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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