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What Is A Mortgage Modification?
A Mortgage or Loan Modification is a changing of the original terms of your home mortgage. If you are having trouble paying your current mortgage payment, a loan modification can lower your monthly payment and enable you to save your home from foreclosure.
In a typical loan modification, your lender will reduce your current interest rate, which will lower your monthly mortgage payment. Your lender may also increase the number of years that you have to payoff off your mortgage, which will also lower your payment.
Bank Modification or Making Home Affordable Modification
You basically have two different alternatives for modifying your home loan. You can apply for what is called an in-house mortgage modification with your present mortgage lender whether it be a bank, credit union, savings & loan, or other financial institution.
There is no requirement for your present lender to modify your mortgage. After all, they have you locked into a mortgage contract with a specific interest rate and for a specific period of time. They would only reduce your interest rate and give you a longer mortgage term if they thought doing that would be financially better for them -- instead of foreclosing on your home.
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If you have missed some monthly mortgage payments and have incurred late penalties, a modification may allow you to add (capitalize) these amounts to the new modified mortgage balance.
Therefore, instead of having to pay the missed payments and penalties in a one-time lump sum amount, you can spread the amount over the life of your new modified mortgage.
Mortgage Modification - It May Save Your Home From Foreclosure.
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Whether a lender will give you an in-house mortgage modification will depend on many things. Some of these are:
- First of all, you must be having trouble paying your current mortgage payment. You won't get a modification if you don't need one.
- Do you have equity in your home? If you have substantial equity, the bank may want to foreclose to receive the amount you owe them.
- Do you have a steady stable income? If you do not, the lender will think that there is no way you can afford the new modified monthly mortgage payment.
- The lender will look at your overall financial situation including credit scores, credit card debt, etc.
How You Can Delay Foreclosure and Live In Your Home a Long Time For Free.
Making Home Affordable Program
Instead of an in-house mortgage modification, you may qualify for a modification under the Home Affordable Modification Program also known as HAMP.
HAMP is part of President Obama's Making Home Affordable program which started in March 2009. HAMP was scheduled to terminate at the end of 2012 -- but on 1-27-2012 it was announced that the HAMP program was extended thru 2013.
Banks and financial institutions who received money (bailouts) under the U.S. Government's TARP program are required to offer HAMP to homeowners.
In addition, all mortgage loans insured or owned by Fannie Mae, Freddie Mac, FHA, VA, and the USDA are required to be evaluated for HAMP.
Therefore, the only mortgages not eligible for HAMP are those from lending institutions that:
- Did not accept a government bailout.
- Were not insured or owned by a Government Sponsored Enterprise (GSE) like Fannie Mae, Freddie Mac, FHA, VA, USDA, etc.
Even though not required, a home lender may elect to participate in HAMP.
If you are approved for a HAMP modification, your new loan could be as low as a 2% interest rate payable over 40 years.
You may be eligible for HAMP if you meet all of the following requirements:
- You got your current mortgage on or before 1/1/2009.
- Your house is your primary residence or is rented to a tenant. The Rental feature is new as of 1-27-2012.
- Your monthly mortgage payment is more that 31% of your gross monthly income. This means income before any taxes or deductions. If you are self-employed, it means net income after business deductions.
- Your current mortgage balance cannot exceed $729,750.
- You must have documented income that can pay the modified payment.
- You must have a financial hardship.
- You must be either delinquent on your mortgage payment or are in danger of being delinquent.
- In the last 10 years, you must not have been convicted of a felony involving a mortgage or real estate transaction.
To apply for HAMP, you can ask your mortgage lender for a packet named Request For Modification and Affidavit (RMA). Some lenders have the RMA available for download on their websites.
You may also go to the official HAMP site for the RMA packet and other valuable information.
If you are initially approved for HAMP, you will be put on either a three or four month Trial Plan. During this Trial Plan, you will be required to pay the new modified mortgage payment.
If you successfully complete the Trial Plan, you are supposed to be given a permanent modification.
Even if you are eligible to apply for HAMP, it still is not easy for most people to receive a permanent HAMP modification.
Failing the Net Present Value test or NPV test is a major reason why homeowners are not qualifying for HAMP.
The NPV is an exceedingly complicated test. It basically measures whether a HAMP permanent modification is more financially beneficial to the lender than it is to foreclose and sell your home. The NPV test should never have been part of the HAMP guidelines -- it has kept responsible homeowners from saving their homes.
Sometimes you have to face the facts and realize that the bank is not going to give you an affordable mortgage modification or affordable refinancing terms. And if your house is upside-down with no equity (like it probably is), a sale isn't going to give you any cash.
Plus, why do you want to keep paying on a loser underwater house that could take many years -- or maybe never -- to become a profitable investment? If you have an emotional attachment to your house, you must get over it and move on. Remember a house is just a building. You can make a home for yourself and your family anywhere -- free of stress and the bad memories.
Staying in your home and saving money by not making any mortgage payments for as long as it is possible is a financial plan that you must consider. This foreclosure defense strategy is not for saving your home. The end result, hopefully after a long time, will be foreclosure and the bank taking back your house.
How long can you stay in your house without making any payments? Well, it depends upon your circumstances and in what state you live. But, generally you can last from about 1 year to up to 4 years or more.
The foreclosure process takes longer in judicial states where the process has to go thru the court system. Other states have some combination of both the judicial process and the non-judicial process -- but usually these states will lean towards one or the other.
The total judicial process states at the time of this writing are NM, ND, WI, IL, KS, IA, IN, LA, KY, FL, OH, PA, ME, CT, SC, NJ, and DE.
Strategies For Delaying Foreclosure
There are many things that you can do to delay or even stop a foreclosure. Some of these foreclosure defense strategies can be implemented before the formal foreclosure even begins -- and others can be used after the foreclosure begins. Some can be used both before and after the foreclosure begins.
Remember, the goal is to live in your house rent-free for as long as possible. You will then be able to save your mortgage payment and build yourself a nice nest egg. When you finally do move, you will have money to start your new life. You may even be able to receive from your lender around $3,000 for moving assistance -- which is called Cash For Keys and also known as C4K.
With a little knowledge and resourcefulness, you can do most of these strategies yourself. If you feel you need help, you can use a good foreclosure defense attorney. Just be sure to consider the costs of a lawyer versus the potential monetary benefits that you will receive -- which is not paying house payments.
Here are some things that you can do to delay foreclosure:
- Think delay, delay,and more delay. The mortgage servicers are swamped with delinquent loans, modification applications, lawsuits, foreclosures, etc. They had to hire inexperienced employees and even sub-contractors to handle the workload. Try to confuse and confound these people as much as possible -- it will buy you time.
- Ask for a HAMP modification even if you think you do not qualify. Do not send in all of the required documents and send in an incomplete application. By the time they get around to asking you for the missing information, more time has passed.
- Ask for an in-house loan modification. This could be before the HAMP request; after the HAMP request; or at the same time as the HAMP. Use the same missing info strategy for the in-house mod.
- If denied for either modification, appeal the denial. Always wait to the last possible required due date to appeal or send in more info. This keeps the clock moving.
- If your appeal is denied, apply again saying your financial situation has changed.
- At some later time, you may use the Short Sale ploy to gain more time.
- File for Chapter 7 or Chapter 13 bankruptcy -- This will grant you an automatic stay that will stop a foreclosure proceeding. Chapter 7 will only temporarily stop foreclosure but Chapter 13 could stop or delay foreclosure for 3 to 5 years. Bankruptcy is complicated and you should consult a bankruptcy attorney for further information.
- You must always tell the lender that you want to save your home.
- You should always answer a Foreclosure Complaint summons. This will delay any possible court judgment. You may need a foreclosure defense attorney or some legal advice for this stage.
- Some counties or states have a Mandatory Foreclosure Mediation Program. Be sure to use this process because it will use up more time.
- Qualified Written Request (QWR) - The federal RESPA Section 6 law allows you to make an inquiry to your loan servicer about your mortgage account. By law, they must acknowledge receipt of the QWR within 20 days and provide an answer to you no later than 60 days. This just delays the foreclosure process.
- There are many other delay tactics that are only limited by your imagination.
