ON OUR WAY TO WEALTHY: Loan modification
While the economy for some is on the upswing, others are still suffering. Part of the suffering includes the inability to pay bills on time. The most important bill outside of the automobile is the mortgage. We all need a roof over our head. However, the roof can be seriously jeopardized when the mortgage is late. Aside from bankruptcy, options exist that can prevent foreclosure for failure to pay the mortgage in a timely fashion. Loan modification is a viable option that may be available.
Mortgage company discretion
Under very few circumstances is the mortgage company obligated to approve a modification. Modifications are made solely at the discretion of the lender. The lender may be motivated to adjust the current mortgage because the expectation is that the continued return even through a modification will be greater than the proceeds received as a result of a foreclosure sale. Additionally, the state and federal government may provide incentives for the lenders to offer modifications.
Types of modification
Modifications can take on various forms. The modification can be a reduction in the interest rate or going from an adjustable rate to a fixed rate. Sometimes it can consist of a reduction in the principal amount owed or a reduction in penalties or late fees. At other times the modification can extend the loan term, which frequently results in a lower monthly mortgage payment.
Although the mortgage companies often look for the applicants requesting the loan modification to have experienced some sort of financial difficulty such as the loss of a job or missing payments, there is still the expectation that the applicant is still able to pay a mortgage. In most circumstances, the applicant will not be allowed to remain in the property without some form of established monthly payment approved by the mortgage company.
Loan modification companies
Unfortunately, many loan modification companies have been found to have unscrupulous behavior in an effort to gain profits. Many have been known to make guarantees of modification or saving your home when they have no way to guarantee a result. While the process can be complete without the services of a third party, there are some free services that can assist as well as some law firms that concentrate in the area of loan modifications. They can help guide you through the process and ensure that your submission is completed properly.
Upon a request, the mortgage company will forward to the applicant a loan modification packet. The homeowner will need to submit copies of paychecks, income and expenses, as well as other documents to determine the eligibility of the applicant. There will probably be a tax return release form, which gives the lender the authority to obtain the returns directly from the Internal Revenue Service.
This packet needs to be completed in full and returned to the mortgage company for consideration. Ideally, the applicant will have all documents submitted at the same time due to the fact that the mortgage companies receive an overwhelming amount of documents daily. When the requested documents are not submitted at the same time, it may delay the process. Partial submissions are usually not processed in a timely fashion.
After submission, it is best to follow up frequently with the mortgage company to check on the status of the application. Applicants may be asked to submit additional documents even if a completed file has already been sent. Do not get irritated or lose your calm, simply resubmit the requested documents and continue to follow up.
The Federal Home Affordable Modification Program (HAMP) was created to provide standard loan modification guidelines to serve as industry standard practices for lenders when analyzing modification applicants. Well over 100 lenders have signed up to participate in the HAMP.
Some homeowners may be eligible for HAMP if the following is met:
- The mortgage was obtained prior to Jan. 1, 2009.
- The mortgage is delinquent or may be at risk of falling behind.
- The property is habitable.
- The mortgage is less than $729,750.
- The applicant has not been convicted of a crime related to real estate within 10 years.
Keep My Tennessee Home
For those situations where the homeowner has lost his or her job or is underemployed, Keep My Tennessee Home is a program administered by the Tennessee Housing Development Agency (THDA) that lends a hand. According to the website www.KeepMyTNHome.org, the program will provide the homeowners’ payments on their mortgage and mortgage related expenses such as property taxes, homeowners insurance, homeowner association dues that have accumulated during the period of unemployment. The maximum assistance available is $40,000 over a 36-month period. The funds are sent directly to the lender. If the applicant does not have access to the Internet, they may call 1-855-890-8073 for assistance.
The best part of the Keep My Tennessee Home program is that the loan has 0 percent interest. It is forgivable at a rate of 20 percent per year. Last but not least, if you keep your home for 5 years, the loan does not have to be paid back at all.
A few of the criteria to be eligible include household income of less than $92,680 and a total unpaid principal balance on the first mortgage of $275,000 or less.
In sum, even in dire circumstances, programs are available to aid.