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If you're unable to manage your mortgage or you're already behind on payments, try negotiating a workout plan with your lender in order to avoid foreclosure. There are a variety of programs available that will help you avoid foreclosure like forbearance, deeds in lieu, short sales, mortgage loan modifications, and others.
Why choose loan modification?
- Cut down your mortgage rate
- Lower your monthly payments
- Reduce the loan balance
- Get extensions on payments
- Waive off unpaid late fees
- Convert ARM to fully amortized FRM
- Avoid foreclosure & save your home
No-obligation free consultation
Counseling & personal customized quotes for loan modification
What is a loan modification program?
Mortgage loan modification is where the lender agrees to lower your mortgage interest rate, add any late fees and penalties to the mortgage balance, and extend the term of the loan, in order to lower your monthly payments.
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.
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.
How does a loan modification work?
If you're concerned about how negotiate a loan modification, here are 7 things you should be aware of: - Review your financial situation: Prepare a Financial statement including a detailed list of your expenses (food, gas, credit cards, and other financial obligations) and calculate the average cost of each item for the past 3 months. This is important because most lenders will ask you questions on your financial situation and require you to submit a Financial Statement.
- Hardship letter: Prepare a Hardship letter that explains why you are unable to pay your current monthly payments and why you need to modify your loan. Learn how to write a hardship letter.
- Collect documents: You need to gather certain documents for the lender to review when you request a mortgage modification. The documents are:
- Paystubs and bank statements for past 2 months.
- W-2 Form for last 2 years if you are or were employed.
- Form 1040 for last 2 years if you're self-employed.
- Rental Agreement if the loan is not on your primary home.
- Most recent mortgage statement
- Property tax statements if the property tax is not included in your mortgage payments.
- Contact your lender: Call the lender and make them aware of your situation. It is easier to get a home loan modification if you're behind on payments. However this will also increase your chances of losing your home in foreclosure. Some lenders are willing to discuss and approve a loan modification even if you are not behind on your payments but are unsure that you can keep up with the payments.
- Fill out paperwork: Once the lender agrees to discuss a mortgage modification, the lender will send an information packet and a financial worksheet for you to calculate your expenses. You need to attach all the documents you've collected along with these documents. These documents will help lender assess your financial situation and decide whether you can pay your mortgage after the home loan 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.
- Written Agreement: Once the lender reviews your paperwork, he may verbally agree to modify your loan. You should always insist that the lender send you a written confirmation of the agreement to modify the loan along with approval written statement of the lender's loan modification offer.
- Stop gap repayment plan: Once you accept the offer, the lender may want you to start off with a stop gap repayment plan till the mortgage modification goes through. This lasts for a maximum of 60 days, during which the lender reviews your loan status, financial statement, and documents in order to assess the risks in modifying your loan. Alternatively, the lender may ask you to pay an upfront fee, almost like a second down payment in order to restart your loan.
Home loan modification may be offered alone or as a part of a forbearance. However, not all loans are appropriate for mortgage modification. Loans that are typically modified are those that have interest rates above market rates or have a lower loan-to-value ratio and mature term. Do you need professional help?
If you cannot negotiate mortgage loan modification on your own, an attorney or a credit counselor can help you. Your attorney should have a good background and ensure that you get a fast response from the lender.
What happens once you've gotten a mortgage modification?
- You'll be current on the loan.
- If you have an ARM, modification may help you convert it into a fixed rate fully amortized loan.
- The entire PITI (principal, interest, escrow items, like tax and insurance payments, etc) may or may not be added to the current loan balance.
- Any administrative fees resulting from cancellation of foreclosure may be added to the loan balance.
- The modified principal balance can exceed 100% loan-to-value or the original principal balance if any dues are added.
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. Every time you default, your chances of losing your home in a foreclosure will increase. Related Readings
Related Forum Discussions
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spyne
Joined: 13 Nov 2007
Posts: 3
20.15 Dollars($)
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Post subject: Loan Modification to keep away from mortgage foreclosure |
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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 $105 a month. THere is no way I can afford this. I thought a mortgage modification is supposed to help not hurt?? Any ideas on what I should do, I am very confused and lost. THanks in advance. |
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Michel12
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Hi,
I think you should contact your lender immediately and ask for the details of how the mortgage has been calculated. What seems to me is, you have good amount of dues on your mortgage, which have been added to your existing loan balance. That's the reason your monthly payments have increased. But I'm not getting why the lender has offset payments for the past 2 years. Why did you sign the doc prior to asking the lender. I suppose he has sent you the letter after the payments were decided upon, isn't it?
| Quote: | | I thought a mortgage modification is supposed to help not hurt?? |
Mortgage loan modifications help one stop foreclosure on his home. But it may not be suitable for all. It depends upon the borrower's situation as to whether a modification would suit him better. Loan modification hurts if payments are raised instead of being lowered. So, one needs to understand the plan he's being offered. Then only he should sign on the paperwork sent by the lender.
Did the lender provide you with a written document that you will be regular once you pay the 3 good faith payments? |
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spyne
Joined: 13 Nov 2007
Posts: 3
20.15 Dollars($)
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Post subject: modifying loan - does it hurt? |
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| I already paid the 3 good faith payments. THey sent me the full mortgage modification document that I am supposed to sign and send back in with in 5 days. I did call them when I received the information and the first girl I talked with was not answering my questions so I asked to speak with supervisor. I was very calm and collected and from the onset of this call with the supervisor he was VERY argumentative to me to the point where I said he was starting to get me angry due to his tone. They never contacted me after I made the last good faith payment and just sent me this document. It puts me back at 360 months and added almost 6,000 dollars to my principal and raised my monthly payment at the same time. I'm just not sure what is going on because I was not able to get ANY information or questions answered when I called. |
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spyne
Joined: 13 Nov 2007
Posts: 3
20.15 Dollars($)
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Post subject: loan modification problem |
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| Well that is the problem with the current modification. It is going to be extremely difficult to afford the upward payment now. THe only info I can tell from the document is that I am $1400 past due. I just can not seem to figure out where the other 4600 came from. The guy on the phone told me it was due to costs for basically re-doing the loan. Feels like I am paying for closing costs again...... |
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larry
Joined: 27 Jun 2007
Posts: 3322
474.67 Dollars($)
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Post subject: loan modification and credit score |
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Hi,
Before taking a decision you need to consider what is the best option for you and what you can afford. If you find that mortgage modification is hurting you rather than helping you, why would you go for it?
Do you know how mortgage loan modification may help you? The best thing is that you can avoid the foreclosure. Thus you can save your credit score falling down drastically. If you go through the foreclosure proceeding, your credit will drop 200 to 300 points and it will be shown on you credit report for the 7 to 10 years. Above all, you might not be able to get any loan in coming 2 or 3 years. Loan modification will not hurt your credit score, unless your have defaulted your payments for more than 3 months. If you defalut your mortgage payments for more than 3 months and the lender reports it to the credit bureau, then your credit score may get reduced by few points.
Thanks,
Larry |
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JohnJ
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Post subject: loan modifications |
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You could also be paying for attorney fees. If you were three months behind, you may have been in foreclosure, which will add a signficant amount of cost to your loan. This would also be indicated on your credit report. Which could limit your other options.
Good luck. |
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ran1234
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Post subject: 1040 form required for loan modification? |
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| How to qualify for modification? Does lender requires filed 1040 tax forms as part of mortgage loan modification? Thanks, Ron |
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sara
Moderator
Joined: 05 Jul 2006
Posts: 2642
Location: New Brunswick, New Jersey
488.01 Dollars($)
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Post subject: RE: form 1040 for modification |
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Hi ran,
In order to qualify for loan modification, you will have to fulfill certain conditions. You can refer to the "Are you eligible for mortgage modifications?" section in the above article and get to know about them.
Lenders may check form 1040 when you request for loan modification. But aren't you able to show your paystubs for the past 2 months? |
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momo
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Post subject: Compensation for loan modification |
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| How a Real Estate broker or a mortgage company get paid if they performe ( help ) a modification on behalf of a borrower? |
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baljit
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Post subject: broker paid for loan modification? |
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| my broker is currently helping me with my loan modfication, will they get paid by doing so? |
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jameshogg
Joined: 20 Dec 2005
Posts: 10144
Location: Nevada
941.32 Dollars($)
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Post subject: RE: lender/broker get paid for loan modification |
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Hi Momo and baljit,
Welcome to forums.
It's the loss mitigation department of a mortgage company or broker (who's also a lender) company that works with the borrower for a loan modification program. And the company gets the money it has invested on the borrower's property provided the latter is able to follow the modification plan in a proper way.
By the way, do you wish to know if you need to pay the broker for loan modification? well, this depends on the lender/broker you're dealing with.
Thanks |
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HELP
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Post subject: loan modification- what if you cant pay upfront? |
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| WHAT IF YOU DON'T HAVE THE MONEY THEY ASK FOR UPFRONT ONCE THE LOAN HAS BEEN MODIFIED |
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Post subject: |
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| WHAT IF AFTER i GET THE MODIFIED PAPER WORK i CAN'T PAY THE UP FRONT PAYMENT |
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smithsussane
Joined: 18 Sep 2008
Posts: 10020
Location: Alaska
917.78 Dollars($)
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Post subject: |
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Hi Guest!
Welcome to the forums!
You will have to immediately contact the lender and consult with him. If you are unable to pay then it can be taken as a default and the lender can foreclose your house.
Feel free to ask if you have further queries.
Sussane |
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eulyth
Guest
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Post subject: wells fargo - how loan modification works |
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I sent the papers back unacceptable
on the modification. It did not help
lower my payment. I owe 210,000 on
an 87,000home. I do not care what they do I will not pay that money! Wells fargo told me when I bought the home it was worth 250,000 so I
gave 25,000 down and now they say
sorry!!! My credit score was 800 until
this is happening. My income is 50% lower than when I purchased the home. I followed all the steps hardship letter, profit & loss sent to
loss mitigation and was assigned a negotiator who called and said we
have an agreement for you. I want
4.5 interest for 40 years I got a reduction of 60.00 a month if I send
5800 dollars. How does this modification work. plus my mtg is not
owned by wells fargo. Please explain
what you can to me. Thanks |
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