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Mortgage loan modification: Keeps foreclosure away

Author: Jessica Bennet
Community Mentor
Ask Jessica
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?

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.

Related Readings
Posted on: 13th Nov, 2007 03:08 am
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.
meta title: 
Mortgage loan modification
Welcome needhelpbad,

I would suggest you to follow what your lender has suggested. As far as I know, you will not need to pay dollars for a loan modification. To know what loan modification is all about, check out the given link:
http://www.mortgagefit.com/know-how/loan-modification.html
Posted on: 15th Jan, 2009 10:40 pm
we had gotten behind on our loan 1yr ago and they did a loan modifcation
now we have fallen behind again can we be approved for a new modifcation within a 12 mth period
thank you for your help
Posted on: 28th Jan, 2009 09:37 pm
It's good to hear that your lender has agreed for a loan modification and I hope now you will be able to pay off the debts.
Posted on: 29th Jan, 2009 11:37 pm
I meet all of the loan modification requirements except my mortgage is not 3 months deliquent. My loan is not deliquent at all but countrywide paid my taxes for 2 years and increased my loan payment from 960.00 to 2200.00 there is no way I can pay this new loan amount.
Posted on: 05th Feb, 2009 06:55 am
I fell behind in my payments with countrywide in June of 08 then they added house insurance premium from a escrow account i didnt have i was served foreclosure papers in Sept 08. In nov i contacted CW for loan modification i submitted paperwork as requested and today I received a letter of deniel stating that cw is not delegated by one of the investors to perform modifications on the loan and if my house is in foreclosure I will receive a notice of date of trustee sale. Now what do i do can i resubit another application for modification god i am sick to my stomach..help
Posted on: 12th Feb, 2009 08:44 pm
Welcome,

To GMA,

You can contact Countrywide and inform them about the hardship that you are facing. I don't think you need to be 3 months delinquent on the mortgage. If you are 1 month late on your payments, the lender may accept a loan modification.

To Guest,

As a foreclosure notice has been already served to you, may be that's the reason why the lender is not accepting a loan modification. In my opinion, you should try and negotiate with the lender so that he agrees to it.
Posted on: 12th Feb, 2009 10:00 pm
Does a foreclosure in Fl on an investment property legally allow the lender to take your personal residence as payment for the deficiency judgement?
Posted on: 16th Feb, 2009 11:49 pm
Hi waitejks

If you are unable to pay the deficient amount resulting from the foreclosure of the property, the lender may place a lien on your personal residence. When you sell your personal residence, the lender will have the right to claim his dues.

Thanks.
Posted on: 18th Feb, 2009 01:16 am
i am with country wide lenders i fell behide in payments, and my brother lwas laid off, i dont want to lose my house and land what do we do my brother stays in the house . i live in GA.can i remodify my loan the house was paid for and we got a secound morgage.
Posted on: 19th Feb, 2009 05:48 am
you need to contact your lender and apply for a loan modification by writing a hardship letter. if the lender accepts your request, then the loss mitigation department of the lender will contact you.
Posted on: 19th Feb, 2009 11:01 pm
my name is on a two family name mortgage and I need to get my name off. what are my options? I have been thinking of short sale but I am concern about my credit
Posted on: 26th Feb, 2009 09:20 am
My sister asked me to make her mortgage payment for her this month. I'm willing to do it one time. I don't want to be dragged into her financial mess and I wonder if writing a personal check will alert the lender to contact me for further payments. Is there any risk?
Posted on: 26th Feb, 2009 04:23 pm
hi,

to matty,

in order to get your name off the mortgage, you don't have to go for a short sale. you can ask the other person on the mortgage doc to refinance it in his/her name. once the other person refinances the mortgage, your name will be removed from it.

to guest,

i don't think there would be any risk if you pay the the mortgage dues of your sister for one month. as your name is not on the mortgage that your sister has taken, the lender will not have the legal right to claim the dues from you.

take care.
Posted on: 27th Feb, 2009 12:29 am
After 4 months trying to get a Loan Modification with Countrywide -NACA representing me, they gave me a proposal for 6.25% for 30 years including taxes & insurance paying $3.414.97 a month. NACA proposed 3.0% and CW rejected it therefore I declined the first proposal by asking if they can offer me something more affortable rate and they came back after waiting 1 month and gave me a 2nd proposal which I don't know if I should take or not, here it is: 4.5% for 2 years, than 5.0% for another 2 years and 5.5% for the remainder of the loan also including taxes and insurance but what I don't like about this is the changes, I want something to stay fixed for the remainder of the loan, What should I do? If I declined this 2nd proposal I will have to wait another month or two since they are very slow and my credit is going to be hurst since I'm now delinquent 3 month, please advise me? NACA has not been any help as I though. Please advise, I don't want to go on foreclosure if I keep waiting and maybe at the end they would not do anything for me!
Posted on: 27th Feb, 2009 09:32 am
Hi Oirizarry,

Your query has been answered in the given link:
http://www.mortgagefit.com/problems/foreclosure-modification.html#79739

Please take a look at it. I hope it will help you.

Thanks
Posted on: 27th Feb, 2009 09:58 pm
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