The following was provided to me by a contributing writer. I hope this information helps someone:
For the past several years, I have been working directly with borrowers who are at risk of losing their homes to foreclosure due to mortgage default. I have come across many different homeowners from all walks of life and socio-economic classes. I have assisted families managing hardships ranging from death of a borrower to unemployment, overextension of debt to inability to refinance due to loss of equity, and predatory loans to people just trying to jump on the modification bandwagon. I have also worked closely with all major mortgage servicers and people on multiple levels of the decision making process at these institutions. All of this has shown me that there is a lot of misinformation regarding loan modifications and mortgage assistance. I hope to clear up a lot of the myths that are out there.
First, let me say that I am not an attorney and nothing I am saying should be considered legal advice. Foreclosure is a legal process and any advice regarding how to save your home from foreclosure should come from an attorney who is specifically familiar with the foreclosure in your state and county. Scams regarding foreclosure advice will have to wait for another blog. However, I am giving advice on how to apply for and obtain mortgage assistance if you are either delinquent on your mortgage or feel as though your mortgage payment is unsustainable. This is just my opinion. I hope it helps. Here are the top ten things homeowners should remember when applying for a loan modification:
1. How much does it cost to apply for a loan modification?
If anyone charges you anything at all to apply for a loan modification, go the opposite direction. If the fee is upfront, they are likely breaking the law. You should check with your state’s Attorney General regarding laws and regulations surrounding upfront fees in your state. Help is free. Any money that would be used to apply for assistance should be saved and allocated for use in either starting a workout solution or relocation. I recommend only working directly with your mortgage servicer or a HUD approved housing counseling agency. You can find one here.
2. I was denied a loan modification. Can someone else modify my mortgage?
No. Only your mortgage servicer can modify your mortgage. You may go to someone else for assistance in applying for a modification, but the application will go to the same servicer. Refer to question #1 regarding where to find assistance. However, I have seen homeowner successfully reapply after being a little more accurate when communicating their hardship and financial profile on their application.
3. Didn’t President Obama say that my lender HAS to modify my mortgage?
No. Making Home Affordable (MHA) is the plan that the Obama administration put on the table to address the mortgage crisis in this country. The Home Affordable Modification Program (HAMP) is just one component of this plan. HAMP offers guidance as to who is eligible for a modification. However, you must show that you have had a financial hardship resulting in an unaffordable mortgage payment and that you will be in a sustainable financial position after the mortgage is modified. If you are determined to not be eligible for HAMP, your servicer may choose to use their own guidelines and modify on their terms.
4. I was denied a modification and was told that I don’t make enough money. But if they lower my payment, it will be easier to pay my mortgage.
The important thing to remember here is that you must show that after a modification, you will be in a sustainable financial position. In other words, you have to show that you can afford a modified payment. Your servicer will ask you about your monthly household income and expenses. If you are in a position where there are more bills than income, and all of your bills cannot realistically be paid. Your mortgage was once the bill that took the backseat. You have to give the servicer confidence to believe that your mortgage will be a priority. Only money talks in this situation.
5. I was denied a loan modification and was told that I make too much money. But I am living check to check and I am barely getting by.
One of the eligibility criteria for HAMP is that your PITIA (your front end ratio plus any homeowner association fees) exceeds 31% of your gross monthly income. Click here for an explanation of how to calculate your front end ratio. If your PITIA is less than 31% of your income but you are still struggling to pay all of your bills, it is very likely that you have significant debts outside of your mortgage payment. You would not be considered to be burdened by mortgage debt. Rather, it could be viewed as though you are burdened by the other debts and obligations that you must absorb. You may find better results addressing these debts rather than your mortgage.
6. I was told that I cannot get a modification because I am current. I thought you don’t have to be late to apply for assistance?
In my opinion, those who are current on their mortgage and are applying for assistance will have the most headaches. Many view themselves as doing the right thing by keeping up with their contractual payments but will feel slighted by seeing those who are missing payments, or those who are not being as financially responsible, appear to be the ones receiving the assistance. The issue at hand is showing imminent default; the inability of a borrower to make their next scheduled mortgage payment. The keyword here is “inability” to pay and not “difficulty” or “inconvenience”. Many servicers are throwing around the “3 D’s” when defining imminent default; death, divorce, or disability. Can you still receive assistance without experiencing any of these hardships? Yes, but you are most likely to receive a forbearance.
7. Should I strategically default?
Although I completely understand why some borrowers feel as though they will get better results by intentionally missing payments and then applying for a modification, I will NEVER advise anyone to go that route. It is far too risky and you have too much to lose. Furthermore, your lender may take legal action against you if it is determined that you walked away from your mortgage.
8. I am current on my mortgage but I am struggling. What are you saying I should do?
If you have never missed a mortgage payment, you have not had a financial hardship, but you feel as though things are tight, you should first look into refinancing. If you are unable to refinance due to lack of required equity in your home, you should seek out lenders who offer the Home Affordable Refinancing Program – HARP. HARP is another component of the MHA program which allows for people who are current on their mortgages, did not necessarily experience a financial hardship, but are unable to take advantage of today’s lower mortgage rates because of decrease of their home values an option to refinance mortgages up to as much as 125% of the value of their home. Check out the eligibility criteria for HARP.
9. My home lost value. Shouldn’t some of my principle be forgiven?
If your home rapidly increased in value, would you be enthusiastic to share your new equity with your lender? That is not what was happening in years 2001-2006 so don’t look for lenders to share in your investment loss today. When you agreed to a certain purchase price for your home, or if you decided to refinance and take out a certain dollar amount of equity out of your home, you made a decision as to what you believed the future value of your home would be. Homeowners must take some responsibility as to the decisions they made regarding the level of debt they leveraged against their homes.
10. What are the credit consequences of a loan modification?
If you are already delinquent on your mortgage, after you execute a permanent modification agreement, the loan will become current. However, if you are current on your mortgage and you are given a forbearance agreement or a trial modification, you will have negative reporting on your credit history even if you make a payment every month. A good rule of thumb to remember is that anything that involves not paying your debt as originally agreed will have a negative impact on your credit.