Loan Modification Help and Justice Department Settlement Programs
Home Loan Modifications:
What They Are (and Aren't), and How to Get One.
Your home mortgage is the loan you took out to help you buy a house. It could also be a mortgage that was a refinance of a prior loan. You might also have a second mortgage like a credit line that is secured as a second mortgage on your home. Millions of Americans are now finding out that due to reduced property values as a result of the recent National economic recession/depression, their homes are worth less than the balance owed on the mortgages secured against their home. Many households have suffered from layoffs, mounting bills, income reductions, loss of tenants, and other financial fallout from the recession.
As a result, many homeowners have lost interest in paying their mortgages. That in turn has increased the number of foreclosures, and caused a further decrease in property values caused by the foreclosure process. As a result, the government, and major home mortgage lenders have started to offer home mortgage loan modification programs, albeit too slowly to cope with the continuing trend of increased mortgage foreclosures.
A home loan modification is much like a mortgage refinance – a change in the terms of the loan to make your loan payment more affordable. It works somewhat like a refinance. You get a new payment plan, and a new interest rate, but the balance owed does not get reduced. However, in a mortgage modification, instead of looking for a "new" loan you will just simply "modify" the terms of you existing mortgage.
Why Try for a Loan Modification?
A traditional refinancing your existing mortgage is usually impossible once you fall behind in mortgage payments. The late payments result in a reduction of your credit score. This makes you ineligible to successfully obtain a refinance of your existing mortgage. Also, your home value may no longer be high enough to fully secure repayment of the loan balance. That is where a loan modification may help. If you have incurred a financial hardship that prevents other mortgage financing or payment options, or your property value no longer qualifies for a refinance, you may be able to get a loan modification instead. In most cases, a loan modification is only available to homeowners that have a financial hardship that is preventing them from making their monthly mortgage payments. That includes death in the family, including the borrower on the mortgage note, or loss of a job or income reduction, sickness, or other family emergency. To be eligible for this type of loan modification, it is expected that you have already missed several mortgage payments.
Are You Eligible for a Loan Modification?
This will depend on who services your mortgage. The mortgage servicer is the company that bills you and collects your monthly payments. They are in charge of deciding whether or not you get a loan modification. Most loan servicers follow very similar qualification criteria. These are the most common requirements:
- Experienced a documented hardship or change in financial circumstances
- Missed three payment (90 days delinquent) or more
- Owns and occupies the property as a primary residence
- Not filed bankruptcy
Other important factors that can affect your eligibility:
- Do not purposely default to get a loan modification
- Make sure you are responsive and on time in responding to your lender ‘s requests for documents
Since many of the programs do vary in how they work, you should contact your lender and advise them of your hardship. Ask for a loan modification application, and a brochure to explain their programs.
You will also need to prove that you are financially able to pay the mortgage on time, without undue financial stress. This means you have to show the lender that your debt to income ratio is under 31%.
Where Do You Get a Loan Modification?
A loan modification can only be issued by your lender or loan servicer. That means the bank that owns your loan. The best place to start is your mortgage coupon book or statement—the bank name on that statement will tell you who the payments are made out to. That is the company to contact. Each mortgage lender or servicer has different loan modification programs and procedures.
Unfortunately, most lenders and loan servicers hire inexperienced clerks to run these loan modification programs. That results in lost applications, unnecessary denials, and a lot of confusion and wasted time. As a result of the poor staff training at many lenders, a lot of homeowners fail to get a loan mod. Frequently, they are qualified, but the process is too hard for them to complete, or the lender is just not doing its job right. That is where a law firm can help you. Getting professional legal help in completing and fighting for your loan modification can often make the difference between getting the loan modified, and losing your home to foreclosure.
What Kind of Papers Do You Need to Show the Bank?
To get the process started, you need an application package to be sent to you from the loan servicer. You then fill out the income and expense summary showing our monthly income and expenses. You sign an authorization to check your tax returns and credit scores. You provide a written explanation of your “hardship”, or, why you fell behind on your mortgage payments. These are the basic issues that you need to show your bank:
- You have had a material change in financial circumstances – lost job, sickness, death, income reduction
- You did not stop making payments just to get a loan mod. Ie., a real financial hardship.
- You have been cooperative and responsive in working with your loan servicer on the application. Call them daily!
- You provide income and expense summary, tax disclosure authorization, and credit check authorization, proof of income such as paystubs, tax returns, and rental income statements or lease copies.
Documents Will You Need to Send In:
The loan modification application package is the most important part of the process. This package varies from one lender to another. The basic elements are typically almost the same in every package. Here is an example of the documents most banks require:
- A letter explaining your hardship
- Proof of current income – paystub and tax returns
- Detailed monthly expense report or budget – utilities, car payments, credit cards, groceries, etc.
This application package will provide your lender with documentation. They will then review your case and follow several steps. First, do you make enough income to support the proposed reduction in payment? That means, are you making monthly gross income that is roughly three time more than your proposed new payment. Is your hardship legitimate? And, is the value of the property so low that the lender will get less if they foreclosure, compared to the risk of working with you to lower your payment.
Government Sponsored Loan Modification Programs
Loan modification programs are encouraged by the federal government. The President and the Treasury Department, as well as the Department of Justice are all working on lenders to provide more loan modification programs. Currently, all the programs are voluntary. Also, even those that are compulsory still allow a case by case determination of your qualification. That means, the lender can deny the application in your case, even though you may fit the model of a justifiable case for a loan mod. That is why you will often need help from a loan modification lawyer to fight for your case. Below is a list of some government sponsored loan modification programs and resources:
- White House/Treasury Department Loan Modification Program The Obama administration created the most inclusive loan modification program so far. It is administered by the Treasury Department. This mortgage modification program helps borrowers with severe financial difficulties, but also good paying homeowners if they expect a future financial problem in making mortgage payments, or have lost significant equity in their homes because of the housing market crisis. You can learn more about this program at: FinancialStability.gov - Making Home Affordable
- IndyMac Federal Bank Loan Modification Program IndyMac Bank was found guilty of fraud in making home loans, and eventually was liquidated and absorbed by other banks. Its loans are under special modification programs. The FDIC took over IndyMac and started an extensive loan modification program for all loans made by this bank. You are eligible for this loan modification program if IndyMac Federal Bank holds or services your mortgage. You can learn more about this program at: FDIC Loan Modification Program for Distressed IndyMac Mortgages.
- Federal Housing Finance Agency Loan Modification Program The Federal Housing Finance Agency (FHFA) is the government regulator of Fannie Mae and Freddie Mac. They run a loan modification program for any mortgage held or serviced by Fannie Mae or Freddie Mac. You can learn more about Fannie Mae and Freddie Mac loan modifications in FHFA Director Lockhart's Statement on Loan Modification Program [PDF]
Major Lender Loan Modification Programs
The largest banks in the mortgage market are offering some different loan modification programs. These programs allow private modifications for many mortgage loans. Citigroup: You can learn more about Citigroup's loan modification programs at:
- Citigroup: statement on Initiatives to Help Homeowners
Citigroup's dedicated website for the Office of Homeownership Protection
- JP Morgan Chase: You can learn more about JP Morgan Chase's loan modification program at:
JP Morgan Chase's statement on enhancements to their loan modification initiatives
- Bank of America/Countrywide:
Countrywide Home Loans LLP was purchased by Bank of America. You can learn more about Bank of America/Countrywide loan modification program at:
Bank of America's statement announcing their Nationwide Homeownership Retention Program
Nationwide Homeownership Retention Program Fact Sheet for Countrywide Mortgages
Guidance on Bank of America Loan Principal Reduction Policy
- Wells Fargo:
Wells Fargo purchased the mortgage loan programs of Wachovia Bank in 2009. For information on the Wells Fargo Loan Modification Programs, go to Wells Fargo Loan Modificaction Center.
How Do I Find Someone to Help Me Get a Loan Modification?
The Strong Law Firm can help you to apply for a qualified loan modification program.
You can also apply on your own, and call us for advice and guidance.
Call us today for a consultation on your loan modification problems.
Licensed in Virginia, Maryland and District of Columbia
The Strong Law Firm, P.C.
George Mason Square
101 W. Broad St., Suite 110
Falls Church, VA 22046
Visit our website at www.stronglawfirm.com
Home Affordable Refinance Program (HARP) What is the Home Affordable Refinance Program (HARP)?
HARP is a federal government program designed to help 5 million underwater or near-underwater homeowners refinance. The terms will provide a fixed interest rate loan, usually for a five year term, but amortized over 30 years, with a lower monthly payment and possibly a reduced interest rate. However, so far, only 894,000 borrowers have refinanced through HARP.
On Oct. 24, 2011, President Obama announced an overhaul to the HARP program with the intent of reaching more underwater homeowners. The expanded HARP program - also referred to as HARP 2.0 - will take effect on December 1, 2011 for borrowers with a loan-to-home value ratio of less than 125 percent. In the first quarter of 2012, the program will expand to include mortgages with a loan-to-value ratio of greater than 125 percent. Some of the major changes to HARP include:
- No underwater limits Borrowers will now be able to refinance regardless of how far their homes have fallen in value. Previous loan-to-value limits were set at 125 percent.
- Eliminating appraisals and underwriting Most homeowners will not have to get an appraisal or have their loan underwritten, making their refinance process smoother and faster.
- Modified fees Certain risk-based fees for borrowers who refinance into shorter-term loans will either be eliminated or modified.
- Extended deadline The end date to get a HARP refinance has been extended to Dec. 31, 2013.
How do I find out who holds my mortgage? To be eligible for the HARP program, your mortgage must be held by either Fannie Mae or Freddie Mac. Please remember, Fannie Mae nor Freddie Mac do not service loans, meaning they do not collect your mortgage payments. Therefore, your loan could be owned by one them and you wouldn't know. To see if you loan qualifies, please visit their websites:
- Fannie Mae: http://www.fanniemae.com/loanlookup/
- Freddie Mac: https://ww3.freddiemac.com/corporate/