Loan Modification FAQs

What is a Loan Modification?

A loan modification is basically when a homeowner facing hardship tries to work with their lender to change the terms of their mortgage loan to make it more affordable. Terms and conditions of a loan modification can vary depending on the lender involved. Adjustments to the loan can include temporary or permanent changes to the mortgage interest rate, terms of the loan and/or monthly payment amount. Be aware that past due amounts and/or the difference in the new lower monthly payments are typically rolled into the loan, and the new balance is re-amortized. This can put the homeowner in an even worse position, placing them further underwater when you compare the loan amount to market value of the home.

What are the guidelines under President Obama's plan?

In February 2009, the government unveiled the Making Home Affordable Program, which is made up of two main programs: one for loan modifications and one for refinance loans. The loan modification portion is called the Home Affordable Modification Program (HAMP). It is designed to reduce mortgage payments struggling homeowners pay per month to sustainable levels. The refinance plan is called the Home Affordable Refinance Program (HARP).According to the details of the HAMP plan:

  • The lender would first be responsible for bringing down interest rates so that the borrowers monthly mortgage payment is no more than 38 percent of his or her income.
  • Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent.
  • Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
  • Borrowers will be put on a trial modification at the new interest rate and payment for three months. If they make all their payments on time, the modification will be implemented at the new rate and be fixed for five years. Under the HAMP, loan modifications will be standardized, with uniform loan modification guidelines used by Fannie and Freddie Mac, and then they will be implemented throughout the entire mortgage industry.

Who qualifies for a loan modification?

Administration officials have stressed that the above program(s) are not to be used to bail out what they describe as "irresponsible home buyers". They specified that buyers who bought investment properties, lied or misled lenders on required mortgage documents or purchased multimillion dollar homes will not qualify.

Only "at risk" homeowners will get government assistance. Applicants must prove one of the following:

  • serious hardship
  • declines in income
  • increase in expenses
  • facing an interest rate hike
  • high mortgage debt compared to income
  • they owe more than their house is worth
  • reasons for being close to default

Who doesn't qualify for a loan modification?

Only loans that were issued before January 1, 2009 are eligible for modification. Loans on properties worth more than $729,750 are not eligible. In addition, homeowners with delinquent payments have until 2012 to apply for the loan modification program. Mortgage holders whose loans are through Fannie Mae or Freddie Mac have until July 2010 to apply for the refinance program.

How does someone get a loan modification?

Call your mortgage servicer and ask to be considered for a "Home Affordable Modification", or HAMP. The number is on your monthly mortgage bill or coupon book. Honestly and clearly tell them about your situation. They will assess your financial state through phone calls and paperwork to determine whether you qualify for a loan modification. Keep copies of all mailings between you and the lender and take detailed notes on who you speak with and what you talked about. Details of your conversations give you documentation down the road if you are faced with foreclosure.

Is there a downside of Loan Modification?

Well, you have to ask yourself, would reduced monthly mortgage payments actually be enough to keep you above water? If not, then a loan modification might not be the right fit for you. Also, a loan modification is a SHORT term solution. Reduced payments often last for a limited time period before you have to go back to the original payment schedule. If you consider this and the state of the current housing market, when it's all said and done, you may very well still be upside down and right back where you started in the end. And finally, if you miss any payments under the modified loan terms, the lender will likely initiate foreclosure.

How long should I wait for my loan modification to be approved?

First thing, beware of outside and/or national companies that demand up-front fees to negotiate your loan modification for you. We have heard from so many troubled homeowners that were asked for thousands of dollars to process their application and then after 4 or 5 months of waiting, they still don't have answers and end up behind on their mortgage. When dealing directly with your lender, definitely watch the clock as well because you're ultimately on their time table. So, if you've been late on your mortgage or you're at a point where you know you can't pay on time anymore, call us and we'll explain all of your options without the waiting! You can email me at jenyounghomerescue@gmail.com or you can apply for information online by clicking here. If you would prefer to discuss it on the phone, or set an appointment call me Toll Free at 866-433-6474 or call my cell directly at 703-400-6757. We also have an agent to help our Spanish speaking clients, just call Mimi Tyrie at 703-542-3178.

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