What Is A Hardship Loan Modification?

What Is A Hardship Loan Modification

Some types of modification are better than others, and your lender might not offer all of them, although it might have additional options.

• 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 paycheck 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.

Government Loan Modification Programs

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 counselor for details. 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.

Why Lenders Modify Loans

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. Otherwise, your lender has several unattractive options when and if you stop making mortgage payments and it must foreclose or approve a short sale. It can:
• Attempt to collect the money you owe through wage garnishment, bank levies, or collection agencies
• Write the loan off as a loss
• Lose the ability to recover funds if you declare bankruptcy

How to Get a Loan Modification

Start with a phone call or online inquiry, and let your lender know about your financial situation. Just be honest and explain why it’s hard for you to make your mortgage payments right now. Lenders will require an application and details about your finances to evaluate your request, and some require that you also be delinquent with your mortgage payments, usually by 60 days. Be prepared to provide certain information:
• Income: How much you earn and where it comes from
• Expenses: How much you spend each month, and how much goes toward different categories like housing, food, and transportation
• Documents: Proof of your financial situation, including pay stubs, bank statements, tax returns, loan statements, and other important agreements
• A hardship letter: Explain what happened that affects you making your current mortgage payments, and how you hope to or have rectified the situation. Your other documentation should support this information.
• IRS Form 4506-T: Allows the lender to access your tax information from the Internal Revenue Service if you can’t or don’t supply it yourself.
The application process can take several hours. You’ll have to fill out forms, gather information, and submit everything in the format your lender requires. Your application might be pushed aside or worse, rejected if something your lender asked for is missing or outdated, such as a tax return that’s three years old. It might be several weeks before your lender gives you an answer, and it can take even longer to actually change your loan when and if you get approved. Keep in frequent contact with your lender during this time. It might have questions and just hasn’t gotten around to calling you yet. It’s usually best to do what your bank tells you to do during this time, if at all possible. For example, you might be instructed to continue making payments. Doing so could help you qualify for modification. In fact, this is a requirement for approval with some lenders. Lenders have different criteria for approving modification requests, so there’s no way to know if you’ll qualify. The only way to find out is to ask.

Mortgage Modification Scams

Unfortunately, homeowners in distress attract con artists. Beware of promises that sound too good to be true. It’s best to work directly with your lender to be on the safe side. Some organizations will promise to help you get approved for a loan modification, but these services come at a steep price and you can easily do everything yourself. They typically charge you, sometimes exorbitantly, to do nothing more than collect documents from you and submit them to your lender on your behalf. 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.

Refinance the Loan Instead

Modification is typically an option for borrowers who are unable to refinance, but it might be possible to replace your existing loan with a brand new one. A new loan might have a lower interest rate and a longer repayment period, so the result would be the same you’d have lower payments going forward. You’ll probably have to pay closing costs on the new loan, however, and you’ll also need decent credit.

Consider Filing For Bankruptcy Protection

If all else fails, you might have one other option filing for Chapter 13 bankruptcy. This isn’t the same as a Chapter 7 bankruptcy where the court takes control of your non-exempt assets, if any, and liquidates them to pay your creditors. Chapter 13 allows you to enter into a court-approved payment plan to pay off your debts, usually for three to five years. You can include your mortgage arrears if you qualify, allowing you to catch up and get back on your feet, but you must typically continue to make your current mortgage payments during this time period. This might be possible, however, if you can consolidate your other debts into the payment plan as well. You must have sufficient income to qualify.

Loan Modification: What Are Considered Hardships

Loan modification is the process of negotiating the terms of your loan for any number of varying factors. In the case of financial hardship, you are seeking a modification on your loan based on circumstances that have affected your ability to pay. Loan modifications are common on home loans today, but they may also be available on student loans, car loans and personal loans. In today’s economy, lenders are willing to work with people who claim financial hardship in order to keep those people in their homes and financially stable.

Unemployment For Loan Modifications

Unemployment is among the most common reason to seek loan modification for financial hardship. Many car dealerships are offering to make payments for purchasers for up to a certain amount of time in the case that purchaser loses his or her job. Even cable companies are reducing monthly fees for the unemployed. This does not just apply to a lost job, either. Students graduating from college or graduate programs who have been promised jobs that have been deferred for a certain amount of time can additionally defer their loans. For example, if you are graduating from law school and were promised a job starting in October which is now not starting until January, you may defer your loan repayments with the claim of financial hardship.

Reduced Income

If you are facing a reduced income for any reason, you may be able to negotiate the terms of your loan. Many people are facing a reduction to part-time employment in response to the recent recession. If you were forced to leave one job and take another in a lower pay bracket, consider writing a financial hardship letter to your lender for loan modification purposes. Your lender may likely already have forms and letter you can use as a sample.

Divorce or Family Problems

Divorce is one of the most common drains on a family’s income. Legal fees, splitting of assets and moving from one mortgage to two can drastically decrease a family’s ability to make ends meet. Likewise, if your spouse passes away you will be eligible for loan modification based on financial hardship. When you are speaking with your attorney regarding divorce settlement or estate settlement, discuss the loans you are currently repaying. Your attorney may be able to offer advice on programs to reduce your payments based on financial hardship.

Disability or Illness

You may be eligible for loan modification if you or your spouse is out of work for an extended period of time due to disability or illness. Many lenders will offer this same benefit to couples that are cohabitating, but not all lenders recognize this as a legitimate claim of financial hardship. You must be able to show how your disability or illness has affected your ability to receive the loan modification. You will likely additionally be required to show medical records stating the illness and treatments you received.

Hardship Letter Tips for your Loan Workout

If you are trying to obtain a loan modification or other loan workout plan, then your bank’s guidelines are going to require that you write a hardship letter.

A hardship letter is required by lenders when negotiating a loan modification or any loan workout. It is a letter you have to write explaining your financial distress and what caused you to fall behind in your mortgage payments. When writing your hardship letter remember that lenders will not modify your loan because they feel sorry for you, but rather because you have convinced them that you will be able to make future payments under the proposed loan modification. As a result, while you need specify your financial hardship, your letter should concentrate on how you plan to rectify your situation, rather than focusing on the causes of your financial distress and missed payments.

Acceptable Hardship

Make sure that when you write a hardship letter, you provide a specific cause for missing mortgage payments. Below are examples of acceptable hardships according to bank guidelines:
• Loss of job or reduction in income
• Death of the homeowner, spouse or family member
• Illness of homeowner or family member or other medical emergency
• Divorce or separation
• Job transfer (voluntary or involuntary)
• Adjustable rate reset-payment shock
• Military service
• Incarceration
• Increased expenses
• Unexpected home repairs

Instructions for Writing a Successful Hardship Letter

• Include your name, mortgage loan number, and property address at the top so your bank can locate your home loan easily.
• Describe your financial hardship and the circumstances that caused you to miss mortgage payments.
• Provide your mortgage lender with a specific plan to get back on track and remain in good standing to make mortgage payments..
• Assure the lender that you are a responsible homeowner who needs a second chance and that you are very motivated to save your home.
• Be concise – Do not exceed one page.
• Thank the lender for their time.
• Sign and date the bottom.

Hardship Mortgage Programs

Job loss, serious illness, increased expenses or reduced income can lead to a hardship that prevents your from paying the mortgage. In many cases, you can ask your mortgage lender for assistance. Hardship mortgage programs involve modifying one or more terms of your current loan program, replacing the loan with a new loan via a refinance, or restructuring the payment schedule to help you catch up.

Hardship programs vary by lender, loan type and your financial circumstances. For example, your lender may offer certain assistance programs if you have a reduction in income, and offer other types of hardship programs if you lose your job and have no income. Lenders typically require you to prove your financial hardship through pay stubs, income tax returns, bank statements and a hardship letter. Lenders use this information to evaluate the extent of your financial distress and determine eligibility for a hardship program.

Loan Modification Programs

A loan modification is a temporary-to-permanent solution to your mortgage hardship. Your lender may offer it on a temporary basis for three or four months. If you complete the trial run, it can make the modification permanent. Modification involves lowering your interest rate, extending your repayment term, switching your program from an adjustable-rate to a fixed-rate, or a combination of these methods to achieve an affordable payment. Lenders may offer their own brand of modification programs or participate in the government’s Home Affordable Modification Program, which streamlines guidelines among participating lenders.

Refinance Options

You may qualify for a traditional refinance if you have yet to miss a payment but anticipate financial hardship due to increased expenses, reduced income or an upcoming payment increase on your mortgage. A traditional refinance can lower your interest rate and monthly payment if you have sufficient equity and good credit. If your loan is not in good standing or have little to no equity, however, your lender may offer a refinance due to financial hardship. For example, the Federal Housing Administration offers the Short Refinance for borrowers who owe more than the value of their home. The government also offers a refinance if you have an “underwater” loan through the Home Affordable Refinance Program.

Forbearance, Reinstatement and Repayment

If you have a temporary financial hardship or are just recovering from one, your lender may offer a few options for getting your payments back on track. A forbearance entails temporarily reducing or suspending your payments for a set period of time without the threat of foreclosure. A lender may also reinstate your loan after several missed payments if you can pay the arrears in a lump sum and you can prove that you have overcome the financial hardship. Your lender may also offer a repayment plan if you have recovered from your hardship.

Loan Modification Lawyer 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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How Does A Loan Modification Work?

How Does A Loan Modification Work

A loan modification is a response to a borrower’s long-term inability to repay the loan. Loan modifications typically involve a reduction in the principal balance, interest rate or an extension of the length of the term of the loan. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default or foreclosure. A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who will never be able to repay an existing loan. Loan modification is a relatively new term to most homeowners. What most people are coming to realize is that losing their house to foreclosure is becoming a real possibility. Home foreclosure in America today is at an all time high and is affecting many homeowners that never believed they could lose their home to foreclosure. Homeowners are feeling the crunch of higher interest rates and a slowing economy. A loan modification may be the only way for a homeowner to save the biggest investment of their life; their home. Negotiating with the bank for a modification of your home loan can be an overwhelming process for many homeowners.

That is why retaining the services of an experienced loan modification company is of extreme importance. The reality of today’s market is one of steep drops in real estate values nationwide coupled with tighter credit requirements. The combination of the two makes a formidable opponent for someone facing an upcoming adjustment in their payments due to an adjustable rate mortgage (ARM). It’s not a good idea to take on your lender alone. In general, a mortgage loan modification is any change to the original terms of a loan. A loan modification is different from refinancing. Refinancing entails replacing your loan with a new mortgage, whereas a loan modification changes the terms of your existing loan. This could mean extending the length of your term, lowering your interest rate or changing from a variable interest rate to a fixed-rate loan. The terms of your modification are up to the lender and will depend on what’s best for the borrower. A modification ultimately results in lower monthly payments for the homeowner.

Who qualifies for a loan modification?

Not everyone struggling to make a mortgage payment can qualify for a loan modification. Hall says homeowners typically either must be delinquent for about 60 days, or they must be in imminent default, meaning they’re not delinquent yet, but there’s a high probability they will be. Homeowners usually must also demonstrate they’ve incurred a hardship, Hall says. This could be the loss of a job, loss of a spouse, a disability or an illness that has affected your ability to repay your mortgage on your original loan terms.

Types of loan modification programs

Some lenders and servicers offer their own loan modification programs, and the changes they make to your terms may be either temporary or permanent. Most servicing companies have programs designed to help borrowers who may be struggling to make their payments, driven by some of the hard lessons the industry learned during the housing collapse a few years back. in addition to modifications, offers some at-risk borrowers the ability to refinance to a lower rate at no cost, even if they haven’t endured a hardship. If your lender or servicer doesn’t have a program of its own, ask if you are eligible for any of the assistance programs that can help you modify or even refinance your mortgage. The federal government previously offered the Home Affordable Modification Program, but it expired at the end of 2016. Fannie Mae and Freddie Mac have a foreclosure-prevention program, called the Flex Modification program, which went into effect Oct. 1, 2017. If your mortgage is owned or guaranteed by either Fannie or Freddie, you may be eligible for this new program. The federal Home Affordable Refinance Program, or HARP, helped underwater homeowners refinance into a more affordable mortgage. This program is no longer available as of Dec. 31, 2018. Fannie Mae’s High Loan-to-Value Refinance Option and Freddie Mac’s Enhanced Relief Refinance replaced HARP.

How to get a loan modification

If you are struggling to make your mortgage payments, contact your lender or servicer immediately and ask about your options. The loan modification application process varies from lender to lender; some require proof of hardship, and others require a hardship letter explaining why you need the modification. It’s possible your lender will reach out to you about getting a loan modification. If you’re denied a modification, you’ll have to file an appeal with your servicer. Consider working with a HUD-approved housing counselor, who can assist you for free in challenging the decision and help you understand your options.

Know before you modify

One potential downside to a loan modification: “If the loan is being modified due to financial hardship, you may see a note about this added to your credit report, negatively impacting your credit score,”The result won’t be nearly as negative as a foreclosure, but could affect other loans you apply for in the future. Another thing to be aware of, he adds, is that depending on how your loan is modified, your mortgage term could be extended, meaning it will take longer to pay off your loan and will cost you more in interest. But for homeowners on the brink of losing their homes, the benefits of a loan modification can far outweigh the risks.

How Loan Modifications Work

Although loan modifications may occur with all types of loans, they are most common with secured loans, such as mortgages. Lenders may agree to a loan modification through a settlement procedure or in the case of a potential foreclosure. In these situations a lender typically believes that the loan modification will provide substantial savings in comparison to a charge-off alternative. A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers that adjust the terms of a loan from its original obligations. Loan modification procedures typically include the support of legal counsel or a settlement company. Loan modifications will usually involve a reduction in the interest rate on a loan, an extension of the length of the maturity of the loan, a different type of loan or any combination of the three. Loan modifications are most common with secured loans, such as mortgages, and usually involve a reduction in the loan’s interest rate, an extension of its length of maturity, a different type of loan or a combination of these three aspects. Settlement companies are for-profit entities that work on behalf of a borrower to help reduce or alleviate debt by settling with creditors. Borrowers also commonly work with mortgage modification lawyers who can help them to negotiate a loan modification for a mortgage that is threatened with foreclosure.

Mortgage Loan Modifications

Mortgage loan modifications are common in the credit market since larger sums of money are at stake. During the housing foreclosure crisis that took place between 2007 and 2010, several government loan modification programs were established for borrowers. The Home Affordable Modification Plan (HAMP) was one leading program, introduced under the Making Home Affordable program; it, along with the Home Affordable Foreclosure Alternatives Program (HAFA), expired at the end of 2016 for new modifications. Current loan modification programs include those from the U.S. Dept. of Veterans Affairs, the Federal Housing Administration and Fannie Mae (which also offers disaster relief modifications). Traditional lenders may have their own loan modification programs as well. All of these programs typically require an application.

Applying for a Mortgage Loan Modification

Borrowers and settlement parties can find information on mortgage loan modification programs through government-sponsored websites. A mortgage loan modification application will include a borrower’s financial information, mortgage information and specific details on their hardship situation. Each program will have its own qualifications and requirements. Qualifications are typically based on the amount the borrower owes, the property being used for collateral and specific features of the collateral property. When a borrower has been approved for a specific program, the approval will include an offer with new loan modification terms. As a general rule, you tend to modify a loan when your credit is bad enough that you can’t refinance the loan – so your lender changes the terms of how you’re borrowing for this current loan, so you can get back on your feet and continue paying off the loan. This almost always means that while your payments may become lower, the length of your loan stretches out much further.
There are 4 loan options within Utah Housing:
• First Home Loan
• Home Again Loan
• Score Loan
• NoMI Loan (No Mortgage Insurance)
Utah Housing helps eligible borrowers who do not have enough money to pay for a down payment and closing costs when purchasing a home. The average amount a home buyer must save for a down payment and closing costs is between 5% – 6% of the home purchase amount. Utah Housing allows an applicant to borrow up to 6% of the home purchase amount, which can help cover the down payment and closing costs. Please be aware the Score Loan and NoMI Loan offer 4% instead of 6% for the home buyer’s down payment or closing costs.

Individuals and families who otherwise are unable to purchase a home because of insufficient funds for a down payment and closing costs may still become homeowners by using Utah Housing. The following are important things to know when applying for Utah Housing:

• Your total gross household income must fall within the income limit restrictions. These limits vary by county
• Your credit history must indicate that you pay your bills on time. You must have at least a 620 credit score.
• You must be able to qualify for government (FHA) or conventional financing.
• You must live in the home – can’t purchase as a rental.
• Non-occupant co-signors are allowed (First Home Loan only).
The Utah Housing Loan Programs do not provide rental assistance of any kind. If you need rental assistance, please contact your city or county housing authority.

In Utah, all mortgage loan originators must be licensed at the state level. The licenses are regulated and supervised by the Utah Department of Financial Institutions (DFI). The license application process for mortgage entities and loan originators is managed by the Nationwide Mortgage Licensing System (NMLS). The NMLS system allows mortgage broker companies and individuals to apply, update, and renew licenses online.

In the state of Utah, there are two main types of licenses: Company and Individual. Each license type depends on the work you wish to perform.
Most Common Individual License
• Mortgage Loan Originator License – allows individuals to take mortgage loan applications and/or negotiate the terms of mortgage loans for residential properties.

All license applications must be submitted online through NMLS. Please note that some agency-specific documentation, such as the surety bond, must be sent directly to DFI at Utah Department of Financial Institutions Passing an exam is obligatory for some, but not all license types. In Utah, in order to obtain a Mortgage Loan license, you must complete a pre-licensure course and pass an examination. To enroll for the MLO test you must complete at least 20-hours of an NMLS-approved education course. After completing the pre-licensure course, you can enroll and pay the exam fee via NMLS. You can schedule an exam date either through NMLS or by contacting the exam administrator Prometric .The NMLS testing page provides more information on how to schedule, prepare, and take the Mortgage Loan

UT Mortgage Broker Bonds
Bonds for Individual Licenses
• Mortgage Loan Originator – All applicants are required to furnish a surety bond. The amount depends on the origination volume of the applicant during the prior calendar year.
• $12,500 surety bond for loan volume of up to $5,000,000.
• $25,000 surety bond for loan volume between $5,000,000 – $15,000,000.
• $50,000 surety bond if the loan volume exceeds $15,000,000.

Loan Modification Attorney Free Consultation

When You Need a Loan Modification, 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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