People Are Hoping To Avoid Foreclosure Through Loan Modification
This post series started a few days ago with a look at the “Making Home Affordable” program that the Obama administration passed earlier this year. In that post I gave an overview of the program, what it is designed to do, and who will qualify for help under the program. I looked at both the refinance program, as well as the loan modification program.
In Friday's post I looked at the “Making Home Affordable Refinance” program, and talked about some of the questions people have about the program. Today I thought I'd round it out by doing a FAQ about the Making Home Affordable Loan Modification program. (If you have a second mortgage, don't forget to check out this post)
Making Home Affordable Loan Modification FAQ
After reading through the government's website, and a couple of other resources, here are some of the most common questions about the Loan modification program:
- Can Making Home Affordable help me if my loan is not owned or securitized by Fannie Mae or Freddie Mac? Yes. The Treasury has put together financial incentives for loan servicers to make it worth their while to modify homeowner's loans to help save their homes. The government hopes to help 3 to 4 million homeowners avoid foreclosure.
- Do I need to be behind on my mortgage payments to be eligible for a Home Affordable Modification? No. Borrowers who are struggling to remain current may be eligible as well if they are at risk of default. For example, maybe their mortgage payment has recently increased because of a higher interest rate making the mortgage unaffordable. Maybe you've lost your job, or had a loss of income that means default is imminent. Contact your servicer, and be ready to document your situation and the reasons why you need a loan mod.
- I have a second mortgage. Am I still eligible? Yes, but your second mortgage is not. (UPDATE: Your second mortgage may now be eligible)
- How do I know if my servicer is participating? Are all servicers required to participate? The program is voluntary, so there are no guarantees. The Treasury is offering financial incentives, however, so it is in most lender's best interest to consider modifying your loan.
- What will my servicer do to determine if I qualify? They'll determine whether your particular loan is eligible, ask about current income, assets and expenses. Then they'll determine if your loan is more than 31% of your pre-tax gross monthly income, and if it is, they'll figure out what it would take to get it below that. They'll then do some calculations to determine if doing a loan modification is worth it in your instance. If it is, you'll be put on a 3 month trial modification, and at the end – if you've made all your payments/etc – you'll have your loan modified permanently.
- Will the modified loan include property taxes and homeowners insurance? Yes. Even if your prior loan didn't have this, your modified loan will require it.
- How low can my interest rate go? Treasury is providing incentives to your investor to write the interest down to as low as 2%, if necessary to get to a payment that you can afford based on your income.
- What happens if that is not enough to get to an affordable payment? If getting a 2% interest rate still isn't enough to get to you to below 31% of pretax income, your loan term may be extended, part of the loan can be forgiven or part of the principal repayment could be delayed.
- What happens if I am unable to make payments during the trial period? You won't be eligible any longer for the home loan modification, although you might be eligible for other foreclosure prevention programs.
- How much will a modification cost me? There should never be a home loan modification fee or late fees that you should have to pay to receive a home loan modification. Back taxes and other fees that must be paid can be added to the loan balance. You can pre-pay those if possible to save interest over the life of the loan.
- Can Making Home Affordable help me if my loan is not owned or securitized by Fannie Mae or Freddie Mac? Yes. Making Home Affordable offers help to borrowers who are struggling to keep their loans current or who are already behind on their mortgage payments. By providing mortgage servicers with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.
- I heard the government was providing a financial incentive to borrowers. Is that true? Borrowers who make their payments on time on their modified loans will receive “success incentives”. For every month you make a payment on time, Treasury will pay an incentive that reduces the principal balance on your loan. The incentive will be applied directly to your loan balance annually and over five years the total principal reduction could add up to $5,000.
- How do I apply for a modification under the Making Home Affordable Plan? Contact your loan servicer at the phone number on your mortgage bill, but only after gathering all your financial documentation that you'll need to prove hardship.
If you would like to speak to a housing counselor you can call 1-888-995-HOPE (4673). HUD-approved housing counselors can help you evaluate your income and expenses and understand your options. This counseling is FREE.
Have you called about getting a loan modification? Are you considering it? Tell us about your experience in the comments.