A loan modification is different from refinancing your mortgage. Refinancing entails replacing your loan with a new mortgage, whereas a loan modification changes the terms of your existing loan. How does loan modification work?Getting a mortgage loan modification could mean extending the length of your term, lowering your interest rate or changing from an adjustable-rate mortgage to a fixed-rate loan. Though the terms of your modification are up to the lender, the outcome is lower, more affordable monthly mortgage payments. Foreclosure is a costly process for lenders, so many are willing to consider loan modification as a way to avoid it. Foreclosure is a costly process for lenders, so many are willing to consider loan modification as a way to avoid it. Who qualifies for a loan modification?Not everyone struggling to make a mortgage payment can qualify for a loan modification. In general, homeowners must either be delinquent or facing imminent default, meaning they’re not delinquent yet, but there’s a high probability they will be. Reasons for imminent default include the loss of a job, loss of a spouse, a disability or an illness that has affected your ability to repay your mortgage on the original loan terms. Types of loan modification programsSome lenders and servicers offer their own loan modification programs, and the changes they make to your terms may be either temporary or permanent. If your lender or servicer doesn’t have a program of its own, ask if you are eligible for any other 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. Now, 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 program. The federal Home Affordable Refinance Program, or HARP, helped underwater homeowners refinance into a more affordable mortgage. HARP has also expired. Fannie Mae’s High Loan-to-Value Refinance Option and Freddie Mac’s Enhanced Relief Refinance replaced HARP in 2019. How to get a mortgage loan modificationIf you are struggling to make your mortgage payments, contact your lender or servicer immediately and ask about your options. Avoiding phone calls or procrastinating will only make matters worse. 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. If you’re denied a loan modification, you can file an appeal with your mortgage servicer. Consider working with a HUD-approved housing counsellor, who can assist you for free in challenging the decision and help you understand your options. Know before you modifyOne potential downside to a loan modification: It may be added to your credit report and could negatively impact your credit score. The resulting credit dip won’t be nearly as negative as a foreclosure but could affect your ability to qualify for other loans for a time. If your modification is temporary, you’ll likely need to return to the original terms of your mortgage and repay the amount that was deferred before you can qualify for a new purchase or refinance loan. After permanent modifications, lenders may want to see a record of 12 or even 24 on-time payments to determine your ability to repay a new loan. Be aware 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 potential credit risks and extra interest. Loan Modification: Lower Your Mortgage Payments and Avoid Foreclosure Basics of Mortgage ModificationA loan modification is a change that the lender makes to the original terms of your mortgage, typically due to financial hardship. The goal is to reduce your monthly payment to an amount that you can afford, which you can achieve in a variety of ways. Your lender will calculate a new monthly payment based on amendments that it makes to your initial mortgage contract.1 Why Lenders Permit Mortgage ModificationAdjusting a loan tends to be less expensive and time-consuming for lenders and can take less of a financial and emotional toll on homeowners compared to other legal or financial remedies for recouping money from a borrower who cannot repay their loan. Without a loan modification, your lender has several unattractive options to choose from to pay off your outstanding debt if and when you stop making mortgage payments. It can: The above options will likely either result in the loss of your home or damage to your credit. In contrast, what a loan modification enables a homeowner to do is stay in their home and potentially take less of a hit to their credit score than a foreclosure would cause or even no impact to their credit in the case of some government mortgage modification programs. Mortgage Modification OptionsYour lender might not offer all of these options, and some types of loan adjustments may be more suitable for you than others. However, common alternatives include: Loan Modification Government ProgramsDepending on the type of loan you have, you may be able to qualify for a government mortgage modification program, which may not negatively impact your credit score at all. Government programs, which include Federal Housing Administration (FHA) loans, U.S. Department of Veterans Affairs (VA) loans, and U.S. Department of Agriculture (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. For other loans, try the Fannie Mae Mortgage Help Network. The federal government previously offered the Home Affordable Modification Program (HAMP), the Home Affordable Refinance Program (HARP), and Freddie Mac’s Enhanced Relief Refinance Program. However, those have all expired and have been replaced by Fannie Mae’s Flex Modification and the High Loan-to-Value Refinance Option, so these are a good place to start for assistance. How to Get a Mortgage ModificationStart with a phone call or online inquiry to the lender. Be honest and explain why it’s hard for you to make your mortgage payments right now. Then, let your lender know about your proposed adjustment to the mortgage. Lenders will generally require a loss mitigation application and details about your finances to evaluate your request, and some will require that you also be delinquent with your mortgage payments, often by up to 60 days. Be prepared to provide certain information: 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. Different lenders have different criteria for approving loan modification requests, so there’s no way to know if you’ll qualify other than to ask. Within 30 days of receiving a completed application, the lender generally must respond to your application with written notice of its offer or denial along with the specific terms of the mortgage modification. Keep in contact with your lender during this time in case it has questions. 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 the mortgage modification. In fact, this is a requirement for approval with some lenders. Once you receive an offer for a loan modification, you’ll have to accept or deny it within the prescribed timeframe to see the changes reflected in your loan. Refinance the Loan InsteadModification 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. This is a particularly good option if you want to get cash out from the equity that has built up in your home. 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 application and origination fees on the new loan, however, and you’ll also need decent credit. Consider Bankruptcy Over Loan ModificationIf you can’t get a mortgage modification or refinance the loan, you might have one other option for keeping the property: 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, get back on your feet, and even keep your home, 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. How Forbearance Agreements WorkWhile a loan modification is a permanent solution to unaffordable monthly payments, a forbearance agreement provides short-term relief for borrowers. With a forbearance, the lender agrees to reduce or suspend mortgage payments for a while. During the forbearance period, the servicer (on behalf of the lender) won’t initiate a foreclosure. In exchange, the borrower must resume making the full payment at the end of the forbearance period, and typically get current on the missed payments, including principal, interest, taxes, and insurance. You can usually: The Process For Obtaining A Loan ModificationThe modification process has several steps. The length of time and the documentation required will vary greatly depending on the lender and the nature of your personal situation. Loan Modification LawyerWhen 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.
Ascent Law LLC
8833 S. Redwood Road, Suite C West Jordan, Utah 84088 United States Telephone: (801) 676-5506
Ascent Law LLC
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