortgage payment and get back on your feet with your budget. Since the majority of reputable lenders prefer to have you remain a customer for life rather than selling off your home at a loss and thus not realizing the profit of the interest payments, the process is usually not delayed. back up

How long does it take to complete a loan modification?

While there is no way to determine how long it will take to complete your loan modification, once you are preapproved by our company, the whole process should be completed within 30-120 days. Sometimes it is faster than that, but that is the average timeframe back up

What happens to the past due balance when I modify?

The past due balance or balance in arrears can be wiped out by the lender but most of the time it is added to the balance of the note and the new rate is calculated at the new balance. Some lenders require a percentage of the amount in arrears to be paid in order to start negotiations for loan modification. This seems to be going away due to the number of people in default at this time. back up

How does a loan modification affect my credit?

A loan modification does affect credit but only if the borrower has been late. The loan is brought current and is shown as such on the credit report. The new loan amount and payment will be reflected on all 3 bureaus and the loan will show paid as agreed. Successful on-time payments will cause the credit score to rise over time. back up

Do all lenders have the same modification rules?

All lenders have their own rules for loan modification as well as governmental programs that they can follow when helping homeowners across America. Some of the available programs are Making Home Affordable Modification and Refiance, FDIC, and Hope Now Guidelines. These guidelines can be fond on the internet. back up

What happens if my request for modification is denied?

If a borrower's request for modification is denied the first thing to do is to find out why. Was there incomplete information? Was the negotiator overwhelmed or was there miscommunication? Communication and getting the right information is crucial. If there was missing information call and try to resubmit. If you are denied again, you may want to consider a deed in lieu of foreclosure or list the property and short sell if the balance is higher than the home’s value. back up

What are "hardships" and do I qualify?

Here is an example list of hardships that lenders consider during the loan workout process:
Adjustable Rate Mortgage Reset - Payment Stock (uncommon, but we will see more lenders accept this in the future)

Most of the time lenders bring property taxes current in a loan modification. The IRS has the right to sell the property for back taxes owed causing all lien holders to lose their entire interest in the property. HOA dues are another issue and should be part of the negotiations but are not always brought current by the lender. back up

Is the interest I pay once modified still a tax deduction?

Yes, the note is simply modified and based on the current tax codes interest up to a certain amount is deductable from federal income tax. We advise meeting with your tax professional to verify the deduction and if you qualify. back up

What happens after the loan modification term is up?

The terms on every loan modification are different but typically the loan resets after the specified term, usually 3-5 years and the balance is amortized over the remaining life of the loan at a specified interest rate. Reset rate and terms need to be considered when negotiating a loan modification. back up

In utilizing the Loan Modification option to bring an asset current, can the mortgagee include all fees and corporate advances?

Mortgagee Letter 2008-21 states in part: Legal fees and related foreclosure costs for work actually completed and applicable to the current default episode may be capitalized into the modified principal balance. back up

Can a mortgagee include late charges in the Loan Modification?

Mortgagee Letter 2008-21 states that accrued late charges should be waived by the mortgagee at the time of the Loan Modification. back up

How do I prove to my bank that I will be able to make the new house payment if they place me in a loan modification program?

The lender wants to see an accounting of all of your monthly expenses and your monthly income.  You must calculate your debt ratio so that your new housing expense (taxes, insurance and HOA included) do not exceed a certain percentage. back up

May a mortgagee perform an interior inspection of the property if they have concerns about property condition?

Yes, the mortgagee may conduct any review it deems necessary to verify that the property has no physical conditions which adversely impact the mortgagor's continued ability to support the modified mortgage payment. back up

Are mortgagees required to perform an escrow analysis when completing a Loan Modification?

Yes, mortgagees may perform a retroactive escrow analysis at the time of the Loan Modification to ensure that the delinquent payments being capitalized reflect the current escrow amount required for those months to be capitalized. back up

Can a mortgagee qualify an asset for the Loan Modification option when the mortgagor is unemployed, the spouse is employed, but the spouse name is not on the mortgage?

Based upon this scenario, the mortgagee should conduct a financial review of the household income and expenses to determine if surplus income is sufficient to meet the new modified mortgage payment, but insufficient to pay back the arrearage. Once this process has been completed the mortgagee should then consult with their legal counsel to determine if the asset is eligible for a Loan Modification since the spouse is not on the original mortgage. back up

How do I begin to discover who holds my mortgage?

The relationship between the Servicer and the Investor is governed by a private contract. To determine who your Investor is you can go to www.fanniemae.com/lookup and www.freddiemac.com/mymortgage and enter in your address.  These links will authenticate whether or not your loan is owned by Fannie Mae or Freddie Mac.  If you determine that they are not with these government agencies you can simply contact your Servicer and ask them who the Investor is on your loan. back up

Do you count the income of people who are living in the home but are not on the title?

Yes. We consider the total income of the household not just the homeowner. back up

Do I need to be delinquent or behind on my mortgage?

No, you do not need to be behind on your mortgage to qualify for loan modification under the Home Affordable Modification Program. Responsible borrowers who are struggling to remain current on their mortgage payments are eligible if they are at risk of imminent default, for example, because their mortgage payment has recently increased to a level that is not affordable. If you have had or anticipate a significant increase in your mortgage payment or you have had a significant reduction in income or have experienced some other hardship that makes you unable to pay your mortgage, contact your servicer. You will be required to document your income and expenses and provide evidence of the hardship or change in your circumstances.  There may be other modification programs designed to assist borrowers who are delinquent.  back up

Do you have any preferred lenders?

No, we work with all lenders.  The results will vary with each Lender depending on the specific details of your Lenders’ guidelines and your hardship. back up

What disqualifies a client from your program?

We cannot help people who have no source of income or have no proof of hardship. back up

What interest rates can I expect after a loan modification?

The results vary from case to case, but most of our clients have interest rates between 2.5% and 5.5%. We have also successfully negotiated on 5/1 I/O and shifted to a 30-year fixed rate mortgage. back up

Will my lender need other documents such as credit scores to assess my application?

Many lenders retrieve your credit score only to determine your monthly credit card, mortgages, student loans and installment loans payments. back up

What is foreclosure?

Home foreclosure is a process by which a lender regains a property which they have financed. Typically, this is because the borrower or homeowner is behind on house payments and is unable to catch up, often due to circumstances outside of his or her control. When the lender forecloses on the homeowner, the homeowner must move out of the house, therefore, losing all possession of the property and jeopardizing any possible equity that the homeowner may have in the home. There is a legal time frame, which varies from state to state, which determines how long the foreclosure process can take. back up

What does a notice of default mean?

A Notice of Default (N.O.D.) means that the bank has contacted an attorney and the foreclosure process has begun. They have set a date at which your home will be sold off at a public auction to the highest bidder. back up

Can you guarantee that I will be approved for a Note Modification after completing your preliminary work?

No, each Mortgage Lender and Investor has their own specific guidelines that need to be met before they approve a loan modification. back up

Can I get cash out to pay other debts?

No. Only transaction costs, such as the cost of an appraisal or title report may be included in the refinanced amount. back up

What are the interest rate and other terms?

The objective is to provide borrowers with a safe loan program with a fixed, affordable payment. Most loans modified under the plan will have a 30 or 40 year term with a fixed interest rate starting as low as 2%. back up

What documentation will I need?

Participation is mandatory for servicers of loans owned of guaranteed by Fannie Mae or Freddie Mac (Government Sponsored Enterprises or GSEs).  Participation in the Home Affordability Modification program (HAMP) is voluntary for services of non-GSE loans.  However, substantial incentives are available to servicers, investors and borrowers who complete modifications under HAMP, and most major servicers already have committed to the Program.  A current list of participating servicers is available at www.makinghomeaffordable.gov. Servicers not currently listed have until December 31, 2009 to opt into the Program.

Servicers of non-GSE loans sign a contract with Fannie Mae, as Treasury’s financial agent, through which they agree to review every potentially eligible borrower who asks to be considered for the Making Home Affordable Program.  To ensure that a borrower currently at risk of foreclosure has the opportunity to apply for a modification under HAMP, participating servicers may not proceed with a foreclosure sale until the borrower has been evaluated for a HAMP modification, if eligible, a trial modification offers has been made.  back up

Who is my loan servicer? Is that the same as my lender or investor?

Your loan servicer is the financial institution that collects your monthly mortgage payment and has the responsibility for the management and accounting of your loan. Your servicer may be the lender as well, which means they own your loan, but often times your loan is owned by a group of investors, such as pension funds or individuals who buy mutual funds.  These loans are managed by banks and other firms that specialize in investing. Your loan servicer is whom you should contact if you have any questions or concerns involving your loan. back up

What will my servicer do to determine if I qualify?

Your servicer will determine if you qualify based upon the criteria listed below:

If you answered YES to all of these questions, you may be eligible for a modification. Only your servicer will be able to tell you if you qualify. back up

What happens after five years?

If the modified interest rate is below the market rate, the modified rate will be fixed for a minimum of five years as specified in your modification agreement. Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the rate cap indicated in your modification agreement. Your rate can never be higher than the market rate as indicated in your modification agreement.  If the modified rate is at or above the market rate at the time of the modification agreement is prepared, however, the modified rate is fixed for the life of the loan. back up

How low can my interest rate go?

Treasury is providing incentives to your investor to write the interest down as low as 2%, if necessary to get to a payment that you can afford based on your income. Each borrower’s interest rate will only be reduced to a point sufficient to get the modified payment to equal 31% of the borrower’s gross monthly income.  Not all borrowers will need a rate reduction to 2 percent in order to achieve a monthly mortgage payment that is affordable.   back up

What happens if that is not enough to get to an affordable payment?

If a 2% interest rate is does not result in a payment that is affordable (31% of your gross monthly income), your servicer will:

Yes. If your servicer determines that a principal forbearance is required to get your monthly mortgage payment to an affordable level, the principal forbearance amount, sSay for example this was $20,000, would be subtracted from the amount used to calculate your monthly mortgage payment, but you would still owe the money. You would have a $20,000 balloon payment that accrues no interest and was not due until you paid off your loan, refinanced or sold your house. back up

I do not live in the house that secures the mortgage, I would like to modify. Is this mortgage eligible?

No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible under HAMP. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible.

Although non-owner occupancy residences are not eligible for HAMP, these mortgages may be eligible for a modification depending on your Servicer and/or Investor’s guidelines.  Please refer to your Servicer on non-owner occupancy residences. back up

I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?

Yes. Mortgages on two, three and four unit properties are eligible as long as you live in one unit as your primary residence. back up