Mortgage loan modification: Keeps foreclosure away

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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?

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.

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.

What should you remember at the time of loan modification?

While negotiating on a mortgage modification, you should keep in mind the following points:

  1. 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.

  2. 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.

  3. 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

  4. 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.

  5. 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.

  6. Get a written agreement:   If the lender agrees to modify your loan, you should obtain a written confirmation from the lender. Mere verbal confirmation won't suffice .

  7. 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.
Not all the mortgages are ideally suited for modification. If a loan carries high rate in relation to the current market rate or if the homebuyer has a low loan-to-value (LTV) ratio, then it may be appropriate to modify a loan.

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.


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Last updated on December 1, 2013

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Mini Profile  spyne




Joined: 13 Nov 2007
Posts: 3

20.79 Dollars($)
Post     Post subject: Loan Modification to keep away from mortgage foreclosure

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.
Michel12


Guest




Post     Post subject:

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?
Mini Profile  spyne




Joined: 13 Nov 2007
Posts: 3

20.79 Dollars($)
Post     Post subject: modifying loan - does it hurt?

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.
Mini Profile  spyne




Joined: 13 Nov 2007
Posts: 3

20.79 Dollars($)
Post     Post subject: loan modification problem

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......
Mini Profile  larry




Joined: 27 Jun 2007
Posts: 3322

474.68 Dollars($)
Post     Post subject: loan modification and credit score

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 does a loan modification work? 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
JohnJ


Guest




Post     Post subject: loan modifications

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.
ran1234


Guest




Post     Post subject: 1040 form required for loan modification?

How to qualify for modification? Does lender requires filed 1040 tax forms as part of mortgage loan modification? Thanks, Ron
Mini Profile  sara

sara
Moderator

Joined: 05 Jul 2006
Posts: 3236
Location: New Brunswick, New Jersey
581.38 Dollars($)
Post     Post subject: RE: form 1040 for modification

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?
momo


Guest




Post     Post subject: Compensation for loan modification

How a Real Estate broker or a mortgage company get paid if they performe ( help ) a modification on behalf of a borrower?
baljit


Guest




Post     Post subject: broker paid for loan modification?

my broker is currently helping me with my loan modfication, will they get paid by doing so?
Mini Profile  jameshogg

jameshogg


Joined: 20 Dec 2005
Posts: 12160
Location: Nevada
1221.50 Dollars($)
Post     Post subject: RE: lender/broker get paid for loan modification

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
HELP


Guest




Post     Post subject: loan modification- what if you cant pay upfront?

WHAT IF YOU DON'T HAVE THE MONEY THEY ASK FOR UPFRONT ONCE THE LOAN HAS BEEN MODIFIED
Guest







Post     Post subject:

WHAT IF AFTER i GET THE MODIFIED PAPER WORK i CAN'T PAY THE UP FRONT PAYMENT
Mini Profile  smithsussane

smith.sussane


Joined: 18 Sep 2008
Posts: 12593
Location: Alaska
1309.02 Dollars($)
Post     Post subject:

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
eulyth


Guest




Post     Post subject: wells fargo - how loan modification works

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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