How Does a Mortgage Modification Work?
Save Your Home with a Mortgage Modification
For any of us that bought our home before 2008, our financial situation could be very different than when we first took out a home loan. Some of us have lost jobs. Some have experienced depressed home values. Maybe an unexpected medical expense has come up. Even the death of a spouse might have left you struggling to pay your mortgage.
In the United States, some homeowners may be eligible for one of several mortgage modification programs to help them continue paying off their loan and save their home. If you are current on your loan and can demonstrate several other factors (detailed below), your bank may reduce your payments, the principal balance of your loan, and/or spread out your payments over a greater number of years. Its not a new loan - its a modification of terms of your existing loan.
But how does a mortgage modification work? Will you actually get any relief?
Straight from the experiences of several friends and colleagues, here's what you can expect!
What Mortgage Modification Programs are Available?
In the United States, the prominent mortgage modification program is the Making Home Affordable Program, also called the Treasury Loan Modification program, financed by the federal government, but offered through individual banks. There are strict eligibility requirements, including that your mortgage payment must comprise 31% or more of your gross income.
If you have a mortgage held by or serviced IndyMac, you could look into the IndyMac Federal Bank Loan Modification Program. It was actually one of the first mortgage modification program offered by a financial institution. Today, the FDIC administers the program.
Another alternative is the Federal Housing Finance Agency Loan Modification Program. This loan modification option, offered by the Federal Housing Finance Agency (FHFA), is only available to people who have a mortgage held by Fannie Mae or Freddie Mac.
Finally, some major lenders offer their own loan modification programs. Citigroup has information available at its Office of Homeownership Protection. JP Morgan Chase and Bank of America/Countrywide also offer mortgage modification programs.
The bottom line is that, although there are several different mortgage modification programs out there, most people that seek relief will go through the Making Home Affordable Program.
If you thought getting a mortgage was difficult - wait until you try to get it modified!
Are you Eligible for a Mortgage Modification?
Are You Eligible for a Mortgage Modification?
Is the property for which you are seeking a mortgage modification your primary residence? Are you current on your mortgage payments?
If you answered yes to both these questions, then gather your financial information, including your loan documents and recent pay stubs. Now, input the information into one of the easy online calculators to get a quick answer as to whether you are eligible for a mortgage modification through the Making Home Affordable Program.
If you will be seeking debt relief through one of the other programs, contact your lender and explain your hardship. Inquire about the requirements of their specific programs. From experience, your best bet will be to make an appointment at a local branch. These days, banks have entire dedicated departments to help customers work through the loan modification process.
Regardless of the program through which you will be seeking a mortgage modification, you should make an appointment at the bank that holds your mortgage, and ask the personal banker to set aside at least an hour to review your situation with you. Prepare for this meeting with a copy of last year's tax return, at least 2 months of current pay stubs, utility bills, tuition bills, your mortgage statement, auto loan documents, unemployment checks, and any other papers that illustrate your current financial situation. In addition, be prepared to discuss any specific changes that have taken place since the loan was granted, including loss of income, unexpected expenses and devaluation of the local housing market.
Federal Program to Prevent Foreclosures
How Does a Mortgage Modification Work?
There are several steps to starting the mortgage modification process. First is a meeting with your banker, as discussed above. Often, this will involve a telephone call to a more centralized branch (Chicago, New York, Los Angeles). Local bankers may be sympathetic to your story, but the application needs to be run through proper channels. You could be asked to participate in a conference call whereby you'll have to ask a number of questions about your financial situation.
Next, you will need to prepare the loan modification application and a hardship letter. Include the following:
- Description of a material change in your financial circumstances
- Explain how you have made an effort to continue paying your mortgage
- Show that you are cooperative and responsive in working with the bank
- Demonstrate a willingness to be open, honest, and provide all requested documentation
Do not make threats such as "we could walk away from our home," or "you can just take the worthless property back!" Be courteous and patient, and the professionals with whom you are dealing may show you the same respect.
Finally, you will need to make frequent calls to the bank, including to the personal banker with whom you originally met, to follow up. Calling once a week is perfectly acceptable, and will show the bank that you are still interested and doing what you can to move the process along. Often, this can save time as the bank will be able to ask for additional documents over the phone rather than send a letter requesting them.
Eventually, you will hear whether or not your mortgage modification application has been submitted to underwriting. This is the process by which the bank assesses its risk in modifying the terms of your loan.
If you are fortunate enough to be approved under the program, you may likely be granted a trial period during which you will be required to make lower mortgage payments. If you default or miss a payment during that time, you could be denied the loan modification.
The length of time to get through the mortgage modification process will vary depending on your individual circumstances, but it tends to take at least 4-6 months. The trial period for the new loan terms can range from 6-18 months. From start to finish, the overall process could take up to 2 years.
What Else Can You Do?
What if you aren't successful in obtaining a mortgage modification? There are several options to consider:
- Revisit your budget once again and determine if further cuts can be made so you can stay current on your home. Could you sell a car? Give up cable? Drop your gym membership?
- Approach the bank outside the context of a mortgage modification and ask for another meeting. Explain your financial situation, preferably illustrated with bank statements to show your responsible - yet unfortunate - fiscal situation. In some circumstances, banks have "found" other programs to help homeowners save their homes.
- Take your story to the news media. I'm not kidding - I have some friends who were interviewed by a major news network about how the bank would not work with them to modify their loan, and less than a week later, they finally got some relief
- Hire a professional to assist you. Attorneys and other professionals can often cut through red tape and help get results more quickly
- Consider selling the home on a short sale. The bank will have to agree to take less than the home is worth, but it is often preferable to a foreclosure from the lender's perspective. While it is a mark on your credit score, it is also looked upon more favorably than a foreclosure or bankruptcy
- Last options: bankruptcy and/or foreclosure. Be sure to talk to a bankruptcy attorney before you make this decision
Making Home Affordable Program - Not Necessarily Working
I Know its Frustrating!
There are many people that are struggling to pay their mortgages. There are many applications for loan modifications that are in the works. And then you hear stories of the terrible foreclosure practices in which some banks have engaged.
Try to keep your cool, and calmly stay on top of your application. Write down every phone call to keep a record, including the banker's name, the date and time of your call. Thank them for your time. Remember that its not their call, nor is it their fault. Try not to take it personally.
Sometimes, it can help to talk to a counselor or spiritual adviser to help you with the frustration of the process. Just feeling like you are having your fears and concerns heard can help you move forward.
Wishing you the best with your mortgage modification application. If you have any of your own experiences to share, please add them in the comment section below.
© 2011 Stephanie Hicks
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