Question 1:  What Is A Loan Modification?

Answer:  You can refer to our page What is a Loan Modification, however, we placed it here too for your convenience.

A loan modification occurs when a borrower contacts his/her lender to initiate negotiations in an attempt to change the terms of the loan agreement.  The borrower attempts to negotiate a lower monthly mortgage payment, reduce the annual interest rate, and/or decrease the loan balance.  The reader should note a loan modification does not normally include a reduction in principal.

If a borrower is successful during the loan modification negotiation process they will obtain a lower interest rate and/or their monthly payment.  The lender is able to do this by granting the borrower a longer period of time to pay off the principal (i.e. a 30 year mortgage now becomes a 40 year mortgage). 
Banks transact loan modifications daily.  Therefore, when an individual approaches a lender/bank for a loan modification the lender is motivated to offer the borrower the best plan they can negotiate in favor of the bank.  Since the lenders are dealing with borrowers on a day-to-day basis they have become highly skilled in negotiating favorable rates for the bank.  Thus, MortgageForeclosureReport.com suggests when approaching a lender for a loan modification it is important to seek legal counsel.  A lawyer is a professional negotiator who deals with the problems from the borrower’s perspective on a daily basis.  They will attempt to obtain the best results possible.  This may include lower monthly payments, a possible reduction in principal, and/or a reduction in annual interest rates.  If you decide not to utilize a lawyer we believe it is in your best interest to take advantage of a reputable lawyer’s free consultation.

Question 2: What is the loss mitigation department and how does it relate to loan modifications?

Answer: A loss mitigation department (LMD herein) is a department within almost all lending institutions (or is a third party) which deal with customers that may in danger of foreclosing on their home.  The LMD has the ability to approve different methods of selling a home (i.e. short sale, foreclosure, dead in lieu of foreclosure, loan modification, etc.) which will reduce the amount of money the bank will lose on their loan.

When contacting the LMD for a loan modification they will help to begin and/or facilitate a negotiation between the borrower and the lender.  Once these proceedings start it should stop the foreclosure process.  When an agreement is reach the homeowner should be able to stay in their home. 

Question 3: When the borrower completes the loan modification process what fees are included that are not associated with the loan modification?

Answer: The lender/bank/mortgagee may include foreclosure costs and corporate advances (i.e. legal fees) in newly negotiated mortgage that was determined through the loan modification process.

Example: Johnny was three months delinquent on mortgage payments.  Due to Johnny’s delinquency the lender began the foreclosure process.  The lender acquired legal fees and foreclosure expenses in pursuing a foreclosure on Johnny’s home.  In order to stop the foreclosure Johnny negotiated a loan modification with the bank.

In our example above Johnny negotiated a new mortgage through the loan modification process, however, prior to his negotiation the bank started and completed specific legal actions to foreclose on his home.  Thus, according to HUD the fees for legal costs and related foreclosure costs are acceptable fees.

The HUD Mortgagee Letter 2008-21 states the following: “The lender may include legal fees and related foreclosure costs for work actually completed and applicable to the current default episode which may be capitalized into the modified principal balance”. 

To simplify the HUD’s definition; the legal and foreclosure fees incurred prior to the loan modification may be charged to the borrower.  The fees would be added to the principal of the loan and paid over the life of the loan.

Example: If Johnny negotiated a ten year $100,000 loan modification and the legal and foreclosure fees were $10,000 (prior to the loan modification) his new loan would be $110,000.  The $10,000 would be recognized (paid) at $1,000 a year for ten years.

Finally, the borrower should take action to evaluate if they are overpaying the legal and/or foreclosure fees.  In order to analyze their payment history the borrower should request a line item account history of the principal loan account.  Inform the bank you want, for your principal and escrow account, the history from the time your loan began through today.  This will help the borrower to determine if the lender is trying to charge them for legal fees they do not owe or may have already paid.  If the borrower does not have a strong understanding of analyzing these statements they should seek professional help.

Question 4:  Am I Eligible For A Loan Modification?

Answer: As discussed above you need to be three months (or three full mortgage payments) delinquent on payment.  The lenders generally will not negotiate with an individual who obtained a loan less than a year prior their request.  The borrower may not try and obtain a loan modification on a second home it must be their primary residence and place of occupancy.  The lender must be in the first position to obtain the property if the borrower goes into default.  The business community refers to it as the first lien position. 

Essentially, multiple liens may be taken on your home and if you default on any payments and foreclose on your home whomever has a lien on your property gets paid out based upon their place in the priority order. 

Example: First lien gets their debt paid fist; if there is remaining money then the second lien holder is paid; if their still money then third lien holder is paid, and so and so forth.

Question 5:  How Much Time Does A Loan Modification Process Take?

Answer: The estimated time frame a loan modification process may take is anywhere from two weeks to three months (14 to 90 days).  This is a general guideline and usually relates to individuals who prepare the proper documentation prior to applying for a loan modification.  Additionally, if a situation has unique circumstances it may take longer.  If you obtain assistance from a loan modification specialist or a lawyer you will have a better chance of having the loan modification successfully approved within 90 days.

Question 6:  What Experts Do You Recommend Besides Loan Modification Specialists and Attorneys?

Answer:  The other specialists that may be able to help your situations are Insurance Adjusters, CPAs, Bank Branch Managers, and friends and family who have already gone through the same process.

Question 7: If I negotiate a loan modification will I incur the late charges from payments that are/were late.

Answer: If a lender accepts a loan modification they should not be charging late charges you for your previous late payments.  The HUD states from Mortgagee Letter 2008-21, “that accrued late charges should be waived by the mortgagee at the time of the Loan Modification”.

Question 8:  Your Website Discusses besides Loan Modifications; Short Sales, Foreclosure, Bankruptcy, and Debt Consolidation.  Do These Other Sections Have Similarities?

Answer:  In most cases these other sections do not have similarities to a loan modification.  However, as you read through the website you will learn that one may have an effect on another.  For example, if you file for bankruptcy or obtain an approved loan modification this will stop the process of foreclosure.  So while there are usually not similar their effects can be intertwined with one another.  As you read each section you will see the differences in how you apply, approach, and obtain approval for each financial option.

Question 9:  Do you have an example or explanation of what is an acceptable Hardship situation?  

Answer:  Every situation has to be evaluated differently.  This is why you write a hardship letter.  As a side note if you are not a strong writer it is smart to have someone you know, a person you can hire on the internet, or have an attorney review your letter. In most cases the lender/bank accepts these as hardship situations when applying for a loan modification: medical bills, unforeseen circumstances (i.e. a child or dependent diagnosed with a disease), divorce or separation, the borrower becomes ill and is not earning money, job relocation, military reasons, and death of a spouse or another person on the mortgage note. 

When writing your situation in your hardship letter it is important to be as detailed as possible and to try and make the lender feel compassion for your situation.  This may help you explain the reason for falling behind on your payments and earn you an approval for a loan modification. 

Question 10:  Will A Notice Of Default Hurt My Chances Of A Loan Modification?

Answer:  First, it is important to address what is a notice of default (nod herein).  A nod is when your borrower has contacted an attorney and notified them to begin the foreclosure process on you and your home.  When the letter is sent to you it will address the date and time your house will be auctioned to the public. 

So to address the question if a nod hurts your chances of a loan modification note the following.  If you are in foreclosure then it inherently means you have defaulted on payment and have been unable to pay your mortgage in the past.  Therefore, the bank does not believe you are able to support any payments and will do what is best for the bank.  However, if you take the appropriate steps and create the correct documentation you will have a chance to stop the foreclosure and convince the borrower to allow you to remain in your home.  It is imperative that you be able to prove you will be able to pay your new mortgage and not default.

Question 11: Do lenders perform inspections on my home or condo when I apply for a loan modification?

Answer:  The lender may have the borrower’s home inspected.  If they believe the homeowner has not maintained the home and has caused the value of the home to significantly decrease and affected the borrower’s ability to pay the mortgage they may choose not to approve the loan modification. 

When applying for a loan modification the borrower is applying for a new loan on a home.  Therefore, the borrower should think of when the first purchased their home.  A majority of people have an inspector inspect the house to determine if the property is acceptable and a worth the value the seller is asking.  Therefore, a borrower should understand if the bank wants to inspect the home because they are making an investment in the home when approving them for a loan.

Question 12: Is It Possible To Stop The Foreclosure Process And Obtain A Loan Modification?

Answer:  The simple is yes.  Unless your house has been officially sold by the lender/bank you still have the ability to stop a foreclosure on your home.  One may you may stop the foreclosure is through a loan modification.  However, once the sale happens from your home you will have lost your house.  Our suggestion is it is better to be proactive and then reactive.  Do your research on the internet and see what your best options are to resolve your current situation.

Question 13: Is it smart to try and negotiate my own loan modification with the lender?

Answer:  This is not an easy Yes/No question.  This depends on whether you have a financial background or have enough faith in your own abilities to collect all the correct information.  Additionally, you have to be prepared to negotiate with a professional who does this on an everyday basis.  If you have not fallen behind on a payment or are only one/two payments behind then maybe you could negotiate with your lender and save all the attorney fees.  However, most lenders will not even speak with you until you are three months delinquent on your mortgage payments.  By this time your credit is significantly decreased, your lender is preparing your house for foreclosure, and you are having sleepless nights.  To alleviate your stress it is better to seek professional help early.  A lawyer or other mortgage professional understands all the proper steps to help resolve your current situation.  In the long run you will save money and be happier with the results that occurred.

Question 14:  If You Have Filed For Bankruptcy Are You Still Able To Obtain A Loan Modification?

Answer:  If you have filed for bankruptcy there is a chance you may be able to keep your home.  The Helping Families Save Their Home Act of 2009 (which was passed in the House of Representatives on March 5th, 2009) provides bankruptcy judges to overall rule a banks/lenders decision to deny you the right for a loan modification.  If you are able to prove to a judge you have the ability to pay your mortgage if the lender will provide you with a responsible loan modification then the judge can reverse the decision and force the lender to provide you with a loan modification.  Obviously, this is a difficult way to obtain a loan modification and will take the knowledge of an expert.

Question 15: If I am currently unemployed, but my significant other has steady employment is there a possibility to qualify for a loan modification?

Answer: Note for this question we suggest you seek legal counsel as the borrower is asking if the home is eligible for a modification with a person who is not named on the original note.

As discussed under the loan modification process page the individual has to assess their current situation through creating a P&L Statement for the past two to three years.  Some lenders only require a year.  The P&L will include all the income and expenses that you and your significant have earned and spent in the past.  This will help the lender analyze and determine if the income your significant other earns is adequate to endure the new terms of the loan modification.  However, the significant other should not have enough income to pay back the money owed.  If the significant other has the ability to pay back the money owed the bank may not negotiate a loan modification.

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