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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
I ask for a loan modifacition 5 year ago i recieved it and it were not what i wanted , being 1 payment behind i wanted to lower my interest rate it didn't work that way i went from a 28 year loan to a 45 year loan and everthing is the same 9.5 interest with 20 more years attached and no closing papers from the remodification no closing papers from the orginal ;lender of 7 years ago and $6000 add on to the balance of my loan
Posted on: 18th Dec, 2012 02:51 pm
Hi quickswitch,

If you're not satisfied with the loan modification offered to you, then you can reject it and apply for a new one. Or you can continue paying as per your previous payment plan.

Thanks
Posted on: 18th Dec, 2012 09:09 pm
my ex wife filled bankruptcy and filled a quit claim deed. it took me 3 years to get the lender to get me a loan mod trial period and i have the house.the lender still has my ex wife name first on the mod papers and she will not sign her name on the docs when they come in. i do not want to put my name on a doc that she is required to sign. can i have her name taken of of the mod docs after i have made all of my trial payments? or see if the lender is willing to remove her name before i start the trial payments. since she went bankrupt on the house, dose the lender have to have her sign? i was told only a legal council only can set up a mediation meeting at a cost of $1500.00 with the lender to make this happen. i live in wash. state and it follows the 2011 wash. foreclosure act. i only have a 5 day window to set this up. what do i do next?
Posted on: 12th Mar, 2013 03:24 pm
Hi Gerrad,

A loan modification won't help you in taking off her name from the mortgage docs. Nevertheless, you can contact the lender and the legal council and check out if they can really help in this matter.

Thanks
Posted on: 12th Mar, 2013 10:52 pm
As you are the worlds largest mortgage community, can you tell me, do you, or will you deal with customers in the UK to re-finance a skirted park home.
Thanking you in anticipation
Kind Regards
John
Posted on: 20th Mar, 2013 05:16 am
Hi JT!

Welcome to the forums!

This is a community which will help you with suggestions regarding your mortgage or other financial queries. This community does not offer loans.

Feel free to ask if you've further queries.

Sussane
Posted on: 20th Mar, 2013 10:03 pm
I have had a modification over a year ago . I had my wages garnished and they take 25% of my income currentky ( trust tax - and cant not reduce) . I fell behind on my modified mortgage and have been placed into foreclosure . I have resubmitted paper work for another modification - what are the chances of getting help with this situation ?. My wage garnishment will be completed in july 2013 .
Posted on: 30th Mar, 2013 11:54 am
Hi Guest,

It will be completely the lender's discretion as to whether or not the lender will consider your request and help you modify the loan.

Thanks
Posted on: 31st Mar, 2013 11:09 pm
I heard that the Harp 3 bill has gone through is that true. I have a Wheda loan and I have talked to people and said that Wheda can not stop you from getting a loan modification. Is that true because I have talked with people who had Wheda and lost their homes. I have called them and they were not nice when I asked to do a loan modification. The lady told me that she don't care if I lose my home and out on the street with my mother who is in a wheel chair. I have been in this house for 7 years. How is it that Wheda can get away with not helping their customers. Don't you think that thay would want to help them. I heard that they have foreclosed on over a 1,000 homes last year along.
Posted on: 13th Jun, 2013 12:55 pm
Hi Denise,

A similar query has been replied to in the given page:
http://www.mortgagefit.com/Mortgage-Basics/harp3.html

Thanks
Posted on: 13th Jun, 2013 10:11 pm
I'm including a brief history to give you an idea of the scope of our unique and insane situation:
My husband bought this house in1998 along with his parents and X-wife.They were all on the title and all held ownership as tenants in common.His name and his X wife's name were on the actual loan payments as the borrowers and his parents as the co-borrowers.My husband did not have any legal representation at the time of the closing. His parents had their own attorney who handled everything.

During the years that followed he made all his payments on time.In 1999 my husbands X-wife who had been emotionally unstable for years ended up leaving him and abandoning him with 2 sets of twins. My husband filed for divorce in 2001 and since she never showed up to court-(she defaulted )the courts awarded her portion of the property to my husband and a new deed was filed in the county.At that time he continued to make payments on the mortgage which included the taxes and continued to share ownership of the house with his parents.I found it odd that his name never appeared on the Tax bill or the homeowners insurance bill -both bills were only under both his parents' names. We had been dating since 2000 and decided to get married In February of 2002-shortly after our nightmare began. His mother began trying to dictate how the children should be raised, and interfered in all forms of discipline. She even went as far as threatening to call CPS on my husband for putting one of the boys in time out "on a school night"! In July of 2002, my husband was layed off after a company merger and lost his job of 9 years. My husband was suffering from severe migraine headaches and high blood pressure due to the stress of being unemployed along with the ongoing conflicts he continued to have with his mother. He began to have panic attacks due to the high levels of anxiety he was experiencing. After he began started showing signs of serious clinical depression he started going to therapy and began taking anti depressives. Following his therapist's recommendations he asked his mother if she would attend therapy with him to try to work on a healthier way of communicating. After she flat out-refused he made the decision to stop speaking to her entirely..it was a matter of survival at that point since it was the only way he would be able to preserve his sanity....

His mother continued to show up every morning at the school to see her grandkids and if he even dared to approach her and ask what she was doing there she would become verbally abusive towards him in the presence of his children and cause a huge scene. She then attempted to take us to court asserting her rights as a grandparent and get grandparents visits through the courts. She lost the case and was denied any visits. Still her harrasment continued almostt on a daily basis. It became so intolerable that we had to begin filing police reports against her and we even attempted to get a restraining order against her at the County court house at one point. During this time, my husband was collecting unemployment and still struggling to make ends meet. This was the first time he had fallen behind on the mortgage payments and received a letter of default from Chase.Shortly after that he received a letter from his parent's attorney stating that they had payed 2 months that were behind to protect their credit, but he would have to pay them back or he would discuss with his parents other options to pursue
My husband called Chase to try to refinance and take his wife's name off his loan payments.He was told by Chase that his "parents" would have to "agree" to refinance the loan and sign off on the documents in order to proceed. Chase told us that they did not have any record of his parents ever being co-signers on the mortgage, and their records indicated they were co-owners so it meant Chase needed their approval on anything relating to the property(although their names appear on original loan as cosigners and Co borrowers)we had a Realtor appraise the house and learned the Value of the house had nearly doubled.We figured selling would be the perfect opportunity for us to have a fresh start, pay off all our debts, and move as far away from his mother as we could! But again, we were told we had to get the" OK" from his parents because they were co-owners on the home. His parents refused to cooperate and agree to sell. Meanwhile we continued to struggle to pay our bills and default on our mortgage payments. At that point we looked into getting a mediator to help us reach out to his parents and explain the urgency of our situation. HIs parents initially agreed to "allow" us to refinance the loan but they did everything in their power to delay the process. The documents had to be rewritten several times until they finally agreed to go along with everything. As a result of that delay, my husbands credit score dropped even more and as a result we were told we would have to get a higher rate. His mother insisted that both her and husband remain on the title...but refused to remain on the mortgage. We were then told I "had" to be on the title of the house as well because we were married and the law "required" it. I personally, did not want to share ownership of the property with his parents-mostly because they are just CRAZY and TOXIC .Besides the fact that i was a housewife and had no income, i did not understand why i even had to be involved in anything at all? But we were assured by the agent that it was just "protocol", and I wouldn't be involved with the loan in any way. In addition, unless i agreed to these term, they would not be able to refinance or proceed. My gut feeling told me not to sign anything, but at the time it seemed as if we had no other options.
At no time whatsoever were we advised that the mortgage loan being processed was not our best interest since our payments would be much higher and the terms of the mortgage loan being processed would result in a certain default given my husbands limited income and ability to pay at the time. Nor were we aware that we were actually "paying off" the original loan as well as being charged 9,000 dollars in settlement fees.
Additionally, a notary was not present to witness our signatures.However his parents had hired their own account executive to oversee things. We never met with them or spoke to them, his mother dealt with them on her own.We reposed trust and confidence in them, especially given that we were not and are not mortgage lenders, mortgage brokers, or mortgage lenders and since his parents co-owned the house, we were confident that she was helping to protect her interests as well. Had we known of the falsity of their representations, we would not have entered into the transactions at all.We never thought for a moment that his parents would use the situation to their advantage, but that was exactly what happened.We had started the process in October of 2006 but it wasn't until January 2007 that his mother agreed to proceed and all the papers were signed.

Our payments went up from $1200 to almost $1700 a month .We did ok for a while but in June of 2007 my husbands last Temporary work ended, we hit another roadblock and began to fall back on payments again.He contacted Chase immediately and explained the situation but was told at the time unless he was working again, they couldn't help us. His parents continued to refuse to help contribute to the mortgage, or to allow us to sell the property. In March of 2008 we received another letter of default from the lender.At that point we were offered a loan modification and filled out the application to begin the process. We decided that if we were not approved then our only recourse would be to save as much as possible until the unavoidable...
In November of 2007, we were shocked to learn that his parents decided they no longer wanted ownership of the property and dropped off a receipt stating they had transferred their ownership to my husband.They did not inform us about this until after it had already been done. At the time, her actions seemed odd to me but i gave her the benefit of doubt believing maybe she was trying to rebuild her relationship with my husband???
Almost immediately after she filed this new deed we were served with a copy of a civil action foreclosure complaint on January 4,2008. The documents named My husband,his X wife, Myself and his parents as the defendants.The documents further stated that the terms on the loan stated that there should be "no transfer of ownership" without Lenders prior knowledge or approval.It also stated that there had been an "oversight" or a "mistake" on the part of the parties involved during the closing since the failure to obtain the signatures of my husband or his x wife as it was clearly intended that the interest of my husband and his x wife would be subordinate to and subject to the mortgage given by my husbands parents,my husband and myself?
We tapped into our savings and spent 3000 to hire a lawyer to help us sort everything out.It was at this time that we were made aware that when we had refinanced Chase closed the prior loan. We were also charged $9,000 in court costs on a 149,000 loan. She also discovered that his parents had prepared a quit claim deed & recorded it without advising us. However she never addressed anything other than removing the 9000 in court costs and help us renegotiate with Chase to approve our loan modification. We finally got the loan mod approved and although we were told our payments were reduced significantly, we were not told that the agreement did not include adjustments for a shortage in our escrow account due to increased taxes and insurance. In the end the payments were still more than what we could afford. We were so drained from this ongoing nightmare-we just gave up.Every month we awaited receiving the dreaded foreclosure papers but to our surprise,nothing happened.

Then a few months back we received a letter from Select Portfolio Servicing Inc that stated our mortgage had been transferred to them and we should contact them to see if there were any options to explore.We thought-what do we have to lose right? So after speaking to an agent, we were told that we might be eligible for this HAM program to lower our mortgage payment.All we have to do is send them all the paperwork and wait to see if we are approved. After looking through all of the paperwork again i discovered things i had never noticed before. I have 2 sets of mortgage loans, one has his parents names and my name included-and the other only has his name. Since his parents were taken off the mortgage completely, its obvious they submitted the latter ones. Apparently the term "joint and several liability" was added to the mortgage-to my knowledge this is a term that when used instead of proportionate responsibility has led to cases in which a party with a very minor part of the responsibility unfairly shoulders the burden of damages..In addition On the Lenders instructions to closing agent it states that my husband (borrower) payed $823.00 to ATLAS TITLE AGENCY -this is the same company the account executive that my mother in law was in contact with works at. It also states he received $26,871.26 in cash. Yet, we only received a check for 16,000.00 and a 2 smaller checks totaling 4,168.00 to pay off 2 creditors. All three checks were made out to "all the Borrowers"-My husband, his parents and me. How is that even possible when his parents were never even on the mortgage to begin with according to Chase? I am not sure exactly how the puzzle pieces fit but i have a very strong feeling there was some fraud committed.Now having said that they underwrote the file and should have compelled due diligence at the underwriting process of the file and should have uncovered the fraud. It is usually fairly transparent, but their system propelled the fraud forward....
Which finally brings me to my questions...
1.Given all that has happened with Chase should we take advantage of this opportunity or do we have any other options at this point?
2.If we do submit all the documentation for the loan mod-should any of these issues even be mentioned on the hardship letter? The reason i ask is because I am not sure if any of it is even relevant after so many years have passed...
3.Should we bother to pursue any legal action towards my in laws for their part in this?
The entire process by which his parents denied us the ability to refinance or sell for over a year and then finally agreed to "allow" us to refinance while being advised by their account executive, placing us into a loan program which they knew we could not afford and which would result in certain default,its as if it was agreed between and among themselves to engage in the conspiracy to defraud for the common-purpose of accruing economic gains for themselves at the expense of and our detriment.The actions of my in laws were committed intentionally, willfully, wantonly, and with reckless disregard for our future.My husband's Mother is well off and has over a million dollars in assets (a business, and several properties) we believe she orchestrated all this simply to preserve her good credit and protect her estate .
4.We haven't made any payments since 2008...Are there any reasons why we haven't been contacted by Chase in the past 5 years?

I have kept a detailed file with everything described above documented,along with copies of letters, bills,court documents and anything else that could serve as evidence in the event we would ever need to use it.I am very proactive in keeping our family home and desperate to find a solution to this whole ordeal.We still have this foreclosure looming over us..and i am not even sure now of how much time we actually have left at this point.We are a blended family and have five children, two of which have disabilities. I have spent the last two years working sometimes 18 hours a day on this.I have lost more than one year of my young children's lives on this ordeal.Our lives have deteriorated from the domino affect on many aspects.We just don't know where to turn anymore for some relief.
Thank you for taking the time to read this-and if you haven't fallen asleep in the process...please respond with any advice or input.Even if its something minor, i would be grateful for any advice & your input would be greatly appreciated.

Thank you in advance and have a Blessed Day
Posted on: 08th Nov, 2013 07:32 am
Hi Dcubana,

As you have received the option of HAMP from the new lender, you should definitely take advantage of it and apply for it by sending them the documents. While writing the hardship letter, you can contact an attorney and take his opinion in order to decide whether or not you should mention anything about the fraud. You should discuss the fraud in details with your attorney who will be able to let you know whether or not you should pursue a lawsuit against them.
Posted on: 10th Nov, 2013 09:08 pm
an open mortgage loan around october 2009 i have no idea about whom do i speak with
Posted on: 14th Nov, 2013 11:34 am
Hi cirinorosa,

Your query has been replied to in the given page: http://www.mortgagefit.com/Mortgage-Basics/whom-do-i-speak-with-about-an-open-mortgage-loan-in-my-name-that-i-had-no-idea-about.html . Please take a look at it. I hope it will help you.
Posted on: 14th Nov, 2013 08:06 pm
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