|
If you're unable to manage your mortgage or you're already behind on payments, try negotiating a workout plan with the lender so that you can avoid foreclosure. There are workout plans such as forbearance, deed in lieu, short sale, loan modification and others. You need to choose the one that best fits your mortgage situation.
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
What is a loan modification program?
Mortgage loan modification (home loan modification) is where the lender may lower your mortgage rate, or add any dues to the mortgage balance and extend your loan period. This is to ensure that your monthly payments are reduced.
There can also be a reduction in the principal balance you owe. The purpose is to make your payments affordable so that you can save your credit and keep your home.
When is loan modification suitable for you?
Loan modifications (mortgage modifications) are suitable 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: - The lender hasn't declared a foreclosure yet and even if he has done so, he should have removed the loan from the foreclosure status.
- You're delinquent on the loan for 3 months or more.
- The loan has been originated for more than 12 months.
- You have stable surplus income to help you pay at the modified rate/terms.
- The property is in good physical condition.
How does a loan modification work?
If you're concerned about how to do 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) in a spreadsheet and calculate the average costs on each item for the past 3 months or so. This is important because most lenders would ask you questions on your financial situation and require you to submit a Financial Statement.
- Hardship letter: Prepare a Hardship letter of not more than 2 pages wherein you'll put down why you aren't able to carry on with the usual payments and why need a loan modification. Know how to write hardship letter.
- Collect documents: You need to gather certain documents which the lender may review when you request for mortgage loan modification. The documents are:
- Paystubs and bank statements for past 2 months
- W-2 Form for last 2 years for the 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
- Contact your lender: Call up the lender and make him aware of your situation. An even better way to communicate is by sending a hardship letter. It is easier to get a home loan modification if you're behind on payments. However, you may get approved even though you're not yet late but are not sure whether you can keep up the payments.
- Fill out paperwork: Once you qualify for mortgage modification, the lender will send an information packet and a financial worksheet for you to calculate your expenses. You need to attach documents you've collected along with the worksheet. This is for your lender to assess your financial situation and interpret whether you can pay your mortgage after home loan modification.
What you need to prove by filing out the paperwork is that the loan modifications will help improve your situation and make your payments manageable.
- Written Agreement: Once the lender reviews your paperwork, he may verbally agree to modify your loan. He'll also send you a document explaining the loan modification offer for your approval.
- Stop gap repayment plan: Once you accept the offer, the lender will need you to start off a stop gap repayment plan till the mortgage modification goes through. This will go on for maximum 60 days during which the lender reviews your loan status, financial statement and documents in order to assess the risks in modifying your loan.
During the stop gap period, you need to prove that you can afford monthly payments along with other expenses after loan modifications. Only then you have a fair chance to get your loan modified.
Home loan modification may be offered alone or as a part of forbearance. However, not all loans are appropriate for mortgage modification. Loans being modified are mostly those which are above the market rates or have lower loan-to-value ratios and mature terms. Do you need professional help?
If you cannot negotiate mortgage loan modification on your own, an attorney or a loss mitigation specialist can communicate on your behalf. Your attorney should be one who has good service background and can ensure that you get a fast response from the lender. Any foreclosure action is stopped while the attorney negotiates with your lender. What happens when you're in mortgage modification?
- You'll be able to get current on the loan.
- If you have an ARM, modification may help you convert it into a fixed rate fully amortized loan.
- The lender may reduce the interest rate below the market rates.
- The entire PITI (principal, interest, escrow items such as 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. In such a case, your monthly payments are likely to go up.
The purpose of loan modification is to ensure that you can better afford the mortgage payments. But make sure you don't miss payments as the lender will consider it a new default and initiate a foreclosure on your home.
Related Readings
Related Forum Discussions
|
|
| |
|
 |
| Author |
Message |
spyne
Joined: 13 Nov 2007
Posts: 3
7.01 Dollars($)
|
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 $105 a month. THere is no way I can afford this. I thought a mortgage modification is supposed to help not hurt?? Any ideas on what I should do, I am very confused and lost. THanks in advance. |
|
|
Michel
Guest
|
|
Post subject: |
|
|
Hi,
I think you should contact your lender immediately and ask for the details of how the mortgage has been calculated. What seems to me is, you have good amount of dues on your mortgage, which have been added to your existing loan balance. That's the reason your monthly payments have increased. But I'm not getting why the lender has offset payments for the past 2 years. Why did you sign the doc prior to asking the lender. I suppose he has sent you the letter after the payments were decided upon, isn't it?
| Quote: | | I thought a mortgage modification is supposed to help not hurt?? |
A mortgage loan modification does help one stop foreclosure on his home. But it may not be suitable for all. It depends upon the borrower's situation as to whether a modification would suit him better. Loan modification hurts if payments are raised instead of being lowered. So, one needs to understand the plan he's being offered. Then only he should sign on the paperwork sent by the lender.
Did the lender provide you with a written document that you will be regular once you pay the 3 good faith payments? |
|
|
spyne
Joined: 13 Nov 2007
Posts: 3
7.01 Dollars($)
|
|
Post subject: loan modification - 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. |
|
|
spyne
Joined: 13 Nov 2007
Posts: 3
7.01 Dollars($)
|
|
Post subject: loan modification problem |
|
|
| Well that is the problem with the current loan 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 $1400 past due. I just can not seem to figure out where the other 4600 came from. The guy on the phone told me it was due to costs for basically re-doing the loan. Feels like I am paying for closing costs again...... |
|
|
larry
Joined: 27 Jun 2007
Posts: 3328
474.61 Dollars($)
|
|
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 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 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 subject: 1040 form required for loan modification? |
|
|
| How to qualify for loan modification? Does lender requires filed 1040 tax forms as part of mortgage loan modification? Thanks, Ron |
|
|
sara
Moderator
Joined: 05 Jul 2006
Posts: 1780
Location: New Brunswick, New Jersey
337.54 Dollars($)
|
|
Post subject: RE: form 1040 for loan modification |
|
|
Hi ran,
In order to qualify for loan modification, you will have to fulfill certain conditions. You can refer to the "Are you eligible for mortgage modifications?" section in the above article and get to know about them.
Lenders may check form 1040 when you request for loan modification. But aren't you able to show your paystubs for the past 2 months? |
|
|
momo
Guest
|
|
Post subject: Compensation for loan modification |
|
|
| How a Real Estate broker or a mortgage company get paid if they performe ( help ) a modification on behalf of a borrower? |
|
|
baljit
Guest
|
|
Post subject: broker paid for loan modification? |
|
|
| my broker is currently helping me with my loan modfication, will they get paid by doing so? |
|
|
jameshogg
Joined: 20 Dec 2005
Posts: 4795
Location: nevada
590.75 Dollars($)
|
|
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 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 subject: |
|
|
| WHAT IF AFTER i GET THE MODIFIED PAPER WORK i CAN'T PAY THE UP FRONT PAYMENT |
|
|
smithsussane
Joined: 18 Sep 2008
Posts: 4241
Location: Alaska
395.98 Dollars($)
|
|
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 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 |
|
|
