Can I Qualify For A Loan Modification?

Can I Qualify For A Loan Modification

A loan modification is a formal agreement between a borrower and a lender that modifies or amends a pre-existing loan. The original terms of the mortgage can be modified to lower the unpaid principal balance, interest rate, or a combination of both, which in turn lowers the monthly mortgage payment.

Most banks are in the business of lending, not owning real estate. They make money when a loan is performing or paying on time, not when it’s delinquent. When homeowners fall behind, banks protect their interest in the property by initiating foreclosure. This legal process can be expensive and time-consuming. Most banks would prefer an alternative solution that gets the homeowner back on track and paying again — avoiding foreclosure if possible.

Loan modifications are designed to adjust the terms of the loan to make the loan more affordable in the long run and, hopefully, keep the borrower from defaulting again in the future.

Qualifying for a loan modification

Qualifying for a loan modification program greatly depends on your personal financial situation and the length of time your loan has been in default. The longer a loan is delinquent, the less likely the mortgage company will be to consider a modification. Additionally, the homeowner will likely need to provide evidence of hardship, explaining what circumstance has negatively impacted their ability to repay the loan, such as:
• Death of a spouse or income provider.
• Temporary loss of income.
• Divorce.
• Medical illness.
• Emergency.
Loan modifications are one loss mitigation option. Loss mitigation is a term used in the mortgage industry that refers to the mortgage company’s or loan servicer’s process to mitigate a loss — or in other words, prevent foreclosure. Most servicing companies or lenders will want you to apply for loss mitigation, and they will determine whether you qualify for a modification. If you simply cannot afford a mortgage any longer, an alternative solution like a deed in lieu or short sale may be a better option for both parties.

Applying for a loan modification

If you feel you could benefit from a loan modification, reach out to your lender or servicer’s loss mitigation department as soon as possible requesting a loan modification application.

Most application packages will ask you to submit a hardship letter in addition to your current financial information, which could include:
• Tax returns.
• Proof of income, which could be copies of pay stubs.
• A current financial statement or financial summary.
• Estimation of property value.
• Bank statements.
• Proof of hardship (such as death certificate, medical statements, divorce papers, etc.).

Lenders will look at the entire packet in addition to reviewing your credit score, debt-to-income ratio, and current loan terms to help determine whether you qualify.

Some banks will have their own modification programs, while others will use government-backed programs like:

• Freddie Mac’s Flex Modification program.
• Fannie Mae’s High Loan-to-Value Refinance.
• Freddie Mac’s Enhanced Relief Refinance program.
If you have a Freddie Mac or Fannie Mae mortgage, you may be eligible for one of these programs.

While you can apply for a loan modification yourself dealing directly with your bank or lender, you can also use a HUD-approved housing counselor or an independent, third-party loan modification company to help you with this process.

A loan modification company charges a fee for its services. A HUD-approved housing counselor offers their services for free since they are a government agency.

Both represent the homeowner through the modification request process, helping them gather and submit the required paperwork and negotiate terms with the bank, and they can even help counter if the application is denied or assist in filing an appeal.

A HUD-approved housing counselor is often a safer, more affordable way to go, but if you do work with a loan modification company, make sure they have verifiable experience getting affordable home modifications approved for other homeowners as well as experience negotiating with your bank or lender. You’ll also need a firm understanding of what fees they charge for their service.

Qualifying for a Loan Modification

Qualifying for a mortgage loan modification can be rough. With all the horror stories out there, you can’t blame some borrowers for just not wanting to try. But there are some general guidelines that can give you a pretty good idea of whether you can succeed or not.

Part of the confusion is because lenders have their own standards apart from the government’s Home Affordable Modification Program (HAMP). For example, HAMP guidelines specifically state that you don’t have to be delinquent on your mortgage to qualify. However, many lenders won’t consider you for the program until you’ve started missing payments.
Another thing is that HAMP isn’t the only type of loan modification out there. In fact, you’re about twice as likely to qualify for a non-HAMP loan modification as you are to get one under the government-backed program. These private, or proprietary, loan modifications are done according to the lender’s own rules, whereas HAMP sets forth certain requirements that lenders must adhere to.

That being said, there are some basic guidelines that you have to meet to qualify for any type of loan modification:

You have to be suffering a financial hardship.

This may be a loss of a job or reduced income, a serious illness, costly medical bills, a balloon payment due on your mortgage, a divorce or excessive debt are all examples. A loss of equity or the fact that your home has lost value is not considered a qualifying financial hardship by itself.

In most cases, you have to be able to show the situation is an enduring one that is not likely to improve in the foreseeable future – for example, a salesperson who’s having a bad year will probably have a difficult time qualifying.

You also have to be without cash reserves that would enable you to continue making your mortgage payments. For example, Chase will not consider you for a loan modification if you have savings or other cash assets greater than three times your monthly mortgage payment. Retirement savings accounts that penalize early withdrawals are not included.

You have to show you cannot afford your current mortgage payments.
It doesn’t matter if you’re financially stressed, if the bank thinks you can find a way to meet your payments, they’re not going to approve you. This is one reason why many lenders require you to actually be in default before they’ll consider you for a loan modification – if you’re still making your payments, they’ll figure you can still afford them. To qualify, lenders will generally expect that your total recurring debt payments exceed 41 percent of your gross monthly income, with your mortgage exceeding 31 percent. Some will expect an even heavier debt load. They’re also going to take a look at what kind of debt you have – if you seem to be making payments on a car you can’t afford, or otherwise appear to be living beyond your means, they’ll expect you to tighten that up before they approve you for a loan modification.

You have to be able to show that you can stay current on a modified payment schedule. Lenders aren’t going to go to the trouble of giving you a loan modification if you’re still going to default anyway. That’s why unemployed persons can’t qualify for a loan modification, unless they have a spouse who’s still working – you need to have some way of making the payments, and unemployment compensation eventually runs out.

You’re going to have to be able to document your income, meaning pay stubs or W-2’s if you’re an employee, or tax returns, bank statements or profit-and-loss statements if you’re self-employed. If you’re depending on secondary sources of income to help pay your mortgage, you’ll have to document those as well.

The property has to be your primary residence to qualify for a HAMP modification.

This is a hard-and-fast rule with HAMP. However, lenders may be more flexible with private modifications. They may be willing to modify a loan on a rental property, since it produces the income needed to pay the note. In some cases, they may even approve a modification on a second home, if they think they’d take a big loss retaking it in foreclosure. But generally speaking, you have to live there in order to get a loan modification on the mortgage.

Getting a loan modification can be a difficult and frustrating process. But nearly 700,000 U.S. homeowners succeeded in obtaining permanent mortgage modifications through the first eight months of 2011, according to the HOPE NOW Alliance. Maybe you can join them.

Will I Qualify for a Mortgage Loan Modification?

Applying for a mortgage loan modification is much like applying for a general mortgage. Factors for the lender to consider in a loan modification will include income and the likelihood that it will continue, as well as how much equity you have in the property.

Primary Residence

Getting a loan modification on a primary residence, which is the property where the borrower lives as their main home, is usually much easier than getting one on an investment property.

As a rule, lenders are more conservative with investment properties than with homes that borrowers live in. This reason is because if a landlord is dependent on renters for the income to cover the mortgage payments, the fact is renters may pack up and leave at the end of their lease, sometimes earlier. The renters have no attachment to the property.

However, homeowners usually have an emotional attachment to their property, and usually do what they can to keep it. Additionally, knowing that a foreclosure could disqualify them from buying another home for the next four to five years gives them more incentive to want to keep their home, or at a least get out from under the mortgage without going through a foreclosure.

Financial Hardship or Distress

Borrowers, for a variety of reasons, may find themselves in financial hardship, causing them to be unable to pay their mortgage every month. Loss of income or unexpected expenses are generally the culprits, and may legitimately result from job loss, business difficulties, a divorce or a medical situation, among causes.

Lenders understand that this stuff happens, but they want to know how a borrower is going to move forward from the hardship and into a position to be able to make payments once the mortgage is modified.
Write a hardship letter to the lender at the beginning of the process, and include it in the modification application package to both help save time for overworked lender employees, and clarify where you, the borrower has been, and where you are headed.

Unable to Refinance Mortgage

Refinancing into a lower interest rate or better terms is usually the preferred option for borrowers who are looking to lower their mortgage costs. A loan modification is typically the choice for those who can’t refinance, or whose mortgage already offers attractive terms but need some temporary “breathing room” to get through a financial hardship.
However, because a refinance needs good credit, borrowers who expect possible financial stresses down the road should begin to explore a refinance immediately, rather than wait for trouble to arrive. A borrower who has begun to miss or be late on mortgage payments will likely face challenges in trying to refinance, due to a damaged credit rating, and might find that a loan modification is their sole option at that point.

Debt-to-Income Ratio

One of the main factors a lender takes into consideration for loan modifications is the borrower’s debt-to-income ratio. This is the ratio of gross monthly income (before taxes) to total mortgage payment. Lenders vary in the maximum debt ratios they’ll accept, but are generally in the 36 percent to 45 percent range. Compensating factors such as credit score, and the amount of equity in the property will lend to the decision that the lender makes in determining if a borrower should get a loan modification.

Important factors to consider

Remember that the bank or servicing company is working for the lender’s best interest. You may receive an offer that isn’t an affordable modification plan. Adjustable rates or step-up plans rarely work. Press your lender to provide you with modification terms that you can sustain in the long run.

Don’t feel pressured to accept the first modification offer that comes to the table. Terms are negotiable. Make sure all options for adjusting the terms of the loan have been explored. Depending on what the lender modifies, you could end up paying a lot more over the life of the loan.
There is almost always a positive solution for both parties, one that agrees with the bank’s bottom line and is an affordable long-term solution for you. If you need help, remember to find a qualified, experienced, and licensed counselor to help you through this process.

Loan Modification Free Consultation

When you need legal help with a loan modification in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Loan Modifications

Loan Modifications

A loan modification is a complete re-structuring of your home mortgage. A loan modification is an agreement between a past due homeowner and a mortgage lender, which change the terms of a mortgage loan and usually cures any past due balances. There are federal loan Modification programs, such as H.A.M.P. (Home Affordable Modification Program), and private loan modification programs available directly through many lenders. Although you can apply for a loan modification yourself you may need or want to retain the assistance of an attorney to help you. Utah Bankruptcy Professionals has assisted hundreds of individuals obtain loan modifications in all the ways discussed above (reduction in amount of mortgage payment and interest rate, adding arrears to end of loan, reducing principal balance, etc.). To succeed, it is important to present yourself and your financial picture in the most favourable and accurate light possible to increase the likelihood the Lender will approve your application for modification. It is also important to demonstrate that the loan modification benefits both you and the Lender. Utah Bankruptcy Professionals has assisted many individuals in preparing, organizing and evaluating documentation requested in applications for loan modifications. Utah Bankruptcy has helped numerous individuals strategize means of increasing income to their households to qualify for a loan modification. The Lenders are very demanding in their requirements that all requested documents are submitted with the application for loan modification. There are often multiple additional requests for documentation.

Loan modifications are either approved or denied by the lender who owns your loan and its designated servicer. The lender’s designated servicer reviews the submitted paperwork and renders a decision based on the loan owners’ guidelines. To clarify, most mortgages today are owned by pension funds and investment groups, and serviced by banks and loan servicing companies. Many consumers falsely believe that major banks such as Wells Fargo and Bank of America own all the mortgage loans they service. The truth is that while they do own some of the loans, they act as a servicer for most loans. As a result, they are instructed by the owner of the note on what guidelines are to be used to determine whether a loan application is approved or denied. However, lenders have been pressured by the government to modify mortgages to assist homeowners and in cases where the mortgage is owned by a government sponsored entity the lenders are directed to modify a mortgage payment equal to 32% of gross income, if reasonable. However, the government left the means to the Lender for determining income was left to the lender along with the definition of “if reasonable”, no timeline was given under which they had to review the modification documentation, and the 32% of gross income to mortgage payment was vague as they were not required to modify to the percentage, only asked to when reasonable. Homeowners who are interested in obtaining a loan modification should be careful and only work with a licensed Utah attorney.

Loan modification scams and foreclosure avoidance fraud are commonplace and too many homeowners have lost their money and even their homes to criminals and con artists. Although ostensibly intended to assist borrowers who are experiencing financial problems, loan modifications have been getting a lot of bad publicity recently, thanks to lawsuits brought by consumers alleging that their lender misled them. Common complaints include allegations that the mortgage company recommended or encouraged borrowers to default on their mortgage to qualify for assistance, only to demand a huge sum of money afterwards. For loan modifications, this can be problematic because lenders never actually sign these documents. They simply send out the paperwork and express willingness to honour the modification until they suddenly and unilaterally terminate it – which they can, because they never signed it. In the meantime, unwary consumers have come to rely on the modification and change their payment habits accordingly, only to be struck with an unexpected notice of default. A loan modification is a change to the original terms of your mortgage, typically due to financial hardship. The goal is to reduce your monthly payment and this can be achieved in a variety of ways. Your lender will calculate a new monthly payment based on amendments made to your initial mortgage contract.

Some types of modification are better than others, and your lender might not offer all of them, although it might have additional options. Options include:
• Principal reduction: Your lender can eliminate a portion of your debt, allowing you to repay less than you originally borrowed. It will recalculate your monthly payments based on this decreased balance, so they should be smaller. Lenders are typically reluctant to reduce the principal on loans, however. They’re more eager to change other features which can result in more of a profit for them—not a loss. If you’re fortunate enough to get approved for a principal reduction, discuss the implications with a tax advisor before moving forward because you might find that owe taxes on the forgiven debt. This type of modification is usually the most difficult to qualify for.
• Lower interest rate: Your lender can also reduce your interest rates, which will reduce your required monthly payments. Sometimes these rate reductions are temporary, however, so read through the details carefully and prepare yourself for the day when your payments might increase again.
• Extended term: You’ll have more years to repay your debt with a longer-term loan, and this, too, will result in lower monthly payments. This option is commonly referred to as “re-amortization.” But longer repayment periods usually result in higher interest costs overall because you’re paying interest across more months. You could end up paying more for your loan than you were originally going to pay.
• Convert to a fixed rate: You can prevent problems by switching to a fixed-rate loan if your adjustable-rate mortgage is threatening to become unaffordable.
• Postpone payments: You might be able to skip a few loan payments. This can be a good solution if you’re between jobs but you know you have a pay check out there on the horizon somewhere, or if you have surprise medical expenses that will be paid off eventually. This type of modification is often referred to as a “forbearance agreement.” You’ll have to make up those missed payments at some point, however. Your lender will add them to the end of your loan so it will take a few extra months to pay off the debt.

Depending on the type of loan you have, it might be easier to qualify for a loan modification. Government programs like FHA loans, VA loans, and USDA loans offer relief, and some federal and state agencies can also help. Speak with your loan servicer or a HUD-approved counsellor for details. For other loans, try the Fannie Mae Mortgage Help Network. The federal government offered the Home Affordable Modification Program (HAMP) beginning in 2009, but that expired on Dec. 31, 2016. The Home Affordable Refinance Program (HARP) expired two years later at the end of 2018. But HARP has been replaced by Freddie Mac’s Enhanced Relief Refinance Program and by Fannie Mae’s High Loan-to-Value Refinance Option, so these might be a good place to start for assistance. Modification is an alternative to foreclosure or a short sale. It’s easier for homeowners and it tends to be less expensive for lenders than other legal options. You get to stay in your home, and your credit suffers less from modification than it would after a foreclosure. In some states, they’re not legally permitted to charge a fee in advance to negotiate with your lender, and in other states, they’re not allowed to negotiate for you regardless of when you pay them. Of course, don’t count on them telling you this. A loan modification is a permanent restructuring of the mortgage where one or more of the terms of a borrower’s loan are changed to provide a more affordable payment. Many different loan modification programs are available, including proprietary (in-house) loan modifications, as well as the Fannie Mae and Freddie Mac Flex Modification program. If you’re currently unable to afford your mortgage payment, and won’t be able to in the near future, a loan modification might be the ideal option to help you avoid foreclosure.

While a loan modification agreement is a permanent solution to unaffordable monthly payments, a forbearance agreement provides short-term relief for borrowers. With a forbearance agreement, the lender agrees to reduce or suspend mortgage payments for a certain period of time and not to initiate a foreclosure during the forbearance period. In exchange, the borrower must resume the full payment at the end of the forbearance period, plus pay an additional amount to get current on the missed payments, including principal, interest, taxes, and insurance. The specific terms of a forbearance agreement will vary from lender to lender. If a temporary hardship causes you to fall behind in your mortgage payments, a forbearance agreement might allow you to avoid foreclosure until your situation gets better. In some cases, the lender might be able to extend the forbearance period if your hardship is not resolved by the end of the forbearance period to accommodate your situation. In forbearance agreement, unlike a repayment plan, the lender agrees in advance for you to miss or reduce your payments for a set period of time. A loan modification company, also known as a mortgage modification company, is a business that helps homeowners modify the terms of their home loans or mortgages.

When a mortgage is modified, the original terms of the home loan contract between a lender and a borrower are renegotiated and then altered, usually in the favour of the borrower. Many homeowners choose to obtain modifications to their home loans when they are struggling to pay their mortgages or hope to avoid foreclosure. In order to expedite the loan modification process, homeowners may rely upon the services of a local loan modification company. By working with company that handles loan modifications, homeowners “receive the advice, resources and services they need to obtain the best terms possible for their modification while avoiding scams, which are prevalent in the loan modification industry.” Additionally, homeowners who are facing foreclosure may be able to remain in possession of their homes if they work with their lenders to modify their mortgage. Loan modification can also make homeowners’ monthly loan payments more affordable. Loan modification programs are offered by loan modification companies and can be very helpful to homeowners who are struggling with their mortgages. Many of these programs enable homeowners to pay zero advance fees, reduce monthly mortgage payments and stop foreclosure. Loan modification companies can also inform homeowners of federal programs, which may be advantageous. Loan Modification Company Software: Software built for existing companies to help process paperwork and do analysis. These range from Customer Relationship Manager (CRMs), to online portals and also internal analysis.

Loan modification is the systematic alteration of mortgage loan agreements that help those having problems making the payments by reducing interest rates, monthly payments or principal balances. Lending institutions could make one or more of these changes to relieve financial pressure on borrowers to prevent the condition of foreclosure. Modifications were a fix to the crash as litigation has ensued as the lenders reorganized and renamed the lending institutions and government agencies are to closely monitor them. Prior to modifications loan holders that experiences crisis would use Loan assumptions and Loan transfers to keep the note in the 1930s. During the Great Depression, loan transfers, loan assumption, and loan bailout programs took place at the state level in an effort to reduce levels of loan foreclosures while the Federal Bureau of Investigation, Federal Trade Commission, Comptroller, the United States Government and State Government responded to lending institution violations of law in these arenas by setting public court records that are legal precedence of such illegal actions. The legal precedents and reporting agencies were created to address the violations of laws to consumers while the Modifications were created to assist the consumers that are victims of predatory lending practices. During the so-called “Great Recession” of the early 21st century, loan modification became a matter of national policy, with various actions taken to alter mortgage loan terms to prevent further economic destabilization. Due to absorbent personal profits nothing has been done to educate Homeowners or Creditors that this money from equity, escrow is truly theirs the Loan Note Holder and it is their monetary rights as the real prize and reason for the Housing Crash was the profit n obtaining the mortgage holders Escrow?

The Escrow and Equity that is accursed form the Note Holders payments various staff through the United States claimed as recorded and cashed by all staff in real-estate from local residential Tax Assessing Staff, Real Estate Staff, Ordinance Staff, Police Staff, Brokers, attorneys, lending institutional staff but typically Attorneys who are also typically the owners or Rental properties that are trained through Bankruptcies’ Mediation is usually a great way for a plaintiff and defendant to sit down with a neutral arbiter to hash out their differences and come to a resolution that is usually better than continued litigation. Mediation is successful in all types of disputes including personal injury cases, contract disputes and even divorces. However, in these cases, circuit court judges will readily punish a party who fails to attend mediation or who attends but fails to comply with the mediation order. The Home Affordable Modification Program (HAMP) was established on February 18, 2009 to help up from 7 to 8 million struggling homeowners at risk of foreclosure by working with their lenders to lower monthly mortgage payments. The Program is part of the Making Home Affordable Program which was created by the Financial Stability Act of 2009]. The program was built as collaboration with banks, services, credit unions, the FHA, the VA, the USDA and the Federal Housing Finance Agency, to create standard loan modification guidelines for lenders to take into consideration when evaluating a borrower for a potential loan modification. Over 110 major lenders have already signed onto the program. The Program is now looked upon as the industry standard practice for lenders to analyze potential modification applicants. Foreclosure rescue and mortgage modification scams are a growing problem. Homeowners must protect themselves so they do not lose money or their home. Scammers make promises that they cannot keep, such as guarantees to “save” your home or lower your mortgage, often for a fee. Scammers may pretend that they have direct contact with your mortgage servicer when they do note. Even amongst reputable refinance organizations, the fundamental education of the house owner is not stressed. Some may even request struggling homeowners to pledge their time to become politically active.

The controversy exists between personal integrity and the concept of a ‘right to homeownership’. Many euphemisms are used to implicitly stress the concept that homeownership is not the result of a lifetime of effort but a government-given right. These euphemisms like “HOPE, relief and Save-the-Dream” as used above in naming or implementing the loan modification programs. The origins of the word ‘mortgage’ are a death pledge—a concept that perhaps even exceeds the common view of personal integrity. At the foundation of homeownership should be a personal long-term commitment to pay the terms of the mortgage. On the banker’s side of the contract, their business model is regulated by the ‘social good’ which are implemented by government by chartering banks. If the banks implement policies that lead to financial bubbles and panics, a democratic government is equipped with the tools to unchartered and redistribute banks assets.

Loan Modifications In Utah Free Consultation

When you need legal help with a loan modification in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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What Happens If I Can’t Get A Loan Modification?

What Happens If I Can't Get A Loan Modification?

Loan modification is a change made to the terms of an existing loan by a lender. It may involve a reduction in the interest rate, an extension of the length of time for repayment, a different type of loan, or any combination of the three.

Such changes usually are made because the borrower is unable to repay the original loan. Most successful loan modification processes are negotiated with the help of an attorney or a settlement company. Some borrowers are eligible for government assistance in loan modification.

How Loan Modification Works

Although a loan modification may be made for any type of loan, they are most common with secured loans such as mortgages.

• A loan modification is typically granted to a borrower in financial crisis who can’t repay the loan under its original terms.
• Successful applicants typically are represented by legal or other professional counsel.
• Some consumers have access to government programs that help mortgage-holders.
A lender may agree to a loan modification during a settlement procedure or in the case of a potential foreclosure. In such situations, the lender has concluded that a loan modification will be less costly to the business than a foreclosure or a charge-off of the debt.
A loan modification agreement is not the same as a forbearance agreement. A forbearance agreement provides short-term relief for a borrower with a temporary financial problem. A loan modification agreement is a long-term solution.

A loan modification may involve a reduced interest rate, a longer period to repay, a different type of loan, or any combination of these.
There are two sources of professional assistance in negotiating a loan modification:

• Settlement companies are for-profit entities that work on behalf of borrowers to reduce or alleviate debt by settling with their creditors.
• Mortgage modification lawyers specialize in negotiating for the owners of mortgages that are in default and threatened with foreclosure.
Federal government assistance also is available to some borrowers.

Government Programs

Mortgage loan modifications are the most common type because of the large sums of money at stake. During the housing foreclosure crisis that took place between 2007 and 2010, several government loan modification programs were established for borrowers.

Some of those programs have expired but government-sponsored loan modification assistance is still available to some borrowers. These include:

• Fannie Mae, the government-sponsored mortgage company, has a program called Flex Modification.
• Mortgages insured by the Federal Housing Authority may be eligible for modification through the agency’s FHA-HAMP program.
• Military veterans can get mortgage delinquency counseling through the U.S. Dept. of Veterans Affairs.
Some traditional lenders have their own loan modification programs.

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.

• Apply for a modification as soon as possible. To qualify for a modification, you’ll have to submit a complete “loss mitigation” application to your loan servicer. It’s best to submit your application as soon as you know you’ll have trouble making your payments or shortly after you fall behind. If you take several weeks or months to put your paperwork together, a foreclosure could start or continue, leaving you with less time to work out a foreclosure alternative.

• Send in all items the servicer requests. To get protection against dual tracking under federal and some state laws, you have to send your servicer a complete application. An application is complete once you’ve sent in everything that the servicer requested—like a financial worksheet, pay stubs, bank statements, information about your assets, tax returns, and a hardship statement. One of the main reasons that people often don’t get approved for a modification is because they fail to send in every document that the servicer requests. The servicer won’t make a decision your application until all of your items are in. If you leave out just one document—or send paperwork that’s outdated—the servicer will likely deny your request for a modification.

• Be sure to include every page of each required item. When you send your paperwork to the servicer, don’t omit any pages. For example, even if page three of your bank statement is blank, if the other pages say “Page 1 of 3” and “Page 2 of 3”, you need to send all three pages. Otherwise, the servicer will probably consider the document incomplete.

• Keep all correspondence you receive from the servicer. Be sure to retain all written communications you receive from the servicer, such as a confirmation letter that the servicer received your complete application or a letter telling you that certain items are missing. This information could be useful later on if you want to challenge a foreclosure by showing the servicer didn’t comply with servicing laws. (To learn what to do, and what not to do, in a foreclosure, see Foreclosure Do’s and Don’ts.)
• Learn about laws that protect you in the process. Servicers sometimes make mistakes when processing borrowers’ modification applications. Find out about the federal and state laws that protect you in the loss mitigation process so you can enforce your rights if the servicer fails to abide by the law. (Read about federal mortgage servicing laws that protect homeowners from foreclosure.)
Don’t:

• Send illegible documents. When you send your paperwork to the servicer, be sure that all pages are legible. Otherwise, the servicer might deem them unacceptable and deny your application. Be aware that what you consider acceptable and what the servicer considers readable might be different. The servicer won’t put in a lot of effort to decipher words or numbers that are potentially unclear. It’s in your best interest to make it easy for the servicer to read the documents by submitting only clear, clean copies.

• Lose your cool if the process isn’t perfectly smooth. Stay calm, even if you have to resubmit paperwork you already sent in. Resend whatever item the servicer asks for, and send it as soon as possible. If you get irritated with the servicer and insist that you already submitted all required documents rather than resending them, you’ll only hurt yourself. Remember that your servicer is likely getting thousands of requests for modifications—don’t give the staff an easy reason to turn down your request.
• Be afraid to get clarification. Be sure that you’re clear on exactly what items you need to send in. The servicer might request two pay stubs assuming that covers one month of your income. But if you’re paid weekly, bimonthly, or monthly, you might have to send in more or fewer pay stubs. If you need clarification, ask your point of contact. (Under federal law, in most cases, by the time you’re 45 days’ delinquent, the servicer has to assign a single person or a team to help you with the loss mitigation process.)
• Forget to put your name, loan number, and contact information on each page of every document you turn in. Normally, you get a few options for sending your documents to the servicer: by regular mail, overnight mail, fax, or secure email. Paperwork sometimes gets lost, so the best option is secure email. Whatever option you choose, be sure to put your identifying information on every page of each document. Otherwise, the servicer might misplace one page and think your application is incomplete. When possible, send all of your application documents at one time, which significantly reduces the opportunity for items to get lost.
• Assume everything is on track, even after you’ve sent in your complete application. After you send in your paperwork, remain in touch with the servicer. Call at least one time each week to check on the status of your application. Keep notes detailing when you called the servicer, who you talked to, and what you discussed. Also, be sure to ask if the servicer needs any updated documents or information from you.
What Are the Alternatives If Loan Modification Does Not Work for Someone?
What Happens If Someone Defaults on A Loan Modification? Is It Like

Essentially Having A New Loan?

When you do a loan modification, they actually record a new deed of trust in the land records with the terms of the new loan modification. So, essentially if you fell behind in a loan modification, it’s just like falling behind on the original mortgage except the payments are lower and you’re not falling behind as fast as you were when the payments were higher.
The good news is the attorney can still file Chapter 13. Law office of Attorney James Logan has filed quite a few Chapter 13 for people who had modified loans. Because the payments are lower, a lot of times, the Chapter 13 will work out. You can always file a Chapter 13 after getting a loan modification if you want to try to hold on to your house. In some cases, people get second loan modifications and again, if their income situation is changed for the better, they may be able to get another loan modification from their lender.

What Are Some of The Other Alternatives to Foreclosures?

Once you start to fall behind on your mortgage, your first option is to call your lender and see if you can work out either some kind of forbearance. If it’s a temporary collection on your income or you’re just out of work for 6 months but now you’re back to work, and the forbearance means they’ll work out some program with you to catch you up on the 2 or 3 months that you missed. Attorney James Logan can do a reinstatement if you have funds available.
Sometimes, people get a tax refund that’s allowing you to catch up the mortgage. But what you don’t want to do is pull out money from your 401(k) to reinstate your loan, that’s a very bad idea because you’re paying the taxes and penalties on the withdrawal for the 401(k). And if you ultimately end up losing the house, you wasted all that money. So, it is strongly advised never to pull out money from a 401(k) or IRA to catch up loan or catch up a mortgage.
If you have some other source of funds that you can use to reinstate the loan, that may be an option. In Maryland, you can apply for mediation at a certain point during the foreclosure process and the mediation is where you can actually sit down with the lender and a mediator was appointed by the court and talk about options to save your home. Sometimes, that’s successful.
Your ultimate option is to file a bankruptcy. You need to file a Chapter 13 where the attorney can set up a payment plan to catch you up on the back payments on the mortgage or you can file a Chapter 7 and just basically buy yourself a few months in the house and wipe out all your liability on the house and walk away from it. Sometimes, people just realize that they are never going to be able to hold on to the house and they start to buy time and walk away.

Why Bankruptcy Would Be A Better Option?

Bankruptcy may be a better option for loan modification if you’re not too far behind in your mortgage and you have other debts that can be dealt with in a bankruptcy. So, those are probably the two situations where it makes more sense to file a bankruptcy. Unfortunately, by the time many people come to see a lawyer, they’re two, three, four years behind in the mortgage which they can’t afford just the regular payment.
If they file a Chapter 13, they’re looking at the regular payment plus another payment on top of that. So, if you can’t afford the regular payment, how are you going to afford the regular payment plus more on top? But if you’re only a few months behind, which is becoming more common as we emerged from the recession, we’re starting to get past all the crazy day mortgages. Those kinds of situations make sense.
In another case, if you have a lot of debts, a lot of times, we can file a Chapter 7 and get rid of all your credit card debt and other debts that are weighing you down and you can focus on getting a loan modification to save your home.
To learn more about federal and state laws that protect homeowners in the loan modification process, talk to a lawyer. If the servicer violates any of the laws mentioned in this article or treats you unfairly, you might have a defense to a foreclosure, which could give you leverage in the modification process.
To get assistance with completing your application or to learn more about different loss mitigation options, consider talking a HUD-approved housing counselor. You should not, however, hire a loan modification company to assist you.

Loan Modification Attorney Free Consultation

When you need legal help with a loan modification in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Is A Loan Modification Bad For Your Credit?

Is A Loan Modification Bad For Your Credit

One concern that many people have about getting a mortgage loan modification is how it will affect their credit rating. They may be in a position where a loan modification would help them, but they hesitate to pursue one for fear of harming their credit. At first, it might seem a minor issue. After all, a foreclosure is one of the worst things that can happen to your credit rating, so doing what you can to avoid it might seem like a no-brainer. But for those who depend on good personal credit – such as small businesspeople who need to maintain a healthy credit line to keep operating – there might be legitimate reasons to be concerned.

Long-term credit impacts may be positive

Depending on how your lender reports it to the credit bureaus, a loan modification can result in a drop in your credit rating. But at the same time, it’s going to have far less negative impact than a foreclosure or string of late payments, so in that case, it can actually help your rating in the long run. In most cases, borrowers seeking a loan modification are already going to be in some kind of financial difficulty. Many will have already begun missing payments or making late payments (defined as 30 days or more lately for credit reporting purposes), so they’re already suffering some negative effect on their credit rating. In fact, some lenders may not consider a loan modification until a borrower begins to fall behind on their mortgage, although this is not the case of all lenders or a requirement of the government’s Making Home Affordable program. Lenders will often report a loan modification to credit bureaus as a type of settlement or adjustment to the terms of the loan.

If it shows up as not fulfilling the original terms of your loan, that can have a negative effect on your credit. But the effect will be less and of shorter duration than a string of missed payments or a foreclosure would have. On the other hand, some lenders may not report a change as a settlement, meaning your credit would be unaffected. In this case, your credit rating could even improve, because your monthly payment would be reported as decreased. When negotiating a loan modification, ask your lender how they report it – they may even agree not to report it as an adjustment, particularly if you’ve been a good customer over the years. One particular credit problem has been associated with trial loan modifications under the government’s Making Home Affordable Program. In a trial modification, the homeowner is given a reduced payment schedule which, if maintained for three months, can be made permanent. However, some homeowners are reporting that their lenders are reporting them as failing to stay current on their payments during this period, since the reduced payment schedule is not yet official.

Trial modifications should be listed as current

The government has issued guidance to lenders that trial modifications should be listed as current, but on a modified schedule. This may still have a negative impact on your credit, but will not be as severe or last as long as a late-payment report. If your lender is not reporting your modified payments as current, you or your credit counselor can refer them to the guidelines posted on the Home Affordable Modification Program. Finally, it’s important to remember that at loan modification will likely have a different impact on your credit than refinancing your mortgage. A loan modification changes the terms of your existing mortgage, while a refinance is simply obtaining a new mortgage on better terms. A refinance should have no negative effects on your credit, other than possibly a small short-term debt due to the fact you’ve taken out a new loan. But otherwise, the effects should be minimal. A horrible economy, large lending losses and an uncertain future have everyone trying to insulate themselves from what I call a credit winter by tightening their belts and doing what they can to reduce risk and further losses. You are modifying your loan; bankers are cutting credit lines and raising interest rates. Because you are in the process of modifying your mortgage and have not completed the process, my initial reaction is your credit card limit is being reduced due to environmental issues and not because of your modification. However, if you are modifying your mortgage because you could not make your mortgage payment and paid late once, twice or more, then your credit card limit may have been decreased due to that negative activity on your credit report. Looking at your credit reports will tell you how your mortgage loan is being reported.

The modification, once completed, may negatively affect your credit score. It all depends on how the lender reports the change. For example, if the modification is considered a new loan and your principal was decreased, the lender may report your original mortgage as settled or charged off, which would be a fairly big negative for credit scoring. But if by modifying the loan you are avoiding a foreclosure, then you are avoiding a much larger negative entry on your credit report that would be far more devastating to your credit. If the modified loan is not considered a new or settled loan by your lender, then the only negative effect on your credit associated with the modification should be any late payments you made on the loan. Should you end up with a negative entry on your report due to the modification, it’s not the end of the world. Although the negative data will stay on your credit report for seven years, it will decrease in importance with every month that passes. New positive payment information can stay on your record for much longer and will help rebuild your credit usually in a year or two. Finally, be aware that credit may continue to tighten, meaning you will need a better credit record than usual to keep your credit lines in place. This will make saving for that rainy day or emergencies all the more important.

Mortgage modification is growing in popularity with more and more people facing foreclosure. Banks are turning to this method as an alternative to foreclosure and in some cases it is a good thing. Mortgage modification can help you under the right circumstances. However, you will want to make sure that you are getting the best deal before agreeing to anything.
Here is the good, the bad, and the ugly about mortgage modification.

The good thing about mortgage modification is that it can help you stay on your feet. Mortgage modification is designed as an alternative to foreclosing on a house or filing bankruptcy. If you are in deep, you will need help from somewhere. If you have to foreclose on your house, it will hurt your credit badly. You might not be able to buy another house for years. Therefore, anything you can do to get out of foreclosure is a good thing. Modification can help you by lowering your interest rate, lowering your payment, or getting rid of late payments for you. If you are behind on your payments, it can seem very overwhelming. If the mortgage lender is helpful, it can be a great asset to you and your financial situation.

Mortgage modification is not always in your best interest. If you can leave your mortgage alone and avoid modification you will usually be better off. A mortgage modification usually will negatively affect your credit. Anytime you do not pay off a loan like you agreed to pay it off, it can be reported to the credit bureaus. Usually you will have many late fees and missed payments if the house is close to foreclosure. Therefore, your credit score can be negatively affected from the mortgage modification process. Sometimes, mortgage modification is a big mistake. The mortgage lenders may just be in it to help them out and they don’t care about you. When this happens, just stay away from their offers and stick with your loan. One such example is in the area of blind loan modification. Blind loan modification is when the bank sends you an automated offer that is designed to get you to modify your loan. It will come with some seemingly attractive terms that entice you to accept the offer. However, when it comes down to it, the offer is not in your best interest. It is designed to help the bank in the long run and make them more money. The bad thing about blind loan modification is that the offer is generated by a computer instead of by a person.

It is not a special offer that was designed on your behalf from the bank. The bank will not be able to discuss it with you in detail. They just want you to accept the offer and start making your payments. Make sure that you understand what you are agreeing to with these types of deals. A loan modification is exactly what it sounds like: a change in the terms of a loan. The objective: achieve a lower, manageable monthly payment. Modification is an alternative to the messy process of foreclosure, bringing relief the homeowner (who gets to stay put) as well as the lender (which doesn’t incur the expense and time lost to foreclosure). It’s sort of a win-win, especially if the borrower is informed, organized, proactive and persistent.

Incidentally, loan modifications, like loan applications themselves, are for everyone who complained they’d never use algebra in real life. Payments are the result of an algebraic formula involving three variables:

principal, interest rate, and term (length of the loan). In a loan modification, applicants attempt to alter one or more of these variables to reduce their payments.

• Principal reduction: We begin with the holy grail of loan modifications — eliminating a portion of your original debt and recalculating your payments based on this new figure. Because the result is a direct hit to their bottom line, lenders are reluctant to saw off a portion of the principal; they much prefer to restructure troubled loans in other ways. If you are approved for a principal reduction, however, consult with a tax professional; the forgiven portion of your loan may be subject to income taxes as regular income.

• Lower interest rate: Your lender might be willing to negotiate a break on your interest rate. In some cases, a quarter or even an eighth of a point can make all the difference. This cut may be temporary, however; know the details of your modification and, if your reduction isn’t permanent, be prepared for when your rate, and payment, pop up again.

• Extended term: Lenders sometimes are willing to recalculate a loan based on a longer payoff schedule. A 15-year loan can stretch to 20 or 30. Be wary, however, of lenders offering to extend loans beyond 30 years; if the plan is to lengthen your mortgage to 40 years or more, scrutinize the modification for prepayment penalties. Make sure you won’t incur a sanction if you sell the house, or recover yourself sufficiently to refinance into a shorter loan.

• Refinance the loan: Modification generally is for borrowers who are in trouble on their mortgages and unable to refinance. However, under certain circumstances the house has plenty of equity, or the borrower has untapped resources even a problem borrower can refinance. Replacing your current loan for one with a lower interest rate, a longer term, or both, could drop your monthly payment substantially. The downside: There will be closing costs, and assuming you stay put for the duration of the loan you probably will incur higher total interest costs. Loan modifications, by contrast, can be completed faster and without processing fees.

• Convert to a fixed-rate: If you have a variable interest-rate loan that’s been ticking toward the point of breaking your budget, you’re definitely a candidate for a fixed-rate loan.

• Postpone payments: Suppose your financial bind is temporary. You’re caught between jobs (but you’re undeniably employable), you’ve encountered unanticipated medical expenses, or there’s been some other setback. If you’ve been a model mortgagor, you might be able to skip a handful of payments. Those payments are not forgiven; they’re tacked onto the end of your loan, so you’ll have to postpone your mortgage-burning party, or there will be a larger balance due when you sell your house.

While you’re at it: Look for other ways to save on your payments, especially if you are having your property taxes and insurance put into escrow.

• While county property assessors rarely make significant errors on the taxable value of typical homes, it’s never a bad idea to inspect your annual notice. A mistake in your overall value (overstating the number of bedrooms or bathrooms, or the size of your property) or the value of add-ons (a pool, or out-buildings, size of your property) could add substantially to your tax bill. Do your research, and then visit your county property appraiser’s website to learn how to challenge your valuation.

• Make certain your homeowner’s insurance is right for your needs. Review your deductibles. Don’t pay for coverage you don’t need. Shop your policy; prices can fluctuate widely within the same area, depending on how companies weigh various risks.

• Review your private mortgage insurance (PMI) status. Rising property values are your friend: Homeowners often can eliminate PMI premiums if their loan balance is less than 80% of their home’s market value.

Who Can Qualify for a Home Mortgage Modification?

Homeowners who have fallen behind on their payments, or are in danger of falling behind, and are faced with potential foreclosure as a result of unanticipated or unavoidable (and demonstrable) financial hardship may be candidates for loan modifications.
Examples of financial troubles include, but are not limited to:
• Unemployment or other loss of income
• Increased living expenses
• Medical bills
• Divorce or separation
• Death of a family member
• Disability
In virtually all circumstances, lenders will examine carefully the borrower’s claims and weigh them against the likelihood that when the crisis passes, the customer will be able to fulfill the obligations of the modified loan.

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. (It helped to have Congress and the White House breathing down their necks, but let’s not quibble about progress.) Nowadays, most lenders have assorted programs designed to see borrowers through tough times while keeping them in their homes. If yours doesn’t, ask your lender or a Housing and Urban Development-approved counselor about your eligibility for programs that can assist you through the modification process.
Two federal programs adopted in response to the mortgage crisis are no longer with us. But substitutes are in place.
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 Mae’s High Loan-to-Value Refinance Option and, from Freddie Mac, the Enhanced Relief Refinance program.

What Steps Are Involved in a Mortgage Modification?

When you’re certain there’s going to be trouble, contact your mortgage holder (mortgagee) immediately, over the telephone or online. Explain your situation and inquire about the available options. Other factors being equal, lenders are more likely to work with at-risk clients who are proactive about their predicament. Modification applications vary from lender/service to lender/servicer. Most likely, you will be asked to provide proof of your financial hardship; some will require a letter explaining your hardship and why a modification is necessary. Beyond that, be prepared to document your finances in detail, no less than when you applied for your mortgage in the first place. Some of the information you’ll be asked to provide:
• Income: How much you earn, its sources, and other financial resources.
• Expenses: A record of your spending — how much, and where it goes; be prepared to categorize (housing, transportation, food, clothing, etc.)
• Documents: Back up your statements with paystubs (or profit/loss statements if you’re self-employed), bank and credit card statements, loan agreements, investment reports, recent tax returns and other vital documents.
Just like a mortgage application, a loan modification application can take hours to complete. Once you’ve gathered the documents and related information which can be time consuming, even for the well-organized applicant there will be forms to fill out. Also, your lender is likely to be extremely particular about how it wants information formatted. Once everything is submitted, make certain you keep your information updated, with replacement documents in timely order. A common complaint among loan modification applicants is that lenders ask for the same document over and over, most often because the original documents have gone out of date. (Yours isn’t the only modification they’re processing, after all.) It may take weeks before the lender provides an answer, and weeks more to alter your loan, if you get approved. (A majority of applications are denied.) Meanwhile, believe it or not, the clock continues to tick on foreclosure.

Loan Modification Attorney Free Consultation

When you need legal help with a loan modification in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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