Who Should Modify And Why
Any homeowner who is as at-risk for foreclosure may first be considered for a Hope for Homeowners refinance. If that is determined not to be the best option for them, then a loan modification is in order. Loan Modification is a way for homeowners who are facing financial struggles today to save their homes from foreclosure. Under Obama’s loan modification plan, the Home Affordable Modification Program (HAMP) offers incentives to lenders and homeowners alike. Participating lenders receive an initial incentive of $1,000 per borrower. They also receive an extra $1,000 a year for up to three years for those who are successful in making timely payments. Homeowners who use home loan modification will also get incentives of $1,000 per year for up to five years for staying current on their new modified loan payments every month.
Eligibility
You may be eligible to apply if you meet all of the following:
- You occupy the house as your primary residence
- You occupy the house as your primary residence
- You obtained your mortgage on or before January 1, 2009
- You have a mortgage payment that is more than 31 percent of your monthly gross (pre-tax) income
- You owe up to $729,750 on your home
- You have a financial hardship and are either delinquent or in danger of falling behind
- You have sufficient, documented income to support the modified payment
- 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
If you qualify for HAMP and have a second mortgage, you may also qualify for the Second Lien Modification Program (2MP). Eligibility criteria is for guidance only. Contact your mortgage servicer to see if you qualify for HAMP.
How It Works
Under the loan modification plan, a homeowner’s gross monthly income has to be calculated and verified. The borrower needs to provide last year’s tax information, two recent pay stubs, or a letter of verification of income from an employer. The lender must then bring the borrower’s monthly payment down to 38% of their gross monthly income. This is done by reducing interest rates or extending the life of the loan, or even forbearing principal on the loan and sharing that expense with the U.S. Treasury. Borrowers are 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 is implemented at the new rate and is fixed for five years.
5 Tips on a DIY Modification
The loan modification process takes time and effort. Since hiring a loan modification specialist can be expensive, many homeowners choose to do loan modifications themselves. Not only is this cheaper but it gives the homeowner better control of the outcome, and carries a lower risk of fraud. But it still pays to play it safe and make sure you do things right. Here’s a quick guide to help you make the right decisions:
- Know your lender’s policies. Each lender deals with delinquent borrowers in different ways. For instance, not all companies will accept applications before the interest increases or shifts to an adjustable rate. Some will only approve borrowers who have been delinquent for at least three months. Be sure to call your lender for their specific guidelines.
- Request a loan modification package. Most lenders have a loan modification package that includes everything you need to do your own loan modification, including their policies and loan modification requirements. Call your bank and see if they can mail you a package. This allows you time to fill out all of the information and familiarize yourself with the process and procedures for your bank.
- Make an accurate financial report. While a good hardship letter can help, lenders really want to know that the hardship is over and you can start paying them again. Make a detailed report of your income and expenses and support everything with tax forms, pay stubs, and W-2s. If you’ve lost income due to illness or job loss, make sure to note whether it’s permanent or temporary.
- Stay calm. A typical loan modification representative has to deal with hundreds or even thousands of troubled borrowers every day, each one with a sad story to tell. The last thing they need is an irate caller who demands immediate service – in fact, that’s a good way to get your paperwork to bottom of the pile.
- Document everything. Major lenders have trouble keeping up with vast volumes of loan modification applications, and among the main problems is files getting lost in processing. To avoid delays, record every call, letter, and fax you send and receive, complete with the dates and titles. This is especially important for Do It Yourself loan modifications.
Remember, in these uncertain times you’re not alone. The best thing to do is educate yourself on your options. Loan modification may be just what you need to save your home.
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