Loan Modification and How to Get One

Blog

Mar 19

I had a client yesterday who is seeking a loanmodification.  Many people do, and we can expect a lot more as a result ofthe coronavirus. 

A mortgage loan modification is simply an agreement tochange the original terms of the loan.  This is not the same asrefinancing.  Refinancing means that you are replacing your existingmortgage loan with a new one.  A loan modification keeps your existingloan in place but changes its terms.

We have had clients who were able to lower their interestrates, or extend the length of the loan, or even convert from a variable rateloan to a fixed rate loan.  The end game is almost always to lower thepayment with the borrower.

The eligibility and terms of loan modification programs varyfrom lender to lender.  Usually, the homeowner should be about sixty (60)days delinquent.  Occasionally, they are not yet in default but willalmost certainly be so soon.

It helps to be able to demonstrate a hardship.  Somelenders and servicers require proof of that hardship.  Some others simplyrequire you to submit a letter explaining the reasons behind your need for amodification.

Hardships are not usually hard to demonstrate, as mostpeople needing a modification have incurred some form of hardship.  Itcould be a divorce, or the loss of a job, or the death of a spouse.  Itcould be a disability or an illness.  Now it may well be that coronavirushas 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 Maeor 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 andrequire an extensive effort on your part.  You will need to complete thepackage of information requested by the lender or servicer.  Besides thehardship letter, these will include paycheck stubs, tax returns, and abudget.  The servicer will likely ask you for a significant volume ofdocuments. 

Our experience is that the process often fails because ofthe volume of documents requested.  The borrower eventually gives up.

You should therefore be persistent.  You will likelyhave to resubmit documents more than once but should do so.  It may helpto label your documents.  Remember, the servicer is receiving thousands ofpieces of paper from borrowers.

In the end it may all be well worth the effort.  Wehave had many clients who obtain very favorable loan modifications.  Wehave seen interest rates drop to 2%, and some instances even 0%.  We haveseen loans extended, which in turn reduces the monthly payment over that longerterm.  Some of our clients have had significant portions of the debtforgiven.  Some have had a portion of thedebt 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 modificationsare denied.  In those instances, we can often help by applying and usingthe laws available to homeowners and debtors.

 

-Posted March 19,2020