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Mortgage Modifications

Mortgage Modifications

Loan modification offers several benefits for the homeowner. The most important benefit is that, if approved, you can avoid a foreclosure on your property. You can also reduce your interest rate and switch to a fixed rate of interest from a fluctuating rate through mortgage modification.

In order to get the most benefit, you should be fully aware of the modification process and what it entails.

Loan Modification Process

The loan modification process usually begins with a phone call or online inquiry to your lender. You should be honest about your circumstances and explain why it is difficult for you to make your mortgage payments on time.

Lenders have an incentive to approve loan workouts such as modifications because banks and mortgage lenders are in the business of making money, not maintaining foreclosed properties. The key question the lender will have is whether you currently have the income to justify the modified payment, meaning “if your lender reduces your payment to a certain amount, can you afford it with your current income?” Lenders do not want to approve a homeowner for a modification they cannot afford. This just delays the process and set up the homeowner for failure.

You should also let your lender know about the proposed adjustment to the mortgage. It is strongly recommended you always hire legal counsel, who can take these steps on your behalf.

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Application for Loan Modification
Generally, the lender will ask you to submit a written or printed application for loss mitigation with details about your finances to evaluate your request. Some lenders only consider the application when you are already delinquent with your payments by up to 60 days.

You should be prepared to provide all your financial information, including income and payments mandated by the court. You will probably need to submit the following:

  1. A completed application that includes your personal information, property information and mortgage information, etc.
  2. Your recent salary slips or a profit and loss statement if you are self-employed
  3. Your bank statements
  4. Your tax returns
  5. Your income/expense financial worksheet
  6. A statement or affidavit for the hardship that you are facing
Types of Loan Modifications Available
The type of loan modifications available to you depends on the type of your existing mortgage and personal circumstances. Some of the bigger lenders also offer their unique loan modification programs that can help you adjust temporarily to difficult circumstances.

If your loan provider does not offer its own program, there is no harm in asking them if you are eligible for an assistance program that can be used to modify and refinance your mortgage.

Previously, the US federal government used to offer the ‘Home Affordable Modification Program’ (HAMP) and the ‘Home Affordable Refinance Program’ (HARP) but both of them have expired.

Both Fannie Mae and Freddie Mac now use two foreclosure prevention programs called the ‘Flex Modification Program’ and the ‘High Loan-to-Value Refinance Option’. These programs are only eligible if your mortgage is owned or guaranteed by either Fannie Mae or Freddie Mac.

Other government modification programs are offered through the Federal Housing Administration (FHA) loans, U.S. Department of Veterans Affairs (VA) loans, and the U.S. Department of Agriculture (USDA) loans. Your qualification for these mortgage modification programs depends on the type of home loan that you have.

What Does Loan Modification Do For You?

A mortgage modification can help you get on top of your finances when you are struggling with financial difficulties. It offers the following advantages

  • Principal Reduction: Mortgage modification may help you reduce your principal amount owed to the lender. Future payments will be recalculated based on the new amount and may become lower.
  • Fixed Interest Rate: Your lender may switch you to a fixed interest rate, which protects you against the future increases in interest rate.
  • Lower Interest Rate: You may be able to get your interest rate lowered temporarily to lower your monthly payments as well.
  • Extended Payment Term: Another option is to extend your payment term. Your mortgage may be extended to a longer duration which lowers your monthly payments.
  • Deferred Payments: If you are really struggling to make payments, your lender may freeze your mortgage temporarily and payments can restart after a few months.
Dual Tracking after You Initiate Loan Modification
It is important to be aware of dual tracking while negotiating for a loan modification. Dual tracking occurs when your lender is renegotiating the mortgage with you and begins a foreclosure process as well.

Dual tracking is illegal. Generally, lenders are prohibited from pursuing foreclosure after the homeowner has submitted a complete loss mitigation application. However, many lenders continue to try to illegally “dual-track” homeowners. On the one hand, the lender will pretend to be acting in good faith to work out a loan modification and, on the other hand, the lender sends its lawyers to court to try to foreclose on your home. A competent foreclosure defense attorney can stop this.

For more information and guidance, reach out to our office for a free consultation here.