Buying a new home is expensive. The Making Home Affordable program, for instance, is grounded on the fact that homes are not affordable. One would often get a loan that would be difficult to pay off, specifically because the monthly mortgage payment involved is quite significant. It is primarily for this reason that the Home Affordable Modification Program was created: to help homeowners with unpaid monthly mortgage payments. While HAMP has ended, several other mortgage modification programs are available for delinquent borrowers.
If you are struggling to pay your mortgage, consult with reliable Tacoma bankruptcy attorneys to know what is the most appropriate way of avoiding foreclosure given your circumstances.
What this article aims to cover are the following:
- Basics of home loan modification programs
- Proceeding with a modification to stop foreclosure
- Not rushing into things
Basics of the Home Loan Modification Program
Several programs can help those with unpaid monthly payments to find a feasible alternative to foreclosure. Before learning how to get a mortgage loan modification, however, it would be helpful to know what this written agreement entails. A modification will usually extend the loan and lower the interest rate by permanently changing the original terms of the promissory note. In certain instances, those behind in payments might be able to add the overdue amount to the balance of the loan. Principal reductions, however, are very rarely approved by investors and lenders.
There are several loss mitigation laws and foreclosure laws that homeowners must be familiar with. New rules came about as a result of the loan servicing problems that arose during The Great Recession. In 2014, federal mortgage servicing laws went into effect to protect borrowers during the loss mitigation process. Additionally, there are some states (like California, Minnesota, Colorado, and Nevada) that passed a Homeowner Bill of Rights or similar laws that regulate how servicers handle modification applications.
Depending on the type of mortgage, a government modification program may be available. Borrowers with Fannie Mae and Freddie Mac or USDA mortgages, or those whose mortgage is FHA-insured or VA-guaranteed, may qualify for certain mortgage modification programs. In addition to these, investors may also offer in-house ‘proprietary’ modification options.
Proceeding With a Modification to Avoid Foreclosure
On top of any investor-specific requirements, some guidelines must be taken into account to be eligible for a mortgage modification. It usually includes the following:
- showing that the property in question is your primary residence
- showing that your income is steady and sufficient to make regular payments under the modified terms
- there is a financial hardship aspect, such as a divorce, loss of household income, and having to take a lower-paying job
Most of the time, a three-month trial period will show whether or not you can afford the new amount under the modification.
The first step that you must take is to ask for a loss mitigation application from your servicer’s loss mitigation department or the ‘home retention’ department of your loan servicer. Details about your situation, income, and expenses must be provided, together with the supporting documents listed below:
- a filled-out questionnaire including your personal information, property information, and mortgage information
- documentation of profit from a business or recent pay stubs
- an income and expense financial sheet
- tax returns and bank statements
- an affidavit of hardship
If you are looking for foreclosure alternatives, hands-on Tacoma bankruptcy lawyers can help you decide between a loan modification or a bankruptcy filing.
Not Rushing into Things
A lot of loan modification companies would claim that they are experts at negotiating a modification when, in fact, haggling is not part of the legal process. Once guidelines set by the U.S. Department of Housing and Urban Development and the investor or lender have been met, the application for a loan modification will be approved.
Aside from the fact that the services of a loan modification company are rarely necessary, you are in the best position to answer inquiries related to your situation. You are in the best position to respond to any request for additional paperwork and promptly respond to clarifications from the servicer. Additionally, instead of paying a loan modification company to do things that you can do by yourself, what you need is a legal expert who can help you decide on the path that you will take.
Loss mitigation is a complex process in the mortgage-servicing business. It is highly beneficial for borrowers since they can work together with their servicer, on behalf of the lender or investor, to prevent foreclosure. While deeds in place of foreclosure, repayment plans, short sales, and forbearance agreements are open options, loan modification is preferred by many financially- struggling borrowers. It is, however, not for everyone. In certain cases, it is better for the borrower who cannot repay his or her loan to file for bankruptcy instead.
Tacoma bankruptcy attorney can answer your questions related to a home mortgage, such as the difference between a first mortgage and a second mortgage. He or she can also explain the disadvantages of a deed in place of foreclosure when a loan modification is ideal, and if you are better off filing at the bankruptcy court. Contact us at Jones Legacy Law and consult with an expert from our bankruptcy law firm.