The Consumer Financial Protection Bureau has recently issued rules that aim to protect widowed homeowners from a “red-tape” process that has previously caused them to lose their homes to foreclosure.
Protecting Widowed Homeowners from Foreclosure
Generally surviving spouses who are not included on the mortgage note receive the same protections that borrowers have. Such protections include a ban on the process of “dual tracking,” in which a mortgage servicer will negotiate a mortgage modification with a client while also simultaneously pursuing foreclosure.
The new rules expand and clarify existing rules have been a long time coming. According to advocates, widowed homeowners who either own the home or inherit them after death often face considerable resistance from mortgage servicers when they go to seek loan modifications after they have lost their spouse and their spouse’s income.
Often times servicers will not allow for a modification until a surviving spouse has assumed the loan. But often times the surviving spouse is unable to assume the loan because they are unable to get current on the mortgage – which is why they are seeking a modification in the first place.
Servicers will also often provide the widowed homeowners with inaccurate information or require unnecessary documents proving ownership of the home when the widowed homeowner applies for a modification as a foreclosure proceeds.
Into Effect in 18 Months
The new rules are scheduled to take effect in about 18 months. Applicants will need to show they are able to afford smaller loan payments and loan servicers are not obligated to give the requested modifications.
“The Consumer Bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon,” said CFPB Director Richard Cordray.
“We have had positive rules before,” said Kevin Stein of the California Reinvestment Coalition. “It’s a question whether the rules are followed.”
Foreclosure is a frightening thing to face. But there are things you can do to avoid it.
What is Foreclosure?
Foreclosure is a series of events during which a lender attempts to recover the balance of a loan from a borrower who is unable to pay. There are phases to foreclosure process that are determined by the state you live in. You should consult a foreclosure lawyer to help you understand your rights during this process. They’ll be able to advise you on your state’s laws.
There are steps you can take to avoid home foreclosure. You should immediately contact your lender if your circumstances change due to a loss of job or other unforeseen circumstance and you’re unable to pay. Remember that mortgage lenders would rather you stay in the home, rather than try to recoup the money on the loan via a foreclosure sale. Because of this, they are willing to work with homeowners that are willing to work with them. A lot of times mortgage lenders will still work with you even if you’ve missed three monthly mortgage payments.
Are you struggling to make your monthly mortgage payment? Are you facing foreclosure or a short sale? If any of these apply, then you might want to pursue a loan modification.
What is a Loan Modification?
A loan modification permanently restructures your mortgage in order to make it a payment that you ca actually afford paying. With a loan modification, a lender changes one or more of the terms of your home loan so that the monthly payment becomes affordable for you and your family. Sounds like a great idea, right? Before you move forward, there are some basics about the process you’ll want and need to know to move forward.
Because the process can be confusing, and there are a lot of specifics that you might not be aware of, you might consider working with an attorney. A lawyer can also help you decide if a loan modification can help you if you’re facing foreclosure, or if there is another option that you can pursue. In these cases, working with a lawyer might mean the difference between losing your home or being able to finally afford it through a loan modification.
You should also know that you can do a loan modification on your own, you do not need a lawyer to represent you, but make sure you fully and completely understand how the lender is going to modify your loan. Make sure you have a complete understanding of your legal rights should a lender violate the law. You will also need to learn how to spot a loan modification scam. We’ll cover how to spot a scam later on in the post.
Reducing Your Monthly Payment
You will first need to submit an application to your lender for the loan modification. You’ll most likely also need to send some things along with that application. This information is typically bank statements and most recent paystubs that will prove your current income and that the current mortgage payment amount is too high.
Here are some of the things your lender can and might do to reduce your monthly loan payment as part of your loan modification:
- reduce interest rate
- forgive a portion of the principal balance
- convert the mortgage from a variable interest rate to a fixed interest rate
- extend the length of the term of the loan
Qualifying for a Loan Modification
Once you decide to pursue a loan modification, you’ll need to know if you qualify and how it will benefit you.
Here are some qualifications that a lender will look for:
- You are experiencing hardship. A hardship means something that is unexpected and that has made it difficult for you to afford your mortgage payment. Examples of hardships include: job loss, sudden illness, or death in you immediate family. To prove a hardship, you simply need to write a letter to your lender that outlines the hardship circumstances. You will also need to provide “proof” of how this hardship has impacted your financial standing and why you are suffering financial difficulty in paying your mortgage. This “proof” is often pay stubs and bank statements. The lender will review the letter and the financial information you have provided and determine how they will go about modifying your loan.
- You have negative equity. Having negative equity means you owe more on your house than it is worth.
- You currently have a sub-prime loan. A sub-prime loan means it is a bad loan, and that it has been deemed that for any number of reasons: it might have been illegally signed (robo-signing was a practice during the housing crisis) or that you were approved for an amount that, based on your financial standing, you never would have been able to repay. A lot of these bad loans were given out during the housing crisis. Many borrowers were offered poor loan products in an effort to sell, sell, sell. These loans have a high rate of default and thus a high right of borrowers who are now seeking foreclosures.
- You are facing foreclosure. If you are facing foreclosure (the process during which a homeowner’s rights to a property are forfeited because of failure to pay the mortgage) you can request a loan modification that will keep you from being foreclosed on. You will need to explain to the lender how the modification will help you. Remember that because lenders do not want you to foreclose (they lose money on foreclosures as well), often times they will work out an arrangement to help you stay in your home, which often means offering a loan modification.
Note for facing foreclosure: If you have not been able to pay your monthly mortgage payment and are facing foreclosure you do not have to consign yourself to having to leave your home. You might qualify for a loan modification. Working with an an attorney to list out your options might help you avoid foreclosure, and even obtain a loan modification.
Understanding Your Loan Modification Odds
In 2010, fewer than half of all loan modifications were successfully completed. But knowing what your odds are going in to the process will eliminate any unpleasant surprises. These tricks can help you maximize your chances of navigating the loan modification process successfully.
The Home Affordable Modification Program (HAMP) is a voluntary program in which only Fannie Mae and Freddie Mac lenders are required to participate. Other lenders are able to participate if they want to, which means that lenders outside of Fannie Mae and Freddie Mac are able to create their own modification strategies and rules. This can make it difficult for mortgage lenders to update their procedures and thus train their employees accordingly. This can mean madness for a borrower trying to get a loan modification.
Homeowners seeking HAMP modifications often report constant miscommunication as well as loss of documents on behalf of HAMP.
Here are some tips to mitigate any issues you might run in to:
- Keep a file of everything you send to HAMP
- Update and organize your file on a weekly basis.
- Weekly, call the lender in order to check in on the status of your loan modification.
- Make sure you pay your trial payments on time, every time.
- Know the guidelines. You cannot assume that your lender’s employees will know all the latest guidelines, so make sure you know your facts. It’s not uncommon for applicants to receive different interpretations of the exact same rules from different employees within the same company.
If Denied – Reapply: HAMP guidelines do not include provisions for an appeal process, but you can reapply after a denial if your circumstances have changed.
The process can be rigorous, but a mortgage loan modification can be worth the hassle if it saves you money and keeps you from foreclosure.
Working With a Bankruptcy Attorney
Foreclosure can be hard to understand. Because of this, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have. There can be a lot of questions during this extremely stressful time. Let the lawyers at RHM LAW LLP walk you through the process so you can achieve the best outcome possible.