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Mortgage Loan Modification

A mortgage loan modification can help borrowers facing temporary financial setbacks, but able to afford future home loan payments. Loan modifications do not reduce the principal amount owed on the loan. Instead, the terms are extended or the interest rate is reduced.

Applying for a mortgage loan modification can be a time-consuming process. Borrowers must first contact their lender to determine if they qualify for a loan modification. Banks require borrowers to fill out a request for modification and affidavit (RMA) form to evaluate borrowers' financial status.

Borrowers typically must provide a loan modification hardship letter which outlines the events that caused them to become delinquent with payments or require reduced loan payments. Hardship letters won't necessarily make or break the deal, but borrowers should put forth effort into writing a heartfelt letter that not only describes financial hardships, but any efforts they have made to rectify the situation.

Lenders review information provided on the RMA form and hardship letter, along with mortgage note terms. Through financial calculations, banks determine if it is more profitable for them to modify the loan, enter into a real estate short sale, or commence with foreclosure.

The option offered will depend on various factors including the balance owed on the mortgage note, if the loan is current or delinquent, number of past due payments, and borrowers' ability to pay future loan payments.

Mortgagors with VA, FHA, Fannie Mae or Freddie Mac loans are eligible for accelerated loan modification review. Borrowers with government-sponsored loans can obtain additional information regarding mortgage loan modification through the Making Home Affordable website.

Visitors to the Making Home Affordable website can download and review required forms and financial records, locate HUD-approved housing counselors, and utilize the modification evaluator tool to determine if they are eligible for a loan modification.

Once loan modification forms are provided, lenders are required to respond within 10 business day. Borrowers who apply through the Making Home Affordable Program and qualify for a loan modification are supposed to receive written approval within 30 days of receipt of the completed package.

It is estimated nearly half of the homeowners who have applied for and received mortgage loan modifications have defaulted. According to the U.S. Treasury Department the two primary reasons for loan default stem from borrowers and banks not completing required documentation to finalize the modification and from lack of income.

When borrowers default on loan modifications the bank can commence with foreclosure proceedings, offer real estate short sales, or allow borrowers to enter into a deed in lieu of foreclosure.

Real estate short sales are a complex matter, but essentially mean the bank allows borrowers to sell the property for less than is owed on the mortgage note. Deed in lieu of foreclosure allows borrowers to return their home to the bank and vacate the premises. Many banks hold borrowers responsible for deficiency amounts between the loan balance and sale price. Therefore, it is wise to consult with a real estate attorney before signing these types of contracts.

We invite you to learn more ways to avoid foreclosure or ease the cost of the foreclosure process by viewing our home mortgage loan article library. We provide detailed information and resources regarding short sales, mortgage refinance, deferred payments, deed in lieu, and mortgage loan modification.


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Published on December 01, 2010 at 03:13 AM

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