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. Loan modifications are in place to help keep families in their homes.
Loan Modifications to Keep You in Your Home
A loan modification permanently restructures your mortgage in order to make it a payment that you can actually afford to pay. 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 your 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” often pays 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), oftentimes 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 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 into 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 the 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.
Watch for Loan Modification Schemes
If you’re a struggling homeowner that is looking to procure a loan modification it’s important to realize that there are a lot of people offering fraudulent loan modifications to cheat you out of your money. You need to know how to spot a scam! Here are some red flags to watch for:
1. The company you are thinking about using to help with your loan modification asks you to pay an upfront fee in exchange for working with your lender to modify or refinances your mortgage. This is illegal! According to the Federal Trade Commission (FTC) Mortgage Assistance Relief Service (MARS) Rule, it is illegal for a company or individual to charge fees in advance for such services. One thing to remember: attorneys working to help you with your loan modification are allowed to charge fees in advance. This is only if they meet certain requirements according to the FTC MARS Rule Compliance Guide. You have to be wary, and make sure that any attorney that asks for a fee meets these requirements. This is a very large scam: people posing as attorneys, demanding money upfront, and then taking advantage of homeowners.
2. Guarantees. No one can guarantee that they can stop your house from being foreclosed on or definitely getting your loan modified, so don’t fall for this! Scammers love to offer “money-back” guarantees, that they never follow through on. And even a trust-worthy HUD-approved agency will only ever promise that they will try. There are no guarantees!
3. Don’t fall for a company or individual that insists you pay them directly instead of your mortgage company. Oftentimes these scammers will pocket the money while you lose your home. Always send your checks to the mortgage company.
4. Be wary of companies that pressure you to sign over the deed to your home. the same goes for pressure to sign any paperwork you don’t fully understand.
5. Don’t fall for “government approved” statements. You can contact your mortgage lender first before working with a company that makes claims like this, or one that offers “official government” loan modifications. A HUD-approved counseling agency will be able to determine what programs you are eligible for based on your finances.
6. This is more an overall warning for anything having to do with your finances or personal information: don’t not release any personal financial information over the phone or online.
Being able to spot a scam will ensure you and your family are protected from predatory loan modification scammers. If you have been a victim to one of these scams, contact an attorney today. They will be able to build a strong case for you. Chances are, you aren’t the only one that has been targeted by that loan modification scammer.