When homeowners face difficulties that could result in foreclosure they have the option to collaborate with their lender on a loan modification. This process, also known as mortgage modification or restructuring involves adjusting the terms of the mortgage to make the payments more manageable, for the borrower. The lender may offer options such as refinancing the loan lowering the interest rate extending the loan term deferring payments and adding them to the amount owed or incorporating payments into the overall loan balance.
The Home Affordable Modification Program (HAMP) was established by the government in 2009 as part of its Making Home Affordable Program to assist homeowners in distress. HAMP aims to reduce mortgage payments to 31% of a homeowners tax monthly income. While not all lenders participate in HAMP borrowers may still be able to negotiate a loan modification, with their lender.
To qualify for. Secure a loan modification;
Many lenders, those not involved in HAMP (as mandated for mortgage companies, with Fannie Mae and Freddie Mac owned loans while other lenders have the choice to join) may provide loan modifications. However the criteria for eligibility can vary among them.
To meet the requirements for HAMP you must;
- Have taken out your mortgage by January 1 2009.
- Owe a maximum of $729,750 on your residence or unit rental property or up to $934,200 on a two unit rental property (higher limits are set by the government for properties with more units).
- Demonstrate sufficient documented income that would allow you to make mortgage payments if they were adjusted.
Experience financial hardship that has caused you to fall behind on your mortgage payments or puts you at risk of doing. Typically homeowners need to show that they are undergoing difficulties such, as income loss, illness or divorce that could lead to defaulting on their mortgage. They must support this claim with evidence. Sign a sworn statement confirming the hardship.
Homeowners looking to apply for a loan modification may be required to submit documents to lenders including proof of income, like pay stubs, tax returns, a list of assets with their values, credit card and loan statements and a letter detailing their financial difficulties.
After gathering the paperwork borrowers should contact their mortgage servicer. The contact details are usually found on their bill. And request a loan modification. It’s not mandatory to be on payments to be eligible for a modification; the key is demonstrating the risk of default if no action is taken by the lender. Consider seeking assistance from a lawyer or contacting a HUD approved counseling agency for support.
How Does a Loan Modification Affect My Credit Score?
Individuals enrolled in HAMP typically won’t experience a drop in their credit score because specific guidelines have been established by the government to ensure that reporting HAMP does not negatively impact credit scores. However there’s no assurance that a general loan modification won’t affect your credit score.
What Are Some Alternatives, to Obtaining a Loan Modification?If you are not eligible, for a loan adjustment but are struggling to meet your mortgage obligations there are solutions to prevent foreclosure.
Some options include;
- Selling the house at a price through negotiations with the bank.
- Returning the property to the lender through a ‘deed in lieu of foreclosure.’
- Seeking forbearance from the lender, where they may temporarily reduce or pause your loan payments ( for about 90 days).
- Renting out your home to generate income, for repaying the lender.
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