I had a client yesterday who is seeking a loan
modification. Many people do, and we can expect a lot more as a result of
A mortgage loan modification is simply an agreement to
change the original terms of the loan. This is not the same as
refinancing. Refinancing means that you are replacing your existing
mortgage loan with a new one. A loan modification keeps your existing
loan in place but changes its terms.
We have had clients who were able to lower their interest
rates, or extend the length of the loan, or even convert from a variable rate
loan to a fixed rate loan. The end game is almost always to lower the
payment with the borrower.
The eligibility and terms of loan modification programs vary
from lender to lender. Usually, the homeowner should be about sixty (60)
days delinquent. Occasionally, they are not yet in default but will
almost certainly be so soon.
It helps to be able to demonstrate a hardship. Some
lenders and servicers require proof of that hardship. Some others simply
require you to submit a letter explaining the reasons behind your need for a
Hardships are not usually hard to demonstrate, as most
people needing a modification have incurred some form of hardship. It
could be a divorce, or the loss of a job, or the death of a spouse. It
could be a disability or an illness. Now it may well be that coronavirus
has shut down your business or your employer.
There have been various loan modification programs since the 2008 recession. Clients often ask me about HARP, the Home Affordable Refinance Program, but it expired more than one (1) year ago. Others ask me about HAMP, the Home Affordable Modification Program, but it expired over three (3) years ago.
If you have a loan owned or guaranteed by either Fannie Mae
or Freddie Mac, you may qualify for the Flex Modification Program.
This program went into effect in October 2017.
Getting a loan modification will likely be tedious and
require an extensive effort on your part. You will need to complete the
package of information requested by the lender or servicer. Besides the
hardship letter, these will include paycheck stubs, tax returns, and a
budget. The servicer will likely ask you for a significant volume of
Our experience is that the process often fails because of
the volume of documents requested. The borrower eventually gives up.
You should therefore be persistent. You will likely
have to resubmit documents more than once but should do so. It may help
to label your documents. Remember, the servicer is receiving thousands of
pieces of paper from borrowers.
In the end it may all be well worth the effort. We
have had many clients who obtain very favorable loan modifications. We
have seen interest rates drop to 2%, and some instances even 0%. We have
seen loans extended, which in turn reduces the monthly payment over that longer
term. Some of our clients have had significant portions of the debt
forgiven. Some have had a portion of the
debt no longer be subject to interest.
We have seen people be able to keep their homes.
We have also seen many instances in which loan modifications
are denied. In those instances, we can often help by applying and using
the laws available to homeowners and debtors.
-Posted March 19,2020