Loan Modification Q and A

Loan Modification FAQWhat exactly is a loan modification?

A loan modification is a permanent change in one or more terms of a borrower’s home loan, allows the loan to be reinstated, and results in a payment the homeowner can afford

Can the lender include late charges in the Loan Modification?

If the bank is following HAMP plan guidelines, it mandates that the bank waive any administrative charges, late fees and penalties when offering a loan workout.  However if doing a bank specific loan mod then we have seen them include all those fees in the balance of the loan modified.

How will the new government programs help me get a loan modification?

The Federal government has allocated $75 billion dollars to subsidize lenders and servicers who offer a loan workout to their clients.  Now, the banks will have a monetary incentive to offer help to qualified borrowers.  In addition, homeowners who pay their new modified payments on time will be eligible up to $5000 credit to their loan balance.

How do I know if I will qualify for a loan modification?

The number 1 criteria your lender is looking at, in our opinion, is whether or not the bank is going to make more money modifying your loan versus going the foreclosure route.  To do this they run your numbers to find out the “Net Present Value” of your situation is, the calculations vary from bank to bank and are a very closely guarded secret.  Secondly they will look at your ability to make the new modified payment now and in the future. You will have to supply your lender with proof of your income, along with an accurate financial statement detailing your income and expenses to show them that if granted the modification, you will be able to afford the new, lower payment.  You must also be able to clearly outline that you are facing a financial hardship.

Do I have to be currently delinquent on my payments to get a loan modification?

Yes and no, under the Home Affordable Modification Plan there is an incentive that will pay lenders an extra bonus for reaching out to homeowners not yet delinquent but at risk in the future.  The goal is to help borrowers before they fall into default.  However, if you are current it becomes much harder unless you can claerly show that you will be in default

What is an acceptable Hardship situation?

The situation that caused them to fall behind on their home loan is unique for each homeowner, but generally the lenders consider divorce/separation, loss of income, death of spouse, co borrower or family member, illness, job relocation, military service to be acceptable reasons to consider a loan modification.

Will a loan modification help me stop foreclosure?

Yes and no, your lender will continue the foreclosure process even while you are going through a loan modification, while that doesn’t mean that they will foreclose during your loan mod, but they will be able to foreclose at a moments notice if/when they decide to foreclose on the homeowner.

Can my missed payments be added back into my new loan modification?

Yes, the arrears can be added to the new loan balance and spread out over the term to allow the loan to be brought current.

Can I do a loan modification myself or should I pay someone to represent me?

That is entirely up to you .  Here in California it is getting harder and harder to find someone to do a loan mod for you as a law was just passed that forbids, even attorneys, any upfront fees. Regardless of what you decide, the first thing you should do is learn all you can about the process, your legal rights, and what it takes to get your application approved.  An informed homeowner is harder to take advantage of and will have a much greater chance of success.

So how do I get started to modify my loan?

Before contacting your bank’s loss mitigation department or a loan mod company, do your homework-learn as much as you can about the loan modification process so you can make informed decisions.