Who Can Get A Mortgage Loan Modification
Eligibility requirements for mortgage modifications vary from lender to lender, but you typically must:
- Be at least one regular mortgage payment behind or show that missing a payment is imminent.
- Provide evidence of significant financial hardship, for reasons such as:
- Long-term illness or disability
- Death of a family member
- Natural or declared disaster
- Sudden increase in housing costs, including hikes in property taxes or homeowner association fees
Alternatives To Loan Modification
Loan modifications aren’t the only way to make your mortgage more affordable. Refinancing your mortgage is another option. This is when you get a new loan and use the proceeds to pay off your current mortgage. The goal of a refinance is to get a more favorable interest rate. By lowering your interest rate, you’ll reduce your monthly payments and the total amount you owe. This is a great approach if you have a credit score that’s high enough to get a more favorable rate than the one youâre paying now. However, when you’re having trouble making your mortgage payments, your credit score will already have taken a hit and you won’t be able to refinance at a more favorable rate.
In a Chapter 13 bankruptcy, as a general rule, you can’t use the bankruptcy to modify the first mortgage on your principal residence. This rule doesn’t apply to a second mortgage that has no equity to attach to. It doesn’t apply to the first mortgage on a second home. Last, it doesn’t even apply to a first mortgage on the principal residence if that mortgage is cross-collateralized with other assets. So, there is a possibility that a Chapter 13 bankruptcy can eliminate a second mortgage or reduce a first mortgage.
Types Of Home Equity Loans
There are two types of home equity loans:
Lump sum – This is a one-time, closed-end loan that usually has a fixed interest rate.
Revolving line of credit – You can withdraw the funds at any time for more flexibility. These usually have adjustable interest rates.
For more information, refer to What You Should Know About Home Equity Lines of Credit, a guide by the Federal Reserve Board.
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The Government Modification Program For 2nd Mortgages
by Paul Warkow· April 20, 2015
It may be possible to receive a loan modification on your second mortgage through the governments program. If your first mortgage was permanently modified under HAMP and you have a second mortgage on the same property, you may be eligible for a modification or principal reduction on your second mortgage as well, through the Second Lien Modification Program . 2MP works in tandem with HAMP to provide comprehensive solutions for homeowners with second mortgages to increase long-term affordability. If the servicer of your second mortgage is participating, they can evaluate you for a second lien modification.
You may be eligible for 2MP if you meet all of the following criteria:
- Your first mortgage was modified under HAMP.
- You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
- You have not missed three consecutive monthly payments on your HAMP modification.
Keep in mind that no borrower is entitled to a loan modification and not all servicers have the 2MP program. Servicers participating in 2MP are:
Bank of America, NA
Payments To Servicers Lenders And Responsible Borrowers
- The Program will share with the lender/investor the cost of reductions in monthly payments from 38% DTI to 31% DTI.
- Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification, plus âpay for successâ fees on still-performing loans of $1,000 per year.
- Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years.
- The program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.
- The program will include incentives for extinguishing second liens on loans modified under this program.
- No payments will be made under the program to the lender/investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury’s financial agent.
- Similar incentives will be paid for Hope for Homeowner refinances.
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Fha Loan Modification Program
The Federal Housing Administration Modification Program helps struggling borrowers reduce monthly payments by deferring the payment of interest on 30 percent of the mortgage balance. This is accomplished through an interest-free loan, which buys down the mortgage and does not have to be paid until the first mortgage is paid.
How Do Government Mortgage Loan Modifications Work
The federal government introduced a mortgage modification initiative to deal with an influx of foreclosures. Scheduled to end on Dec. 31, 2015, the Home Affordable Modification Program, or HAMP, helps streamline the modification process among mortgage lenders and loan servicing companies. Struggling homeowners with various loan types can qualify for HAMP if their lender participates in the government modification program. HAMP provides lenders with incentives to restructure loans, keeping borrowers in their homes under more affordable repayment terms.
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How To Get A Mortgage Modification
If you’ve missed one or more mortgage payments or, better yet, know you’re about to miss a payment but haven’t yet gone delinquent, contact your lender and explain the reasons for your difficulty making payments.
Be prepared to discuss your financial difficulties in some detail. You’ll have to document your hardship as part of a formal application, so gather relevant paperwork before you call so you’ll be prepared to answer questions.
The lender will likely require you to apply for the modification in writing, and to submit proof of income and expenses before and after the onset of your hardship. That could include tax returns, pay stubs, monthly bills and statements, plus information on your savings and any assets you may have .
If your mortgage is backed by any number of federal agencies or programs, you may qualify for a government mortgage modification plan:
While the CARES Act only covers federally backed mortgages, private lenders may be extending comparable relief programs to their borrowers.
The Flex Modification Program From Fannie Mae And Freddie Mac
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If youre struggling to make your monthly mortgage payment and you have a conventional loan, you may be eligible for the Flex Modification program.
A loan modification changes the terms of your current home loan to make the monthly mortgage payments more affordable. The Flex Modification program is available to homeowners whose mortgages are owned by Fannie Mae or Freddie Mac.
Heres a closer look at how Flex Modifications work and whos eligible for one.
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Hope For Homeowners Plan /fha
The HOPE for Homeowners Act Program is effective for endorsements on or after October 1, 2008, through September 30, 2011.
- Affordability versus value: lenders will take a loss on the difference between the existing obligations and the new loan, which is set at 96.5 percent of current appraised value. The lender may choose to provide homeowners with an affordable monthly mortgage payment through a loan modification rather than accepting the losses associated with declining property values.
- Borrower eligibility: Lenders that determine the H4H program is a feasible and effective option for mitigating losses will assess the homeowner’s eligibility for the program:
What Types Of Loan Modification Programs Exist
If nothing else, the Great Recession and mortgage crisis made lenders and mortgage-servicing companies more attuned to the needs of at-risk homeowners.
Nowadays, most lenders have programs designed to see borrowers through tough times while keeping them in their homes. If your lender doesnt, ask them or a Housing and Urban Development approved counselor about your eligibility for programs that can assist you through the modification process.
HAMP the Home Affordable Modification Program expired at the end of 2016. Its successor is the Flex Modification program, overseen by Fannie Mae and Freddie Mac. Borrowers whose mortgages are subject to Fannie or Freddie may qualify.
HARP the Home Affordable Refinance Program helped refinance underwater homeowners into new, more affordable mortgages. HARP expired at the end of 2018. Now there are Fannie Maes High Loan-to-Value Refinance Option and, from Freddie Mac, the Enhanced Relief Refinance program.
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Applying For A Mortgage Loan Modification
A mortgage loan modification application will require the details of a borrower’s financial information, the mortgage information, and the specifics of the hardship situation.
Each program will have its own qualifications and requirements. These are typically based on the amount the borrower owes, the property being used for collateral, and specific features of the collateral property.
If a borrower is approved, the approval will include an offer with new loan modification terms.
Types Of Flex Modification Programs
Aside from the traditional Flex Modification, there are variations of this program designed for homeowners experiencing different types of hardship. The table below breaks down these differences in eligibility, using the Streamlined evaluation process.
|Current or less than 31 days delinquent as of the date of an eligible disaster|
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Usdas Special Loan Servicing
(See USDA Loss Mitigation Handbook, pp 13-15.
If you have a loan that is guaranteed by the United States Department of Agricultures Section 502 Single Family Housing Guaranteed Loan Program, you may be eligible for a program through that government agency. Contact your servicer or a housing counselor for more information.
Government Programs For Loan Modification
In the past, the Home Affordable Modification Program was the primary government program for loan modifications. Since HAMP expired, many government programs for loan modifications have arisen to replace it. Yet, for you to be eligible for these government programs, you need a government-backed loan.
The good news is the great majority of all new mortgages in America are government-backed. Banks, private mortgage companies, and credit unions “originate” most mortgages. The originators are the ones who make the mortgage loans to you. These loans may be backed by the Federal Housing Administration , the U.S. Department of Veterans Affairs , the United States Department of Agriculture , or they may not be government-backed.
It may sound strange, but these non-government-backed loans usually become government-backed in a way. Most of these private loans are sold to the Federal Nation Mortgage Association or the Federal Home Loan Mortgage Corporation . Both of these companies are publicly traded companies. That makes them private companies, right? Not exactly. These companies were created by an act of Congress and are subject to special oversight by Congress.
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Switch From An Adjustable
Switching from an adjustable-rate mortgage to a fixed-rate mortgage might not lower your existing payments, but it could help protect you from rising interest rates down the road.
Since ARMs are set up to have floating rates, they change with the market. For example, if your interest rate is 3.5% and the average rate rises to 4%, so will your rate. This can be a bad scenario if youre in a rising-rate environment. By locking in your interest rate, youre guaranteed to pay the same interest rate over the life of your loan, regardless of what the market does.
What If Fannie Mae Or Freddie Mac Doesn’t Own My Loan
Even if Fannie Mae or Freddie Mac doesn’t own your loanor if you don’t qualify for a Flex Modification for some other reasonyou might qualify for another modification program through your servicer. Servicers and investors usually offer their own in-house, called “proprietary,” modifications, as well as forbearance agreements and repayment plans to help borrowers who are behind in mortgage payments.
To learn about the different options that might be available to you, call your loan servicer.
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How Does A Mortgage Loan Modification Affect Your Credit
Lenders may report your loan modification to the national credit bureaus, and its appearance on your credit report could adversely affect your credit score. The long-term impact of a mortgage modification typically will be less severe and long-lasting than the damage done by foreclosure.
In the case of mortgage modification programs that require you to be delinquent on your payments to qualify, your credit report will reflect missed payments in addition to the modification itself. Depending on your credit history and the credit score you had before those missed payment, your first delinquency could cause a greater drop in credit score than a subsequent mortgage modification would.
If a mortgage modification works as intended and allows you to stay in your house and resume regular on-time mortgage payments, you will be well positioned to rebuild your credit and restore your credit score within a few yearsa much better prospect than having a foreclosure on your credit report for seven years from the date of the first delinquency that led to it.
Understanding The Home Affordable Modification Program
HAMP was created under the Troubled Asset Relief Program in response to the subprime mortgage crisis of 2008. During this period, many American homeowners found themselves unable to sell or refinance their homes after the market crashed because of tighter credit markets. Monthly payments became unaffordable when higher market rates kicked in on adjustable-rate mortgages , leaving plenty of people at risk of foreclosure.
Although taxpayers subsidized some of the loan modifications, arguably the most significant contribution of HAMP was standardizing what had been a haphazard loan modification system.
In order to qualify, mortgagors needed to make more than 31% of their gross income on their monthly payments. Property requirements were also enforcedthey had to pass the net present value test, along with other eligibility standards.
A property became eligible if the analysis showed a lender or investor currently holding the loan would make more money by modifying the loan rather than foreclosing. Other than the requirement that a homeowner prove financial hardship, the home had to be habitable and have an unpaid principal balance under $729,750.
In many cases, an already modified loan was eligible for HAMP modification, too, reducing a homeowners payment even further.
Families in the program decreased their monthly payments by an average of more than $530.
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What Financial Help Is Available For Home Repairs
Home improvement loan programs help with home repairs and modifications. They are the most common type of government financial assistance for home improvements. Some programs are available nationwide, while others are only available at the state or county level.
Find Loans and Other Incentives
Learn about the HUD Title 1 Property Improvement Loan program. Loan amount and repayment terms are limited based on the type of property.
Find out about the 203 Rehabilitation Mortgage Insurance Program. It lets homebuyers and homeowners borrow an extra $35,000 through their mortgage for home repairs and improvements.
For programs in your community, contact:
Trial Periods And Second Mortgages
Borrowers usually must complete a three-month trial period under the modified payment terms before receiving an official or permanent modification. During the trial plan, borrowers also must remit all documents necessary to finalize the modification. Second mortgages, including home equity loans and home equity lines of credit, may qualify for a modification under the Second Lien Modification Program, or “2MP.” This secondary modification works in tandem with a HAMP first mortgage and begins after the borrower successfully completes the HAMP trial period.
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Mortgage Loan Modification Faq
What happens when you get a loan modification?
The goal of a loan modification is to help a homeowner catch up on missed mortgage payments and avoid foreclosure. If your servicer or lender agrees to a mortgage loan modification, it may result in lowering your monthly payment, extending or shortening your loans term, or decreasing the interest rate you pay.
How do I get a mortgage loan modification?
Contact your mortgage servicer or lender immediately to alert them of your financial hardship and ask about loan modification options available. Be ready to provide all documentation requested, which can include financial statements, pay stubs, tax returns, and more.
How long does loan modification last?
Expect your loan modification process to take anywhere from one to three months, according to finance and insurance expert Karen Condor. Once your loan modification has been approved, the changes to your interest rate and/or loan terms are permanent.
Does loan modification hurt your credit?
A mortgage loan modification under certain government programs will not affect your credit. But other loan modifications may negatively impact your credit and show up on your credit report. However, since your mortgage usually must be in default to request a modification, your financial difficulties are probably already on your credit report, explains attorney Elizabeth Whitman.
Can you be denied a loan modification?How much does mortgage modification cost?