Government Programs For Loan Modification
In the past, the Home Affordable Modification Program was the primary government program for loan modifications. Since HAMP expired, many government programs for loan modifications have arisen to replace it. Yet, for you to be eligible for these government programs, you need a government-backed loan.
The good news is the great majority of all new mortgages in America are government-backed. Banks, private mortgage companies, and credit unions “originate” most mortgages. The originators are the ones who make the mortgage loans to you. These loans may be backed by the Federal Housing Administration , the U.S. Department of Veterans Affairs , the United States Department of Agriculture , or they may not be government-backed.
It may sound strange, but these non-government-backed loans usually become government-backed in a way. Most of these private loans are sold to the Federal Nation Mortgage Association or the Federal Home Loan Mortgage Corporation . Both of these companies are publicly traded companies. That makes them private companies, right? Not exactly. These companies were created by an act of Congress and are subject to special oversight by Congress.
What Is A Mortgage Modification
A mortgage modification changes the terms of your original mortgage agreement. Your lender will work with you to try and find a way to lower your monthly payment by adjusting the terms of your current mortgage. The goal is to help you get back on track.
Lenders have several options when it comes to a mortgage loan modification. They’ll work with you to find the best solution for your situation. You may want to talk to your lender about a mortgage modification if you:
- Are in danger of falling behind on your mortgage payments
- Have already missed a payment or two
- Aren’t eligible to refinance your property
- Are facing long-term financial hardships that could make it difficult to repay your loan
Efficiency In Responding To Servicer Inquiries And Working Through The Process
If you handle the modification application process yourself, you can respond to any inquiries or requests from the servicer promptly. Loan modification companies often fail to respond to requests from the servicer, or they respond after weeks or months go by, leading to a modification denial.
Also, you’re in the best position to deal with any inquiries or requests for additional documentation. Only you know all of your particular situation’s details and have access to the paperwork that the servicer might want.
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How Do I Modify My Mortgage
Mortgage modification sounds like a magical solution, but it requires some legwork on the homeowner’s part. The mortgage modification process is essentially a negotiation with your lender, so it will take perseverance and patience.
The modification process starts with you contacting your mortgage lender, discussing the problem, and proposing a solution. The end-goal will be to reach an agreement of new terms resulting in an affordable monthly mortgage payment. An “affordable” mortgage payment is typically defined as 31% of your gross monthly income.
Before agreeing to modify your loan, your lender will require you to demonstrate financial hardship. You will need to provide a variety of different documents, including financial statements, tax returns, paystubs and other proof of income, bank statements, and a loan modification hardship letter. When assembling and submitting these documents, be vigilant and accurate. Confirm that your submission is complete and includes all requested statements. If your submission is incomplete, you risk your modification request dropping to the bottom of the pile.
Throughout the modification process, constant communication with your lender will be key. Ask questions, clarify, and stay in touch with your lender. Be persistent and follow up. This will take some effort on your part, and you may feel frustrated. However, remember the significant payoff from your efforts: financial stability and preventing a foreclosure.
What Does It Mean To Refinance Your Mortgage
You replace your existing loan with a new mortgage when you refinance. This allows you to change the terms of your loan. You can also use your equity to take cash out of your home. You might want to refinance to:
- Lengthen your mortgage term. You lower your monthly mortgage payment when you refinance to a longer mortgage term. This can help you avoid foreclosure if your income is now lower than when you got your loan.
- Shorten your term. You can also shorten your mortgage term with a refinance. Your monthly payment increases when you shorten your term. However, you own your home sooner and save money over time in interest.
- Take a lower interest rate. A refinance can help you lock in a lower rate if interest rates are lower now than when you got your loan.
- Change your loan type. It might be beneficial to refinance to a new loan type if you have more than 20% equity in your home. For example, if you have an FHA loan, youll pay for mortgage insurance throughout the life of the loan if you put less than 10% down. However, you can cancel private mortgage insurance on a conventional loan as soon as you reach 20% equity. Many homeowners refinance their FHA loan to a conventional loan after they achieve 20% equity for this same reason.
Unlike a loan modification, you dont need to refinance with your current lender. Unsatisfied with your lender? A refinance can allow you to switch to a new lenders system.
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How Can I Get A Mortgage Modification
If you’re struggling to keep up with mortgage payments and are seeking ways to avoid foreclosure, a mortgage modification could offer the help you need to stay in your home.
A mortgage modification is a change to the repayment terms on your existing home loan that lowers your monthly payment. You may be able to get a mortgage modification if you can show your lender that your financial situation has changed in a way that could permanently hinder your ability to make your payments as originally agreed.
Getting Help With A Loan Modification
In some circumstances, it’s worthwhile to get an attorney to help you in the modification process like if you’re having difficulty understanding what you need to do to complete your application, the servicer violates loss mitigation laws, or your servicer isn’t responding to you. Rather than hiring a loan modification company, consider talking to an attorney. If you can’t afford a lawyer, a legal aid organization or HUD-approved housing counselor might be able to help you for free.
How To Get A Mortgage Loan Modification
Different mortgage modification programs have different steps involved in their loan modification processes. It’s a good idea to talk to a HUD-approved housing counselor to help you understand your options before you commit to a plan of action.
The two main steps to getting any type of mortgage loan modification are to determine if you’re eligible and then apply.
There are loan modification programs available for all government-backed mortgages. Fannie Mae and Freddie Mac have the Flex Modification Program. You’re eligible for this program if you have a Fannie Mae or Freddie Mac loan. You can determine this by using this lookup tool for Fannie Mae and this tool for Freddie Mac.
The remaining eligibility requirements are:
For your principal residence, you must be 60 days past due or default must be imminent because of some event in your life, like a job loss. If it’s a second home, you must be 60 days past due.
The mortgage originated at least 12 months before the loan modification application.
You can’t currently be in another foreclosure prevention program.
The mortgage hasn’t been modified more than 2 times in the past.
You haven’t failed a Flex Modification trial within the last year. Before being granted a Flex Modification, you have a trial period wherein you prove you can make the proposed modified payments.
Mortgage Loan Modification Requirements
To be eligible for a mortgage modification, along with meeting other investor-specific guidelines, you’ll generally need to show that:
- the home is your primary residence
- you’ve gone through a financial hardship like you had to take a lower-paying job or you went through a divorce and experienced a loss of household income, and
- that you have enough steady income to make regular payments under a modification.
In most cases, you’ll have to complete a trial period plan, often for around three months, to demonstrate you can afford the new modified amount.
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Who Qualifies For Mortgage Loan Modification
To qualify for a loan modification, you have to be in default or on the edge of default. This is why its critically important that you contact your lender when your financial situation changes.
The lender can help assess your situation to see if you qualify for a loan modification. If you continue to skip payments, your lender may begin foreclosure proceedings, which can ultimately lead to you losing your home.
The main qualification for a loan modification is evidence of hardship, like a disability, job loss, new medical condition or loss of a spouse. One reviewer from Utah on our site said about their decision to get a loan modification from Flagstar Bank following job loss and medical issues: I chose to go with this route due to my family’s financial position and what would work best to allow us to get a plan of action together and get going again before getting back to paying our mortgage.”
How To Request A Loan Modification
The process for requesting a loan modification will vary depending on who manages your loan.
The first thing you need to do is contact your loan servicer. This is the company to which you send payments, and the one you need to work with to determine your options for loan modification.
Some mortgages are managed, or serviced by the original lender. But most home loans are serviced by a separate company.
For instance, you may have received the loan from Wells Fargo, but now make payments to U.S. Bank.
The loan servicer is the company that takes your monthly mortgage payments you can find yours by checking the name and contact information on your latest mortgage statement.
Many borrowers begin the process by sending a hardship letter to their servicer or lender. A hardship letter is simply a note that describes the borrowers financial difficulties and explains why they cant make payments.
The lender will likely request financial information and documentation, including bank statements, pay stubs, and proof of your assets.
These documents will help your lender understand the full scope of your personal finances and determine the correct path for mortgage relief.
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Why Should You Consider A Flex Modification
The FMP can be an excellent option for someone who is behind on their mortgage payments due to financial hardship and doesnt anticipate a change in their situation. This long-term solution can help you avoid foreclosure, which can damage your credit and uproot your life, forcing you to find another place to live.
Once you complete the trial period, a Flex Modification also brings your loan to current status, which wont negate the fact that youve been delinquent, but it can stop further damage to your credit score.
If the arrangement works with your budget, youll be able to remain in your home with less financial strain.
Qualifying For A Government Loan Modification Program
Fannie Mae and Freddie Mac, two government-sponsored agencies that back most of Americas conventional loans, offer a Flex Modification program for eligible borrowers. Generally, the program aims to reduce your monthly mortgage payment by 20%.
Heres the criteria to be approved for this type of mortgage modification:
- You have a conventional mortgage thats owned by either Fannie Mae or Freddie Mac
- The mortgage is at least 1 year old
- Your loan is a first-lien mortgage, which means your lender will be repaid first if you default on the mortgage and the bank is forced to sell your home
- The property is a primary residence, second home or investment property
- Youre at least 60 days past due on the mortgage, or your lender has determined youre no longer able to afford your monthly payment.
Additionally, your loan servicer will check that you have a regular income. Unemployed borrowers might be eligible for a different program through unemployment forbearance.
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Write A Letter Of Hardship
The final piece of your loss mitigation application: a letter of hardship. This step isnt necessary for everyone, but if one is requested of you, its helpful to know what it is and what should go in it. This document must clearly explain why youre having trouble making your mortgage payments.
When writing a letter of hardship, include:
- A header that provides your name, contact information and loan number. In the introduction, you should specify why youre seeking a loan modification.
- The body paragraph should concisely explain the circumstances that have made or will likely make you fall behind in your payments and why you cannot gain control over the situation.
- Conclude by letting the lender know youre seeking a loan modification so you can uphold your obligation and provide the name of any financial counselor youve consulted during the process.
Initial Review Of The Modification Application By The Lender
To be reviewed by the lender an application first of all is looked at for past history and if it was recently denied for a reason that is considered to be a hard denial, the application may not make it to a review. Second, the file is assessed for whether all required forms, documents and information were submitted since it needs to be deemed complete in order to be reviewed. Third, the file is given for review where the various factors are evaluated according to each lenders separate criteria.
Some of these criteria, result in different decisions by lenders. For example if a borrower is significantly above the allowable HR or DTI percentages, a lender may decide to deny an application because of lack of hardship, or in the eyes of the bank, the borrower may have defaulted intentionally. To overcome such a denial, proof of hardship must be provided. Depending on the reason for default, documentation to overcome a hardship denial may vary. However, one example would be loss of income. If a borrower claims that the reason for default is loss of employment, a borrower would half to provide either a termination letter from their employer, unemployment award letter or tax returns reflecting the loss of income before and after the initial hardship.
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Steer Clear Of Refinancing Scams
Some homeowners become the target of fraudulent refinancing offers. Such fraudulent refinancing offers may begin with a call from an underwriter, who may pretend the call is from the homeowners current mortgage lender and make a refinance offer that is hard to pass up . If it sounds too good to be true, it probably is!
How Can I Modify My Mortgage
Although not everyone qualifies for a mortgage modification, if you do, you can modify your mortgage in several key ways.
- You can extend the term of your mortgage, say from a 15-year term to a 30-year term.
- You can change the type of loan from an adjustable-rate mortgage to a fixed-rate mortgage loan.
- You can add any past-due amounts to the unpaid principal balance. That amount will then be re-amortized over the new term of your loan.
- Either permanently or temporarily reduce your interest rate.
If you want to compare mortgage loan modification versus a refinance option, head to Credible. Refinancing also lowers your monthly payment , so you should weigh the pros and cons before making any decisions. View different types of loans and save money today.
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You May Pay More In Interest Over The Life Of The Loan
If you need a mortgage loan modification, you may end up paying more for your home over the life of your loan. For example, say your modification involves changing your loan from a 30-year mortgage to a 40-year mortgage. You’ll end up paying an additional ten years worth of interest on the principal amount.
If you plan on selling, this might not matter as much. But if youre hoping to pay off the house, this can have a big impact on your future financial plans.
How To Apply For A Flex Modification
The first thing you should do after determining whether you have a mortgage owned by Fannie Mae or Freddie Mac is to reach out to your loan servicer to apply for the Flex Modification program. If youre less than 90 behind on payments, you must complete a borrower response package.
The package should include:
- A complete and signed mortgage assistance application.
- A complete and signed IRS Form 4506-T or 4506T-EZ, which grants access to your tax return transcript.
- Income documentation, which varies based on the type of income.
- Hardship documentation, which varies based on the nature of the hardship.
Theres a streamlined application option for borrowers who are at least 90 days behind that doesnt involve completing and submitting a borrower response package.
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Loan Modification And Foreclosure Rescue Scams
Beware of loan modification and foreclosure rescue scams. Mortgage rescue scammers falsely claim that they can obtain a loan modification or other relief to avoid foreclosure. Some may pretend to be affiliated with a government agency or a housing assistance program. Others falsely claim to provide legal representation, predatory lending investigations or forensic loan audits of your mortgage paperwork. These companies may claim that by using their services, they can pressure your lender and negotiate a good deal. Unfortunately, these operations often fail to obtain the relief they promise, and some companies take payments upfront and make little or no effort to help consumers.
No person or companyincluding attorneys, foreclosure consultants and real estate agents can demand advance payment for providing loan modification services in California. .) This means that a company or individual cannot obtain payment from you until after they perform all the services promised in your contract or agreement. In addition, mortgage foreclosure consultants who offer to stop foreclosure or assist you with obtaining a modification or other relief are required to register with the Attorney General and post a $100,000 bond. Search for the name of a foreclosure consultant to find if they are registered at Is Your Foreclosure Consultant Registered?