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Are you overwhelmed by your mortgage payments? Has a major hardship or life event changed your ability to pay you mortgage? This can be a depressing and helpless feeling, but hope is not as far away as you may think.
What is a Home Loan Modification?
A home loan modification is much like a mortgage refinance in that the objective is to find you a more affordable mortgage payment for your financial situation. In fact, it is often called a modified refinance. The primary difference is that instead of looking for a "new" loan you will just simply "modify" the terms of you existing mortgage.
Why a Loan Modification Versus Refinancing My Mortgage?
Refinancing your existing mortgage to obtain a more affordable mortgage payment could still be an option. Unfortunately, for an increasing percentage of homeowners it is not. That is precisely what loan modifications are for, the homeowner that has incurred a financial hardship that prevents other mortgage financing or payment options.
In most cases, a loan modification is recommended to homeowners that have a financial hardship that is preventing them from making their monthly mortgage payments. Most how are eligible for these types of mortgage modification programs have already missed one or more payments.
Am I Eligible for a Loan Modification?
This will vary depending on who services (i.e., who you send your mortgage payment to each month) your mortgage. However, most follow very similar qualification criteria. These are the most common loan modification qualification standards:
- Experienced a documented hardship or change in financial circumstances
- Missed three payment (90 days delinquent) or more
- Owns and occupies the property as a primary residence
- Not filed bankruptcy
Other important factors that can effect your eligibility:
- Do not purposely default to get a loan modification
- Make sure you are responsive in working with your lender
Since many of the programs do vary in how they work, you should contact your lender and advise them of your hardship and get more information.
Where Do I Get a Loan Modification?
Ultimately, the only place where you can get a loan modification is with the lender or servicer that current holds your mortgage. Confused as to who this might be? In this mortgage market, where mortgages are bought, sold, and packaged up into securities for Wall Street, this part can be the hardest step in the loan modification process.
The best place to start is your mortgage coupon book or statement--who do you send your mortgage payment to each month?
Each mortgage lender or servicer will have different loan modification programs and processes. In addition, often the staff at these companies have little training to handle a loan modification inquiry.
This is where getting a loan modification can become very challenging. Seeking expertise in streamlining your loan modification process can often save you a lot of frustration and money.
What Do I Need to Show the Bank?
The bank ultimately is in the business to return a profit to their shareholders, just like any other business. Consequently, your objective in presenting your loan modification request is to show that it is in the best interest of the bank to modify your loan.
What might support your modification request? Here are the points that you should be able to show your bank:
- You have had a material change in your financial circumstances
- You have made every effort to make your mortgage payments
- You have been cooperative and responsive in working with them
- You are not in any way purposefully defaulting to get a loan modification
- You are willing to be open, honest, and provide all necessary documentation
Remember your bank is essentially making a new loan to you after taking a loss on the first one. You need to demonstrate to the bank that you are able to pay on the new modified loan terms.
What Documents Will I Need?
Your loan modification package is going to be the most important part of your mortgage modification efforts. Again, the contents and process for packaging the information for your lender's consideration will vary, but the critical elements are typically the same. Here is an example of the documents you will probably require:
- A letter documenting and explaining your hardship
- Proof of current income and capability to make modified loan payment
- Detailed monthly expense report or budget
The principal purpose of the loan modification package is to provide your lender with sufficient documentation to evaluate the risk in modifying your mortgage. The main question your lender is trying to answer is can you pay the new modified mortgage payment, and will you.
Why Would a Bank Modify My Mortgage Loan?
Simply because it is in the best interest of the bank. As you attempt to inquire about a loan modification do not confuse this transaction with an altruistic act of kindness. It is fundamentally a transaction that makes more business sense than the alternative--you defaulting on the entire mortgage and costly foreclosure proceedings.
It is also a product of the current economic conditions. There are so many homeowners that have been pinched by the simultaneous collapse of the housing market and the economy. This creates a unique circumstance--modifying your mortgage, to keep you in your home, benefits the bigger economic picture.
Loan Modification Programs
As mentioned before, loan modification programs are just becoming mainstream and therefore there is little standardization. The details of loan modification programs that you qualify for will start at your lender or a loan modification counselor that can guide you.
Here are a few of the most prevalent loan modification programs and resources:
White House/Treasury Loan Modification Program
The Obama administration, under the guidance of the US Treasury has created one of the most inclusive loan modification programs to date. This mortgage modification program not only helps borrowers in current financial difficulties, but also good paying homeowners that think they may have challenges in the future or have lost significant equity in their homes due to the housing market crisis.
You can learn more about this program at: FinancialStability.gov - Making Home Affordable
IndyMac Federal Bank Loan Modification Program
IndyMac Bank was one of the first financial institutions to broadly offer loan modifications to their mortgage customers. When the FDIC took over IndyMac it became the first test bed for an extensive loan modification policy. You are eligible for this loan modification program if IndyMac Federal Bank holds or services your mortgage.
You can learn more about this program at: FDIC.
Federal Housing Finance Agency Loan Modification Program
The most recent of the loan modification programs was the one offered by the Federal Housing Finance Agency (FHFA), the supervisory regulator of Fannie Mae and Freddie Mac. This loan modification program applies to any mortgage held or serviced by Fannie Mae or Freddie Mac.
Major Lender's Loan Modification Programs
The largest banks in the US are all offering aggressive loan modification programs and in some cases issuing foreclosure mortatoria. These programs are expected to proactively modify hundreds of thousands of mortgage loans.
You can learn more about Citigroup's loan modification programs at:
- Citigroup's statement on Preemptive Initiatives to Help Homeowners
- Citigroup's dedicated website for the Office of Homeownership Protection
You can learn more about JP Morgan Chase's loan modification program at:
- JP Morgan Chase's statement on enhancements to their loan modification initiatives
How Do I Find Someone to Help Me Get a Loan Modification?
This is probably the easiest part. Let MortgageLoan.com guide you to a qualified loan modification counselor to get you started. Use the form in the top right corner of this page.
Improve Chances for Loan Modification
Jay Leno called it ironic that "we pick politicians by how they look on TV, and Miss America on where she stands on the issues." Every selection process has its quirks, including a mortgage loan modification.
By knowing these quirks, you can improve your chances of getting the modification that you need. The first step is to understand that mortgage loan servicers are overwhelmed with modification requests. Expect your servicer to have trouble returning phone calls, remembering your name, and locating your paperwork.
Don't take it personally. Instead, focus on being organized and exact about your documentation and application. Take whatever measures you can to reduce the workload for your servicer. Provide the exact documentation requested, and label each sheet of paper you send.
For your own records, write down what you send and when you send it. Keep photocopies of everything. Track correspondence by logging every phone conversation, letter, and email on a spreadsheet.
Mortgage modification hurdles
Obtain free copies of your credit report from all three credit bureaus, and use them to complete your modification application. Your goal is to eliminate or explain any discrepancies between your credit report and your application. Unexplained discrepancies create questions that the servicer has to answer. They might react by calling you, or by setting your file aside and working on someone else's.
For Home Affordable Modification Program (HAMP) modifications, the servicer targets a mortgage payment that's 31 percent of your gross monthly income. Other modification programs may have different targets, but the basic analysis is the same.
- The servicer will first calculate the targeted mortgage payment, and then subtract property taxes, insurance, and homeowner association fees.
- Next, the servicer will calculate how to achieve that payment by lowering the interest rate and/or extending the maturity
HAMP modifications can go as low as 2 percent, with a maturity of up to 40 years. If a 2 percent, 40-year loan is not affordable for you, then you simply don't qualify for modification. Knowing this can spare you a lot of frustration.
Prove your worth
Help out your servicer by voluntarily documenting all aspects of your financial situation, including income, expenses, debt, and assets. If you're self-employed, for example, provide profit and loss statements and tax returns. If you earn wages, provide pay stubs and W-2s. Use free online estimates to support your home's estimated value, and recent credit card statements to explain your debt situation.
You'll probably be asked to provide a hardship letter with your modification application. This is your opportunity to explain your circumstances and plead your case. Your goal is to leave the impression that you've hit hard times, but that you're willing and able to service the modified loan structure. In other words, improve your chances by convincing the servicer that you won't default again after the modification.
Mortgage loan modification is a competition, in that you're competing for your servicer's time and assistance. The crown goes most quickly to the competitors who are organized, reliable, and qualified.