The loan modification process can be frustrating and confusing for many struggling homeowners. If you’re considering contacting your lender about a loan solution to avoid foreclosure, you should get as much information in advance as possible so you can be prepared to present your case in the best possible light. Programs and guidelines are changing, and it’s getting easier for homeowners to get the help they need. To help you understand how the process works and what to expect, here are the top 10 questions and answers:
- What exactly is a loan modification? A loan modification is a permanent change in one or more terms of a borrower’s home loan, allows the loan to be reinstated, and results in a payment the homeowner can afford.
- Can the lender include late fees in the Loan Modification? The federal plan requires the bank to waive any administrative fees, late fees and penalties when offering a loan solution.
- How will the new government programs help me get a loan modification? The federal government has allocated $75 billion to subsidize lenders and servicers who offer a loan solution to their customers. Now, banks will have a monetary incentive to offer help to qualified borrowers. Additionally, homeowners who pay their new modified payments on time will be eligible for a credit of up to $5,000 on their loan balance.
- How do I know if I will qualify for a loan modification? The #1 criteria your lender is looking at is your ability to make the new modified payment now and in the future. You must provide the lender with proof of your income, along with a complete and accurate financial statement detailing your income and expenses to show them that if you are granted the modification, you will be able to afford the new lower payment. You must also be able to show that you are facing a financial hardship: lower income or higher expenses, for example.
- Do I have to be currently behind on my payments to get a loan modification? President Obama has included a special incentive under the Home Affordable Modification Plan that will pay lenders an additional bonus for reaching out to homeowners who are not yet in default but are at risk in the future. The goal is to help borrowers before they default.
- What is an acceptable hardship situation? Each homeowner has a unique set of circumstances that caused them to fall behind on their home loan, but generally lenders consider divorce/separation, loss of income, death of spouse, co-borrower or family member, illness, job relocation, military service for be acceptable reasons to consider a loan modification. A convincing hardship letter included with your application is a very important part of a successful application.
- Will a loan modification help me stop foreclosure? Yes, that’s the point: By working with your lender to find a loan restructuring solution, your loan is brought current and the foreclosure process is stopped.
- Can my missed payments be added back to my new loan modification? Yes, arrears can be added to the new loan balance and spread over the term to allow the loan to be brought up to date.
- Can I do a loan modification myself or do I have to pay someone to represent me? That is entirely up to you and your comfort level in dealing with your lender. The Treasury Department strongly discourages paying any fees to a third party to represent you in a loan workout. Regardless of what you decide, the first thing you should do is learn as much as you can about the process, your legal rights, and what is needed to get your application approved. An informed owner is more difficult to exploit and will have a much better chance of success.
- So how do I start modifying my loan? Before you contact your bank’s loss mitigation department or a loan modification company, do your homework: Learn as much as you can about the loan modification process so you can make informed decisions.
President Obama’s Affordable Home Modification Plan offers real hope for millions of homeowners who need a solution to stay in their home. However, not everyone will qualify, and interested borrowers will need to complete loan modification application forms, provide proof of income and meet certain eligibility requirements. Most lenders are participating in this new government-subsidized plan, and homeowners are encouraged to learn how they can qualify and apply for a loan solution and avoid foreclosure.
