(LoanSafe.org) – Many homeowners are currently in need of mortgage assistance and are asking themselves “how do I negotiate a loan modification with my servicer?”
Loan modifications are one of the best options for homeowners to explore when trying to avoid an inevitable foreclosure. They are also essential for borrowers who cannot achieve a lower interest rate or get out of an adjustable-rate mortgage due to the housing crash.
If you are an underwater homeowner (owe more on your mortgage than the home is currently worth) who is not facing a financial hardship but wants to pursue a lower rate, we recommend you look into the Home Affordable Refinance Program (HARP). This is the only refinance program currently available for borrowers who do not have sufficient equity to qualify for a traditional refinance. However, your mortgage must be owned by Fannie Mae or Freddie Mac to apply for HARP.
A modification is simply changing the terms of your current mortgage by using some of the following steps; capitalize the arrears (add the past due amount to the back of the loan), reduce the interest rate, extend the term of the loan, defer portion of the principle (balloon), or possibly even reduce some of the balance owed.
The key to successfully achieving a modification is to have the right and complete information you need before approaching your lender.
When you first apply for a modification it is very likely your mortgage servicer will first review your account for the Home Affordable Modification Program (HAMP). Do not get this confused with HARP, although they sound similar they are two completely separate programs that have different results and requirements. Below are the basic eligibility requirements for the program:
– You obtained your mortgage on or before January 1, 2009.
– You owe up to $729,750 on your primary residence or single unit rental property
– You owe up to $934,200 on a 2-unit rental property; $1,129,250 on a 3-unit rental property; or $1,403,400 on a 4-unit rental property
– The property has not been condemned
– You have a financial hardship and are either delinquent or in danger of falling behind on your mortgage payments (non-owner occupants must be delinquent in order to qualify).
– You have sufficient, documented income to support a modified payment.
– You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
For those who do not meet the requirements for HAMP it is crucial that you tell your mortgage servicer so you don’t waste months of your time. Do not be alarmed if you don’t meet the requirements, all mortgage servicers have their own in-house programs which often come with great results that reflect almost exactly what HAMP has to offer..
Before contacting your lender it’s best if you have an idea of what you will say to your lender and what outcome you want to achieve. Here are a few tips that will help you work out a loan modification with your lender:
– Make sure that you are completely aware of your current financial situation and hardships before first contacting your lender for assistance. Your income and expenses will need to be calculated to determine where you stand and what outcome will best help you afford your mortgage.
– Write a detailed hardship letter explaining why you are not able to afford your mortgage payments and also indicate exactly what happened to cause you to have these financial difficulties. But keep this letter short and sweet, their reps are very busy and do not have time to thoroughly read a 2-3 page hardship letter.
– Be sure to have your financial information ready to send including your two most recent month of paystubs (three month profit and loss if self employed), bank statements, tax returns, etc. Here is some information most lenders will require to apply for a modification; Request for Mortgage Assistance Form, How to fill out RMA tutorial (video), IRS Form 4506T-EZ or 4506-T, Verification of Income.
– If your mortgage is owned, insured, or guaranteed by Fannie Mae, Freddie Mac, FHA, VA or USDA, ask your mortgage servicer which solutions might be best suited to your situation.
– When negotiating with your lender for a loan modification you don’t want to make the mistake of being rude or getting upset with the representative on the phone. Keep in mind that your servicer is not required to grant you a loan modification. Make sure that you present yourself confidently and firm but also very polite at the same time.
– You do not want to change the reason for your financial hardship halfway through the process. This will cause major road bumps and make the process take just that much longer. So remember the best thing you can do as a homeowner is to prepare yourself with as much information as possible to successfully negotiate with your lender, and stay in your home with an affordable mortgage.