Mortgage modification is a process where the terms of a mortgage are modified outside the original terms of the contract that is agreed by the lender and the borrower. Generally any loan can be modified and the general process is referred to as loan modification or debt rescheduling. It seems like an adventure to get a mortgage loan modification and only myth hero could achieve it. After all, the ranks of those homeowners who have lost homes in foreclosure is small than the number of homeowners who have received mortgage help. People with unaffordable mortgages now have one set of rules that are applicable nationwide to determine whether they can get lower monthly payments or not. The qualified homeowners for the mortgage loan modification would keep their current loans, but the payments would be reduced to 31 percent of before tax income. Most borrowers would see their payments rise after five years. According to the Treasury Department; the basic aim of the Making Home Affordable program is to “prevent the destructive impact of foreclosures on families and communities.” Here are some of the qualifications to be eligible for a mortgage loan modification:
- It has to be the homeowner’s primary residence, and must be occupied and habitable.
- The balance on the first-lien mortgage cannot be more than $729,750 for a single-family home.
- It is OK if foreclosure proceedings already have begun, or if the borrower is appealing the lender.
If the borrower qualifies, then the mortgage servicer figures out what it will take to decrease the monthly house payments to 31 percent of income.
- Under this plan, the house payment includes principal, interest, taxes, and homeowners insurance including flood insurance as well homeowners association. It excludes mortgage insurance premiums.
- Past-due interest, taxes and insurance are added to the mortgage’s balance. Late fees must be waived.
- As a first step, the lender drops the interest rate as low as 2 percent. If that’s sufficient to bring the payment down to 31 percent of income, then that’s the rate.
- If dropping the rate to 2 percent does not do the trick then the next step is to extend the term of the loan up to 40 years. It does not have to be 40 years; it’s all good if a 2 percent rate over a 37-year term brings the monthly payments down to 31 percent of income.
- If a 2 percent rate and a 40-year term do not get the payment down enough, the third step is to “forbear principal.” This means that the borrower owes the same amount as before but pays interest on only part of the mortgage balance.
Here are some of the common tips for housing counselors to get a mortgage loan modification:
- Package should be complete: – The homeowners need to submit the paycheck receipts, a hardship letter, a budget and any other documents that are wanted by the servicer. Even if one document is missing or outdated, then the entire file will drop to the bottom of the pile.
- Ask questions: – The homeowners should make sure that they know exactly what to provide to servicers. Servicers often request two paycheck stubs on the assumption that two paychecks represent the income of one month. But a homeowner who is paid weekly, bimonthly or monthly may have to submit more or fewer paycheck documents. Similar misunderstandings about other documents can be equally problematic.
- Stay in touch: – The homeowners should call to the lender at least once a week check on the status of his or her request. Ask whether the file is complete or not and also review the documents. The homeowners should explain any special or changed circumstances. A counselor can help but lenders also want to hear from the homeowner on a consistent basis.
- Be persistent: – When the homeowners are asked to resubmit the documents they naturally feel frustrated. The Richard Call grants administrator for the housing program at Apprisen says that those homeowners who realize that they are “at the runnel and call” of the servicer and “can hang in there long enough” they may be rewarded.
Mortgages are modified to be benefited for the borrowers in one or more of the following ways;
- Reduction in interest rate, or a change from a floating to a fixed rate, or in how the floating rate is computed
- Reduction in principal
- Reduction in the monthly payment
- Reduction in late fees or other penalties
- Lengthening of the loan term
- Capping the monthly payment to a percentage of household income
- Mortgage forbearance program
There may be modifications that are made at the preference of the lender. The lender is motivated to offer the better terms to the borrower because of the expectation that the borrower might be able to afford a lower payment and that a performing loan will be more valuable ultimately than the proceeds obtained from a foreclosure sale.