What are Home Loan Modifications?:
A Home Loan Modifications consist of:
- A change to an existing home loan contract agreed to by both the lender and the borrower
- Changing the provisions of your home loan to lower your monthly mortgage and to make your home more affordable
- Fixing the interest rate for as low as 2% for a certain period of time, usually from adjustable to fixed
- Possibly reducing the principal in some instances where the homeowner is “upside down”, meaning the loan amount is greater than the home’s current fair market value
- Extending the life of the loan (for example, a 40 year term instead of a 30 year term)
- Adding new terms to the existing contract that allows the home owner to keep their home
The bottom line is that in a loan modification, the mortgage loan is restructured in order for the mortgage loan to be affordable and fit comfortably into your budget rather than being an overwhelming burden on your already tight finances. Most importantly, you are able to keep your home. Each bank handles its loan modification process differently. The loan modification process may or may not be affected by a bankruptcy depending upon how the lender handles its loan modification process.
*Home Loan Modification Frequently Asked Questions:
A Loan Modification is a permanent change in one or more of the terms of a Mortgagor’s loan, allows the loan to be reinstated, and results in a payment the Mortgagor can afford. Following are frequently asked question
Question 1: In utilizing the Loan Modification option to bring an asset current, can the Mortgagee include all fees and corporate advances??
Answer: Typically legal fees and related foreclosure costs for work actually completed and applicable to the current default episode may be capitalized into the modified principal balance.
Question 2: May a Mortgagee perform an interior inspection of the property if they have concerns about property condition?
Answer: Yes, the Mortgagee may conduct any review it deems necessary to verify that the property has no physical conditions which adversely impact the Mortgagor’s continued ability to support the modified mortgage payment.
Question 3: Can a Mortgagee include late charges in the Loan Modification?
Answer: Typically, the goal in providing the Mortgagor a Loan Modification is to bring the delinquent mortgage current and give the Mortgagor a new start, the Mortgagee should waive all accrued late fees.
Question 4: When utilizing a Loan Modification option, can a Mortgagee capitalize an escrow advance for Homeowner’s Association fees?
Answer: HUD Handbook 4330.1 REV-5 (Paragraph 2-1, Section B, Escrow Obligations) states: Mortgagees must also escrow funds for those items which, if not paid, would create liens on the property positioned ahead of the FHA-insured mortgage.
Question 5: Is there a new basis interest rate which Mortgagees may assess when completing a Loan Modification?
Answer: Yes, typically the Mortgagee shall reduce the Loan Modification note rate to the current Market Rate. Please refer to Mortgagee Letter 2009-35 for more details.
Question 6: Are Mortgagees required to re-amortize the total amount due over 360 month period?
Answer: Yes, typically the Mortgagee must re-amortize the total unpaid amount due over a 360 month period from the due date of the first installment required under the modified mortgage.
Question 7: What date is utilized when determining the correct interest rate for a Loan Modification?
Answer: The date the Mortgagee approves the Loan Modification (all verification completed and servicing notes documented, reported to SFDMS) is the date that Mortgagees are to use in determining the interest rate.
Question 8: Will HUD subordinate a Partial Claim, should a Mortgagor subsequently default and qualify for a Loan Modification?
Answer: If a Mortgagor subsequently defaults and qualifies for a Loan Modification, HUD will subordinate the Partial Claim.
Question 9: Are Mortgagees required to perform an escrow analysis when completing a Loan Modification?
Answer: Yes, Mortgagees are to perform a retroactive escrow analysis at the time the Loan Modification to ensure that the delinquent payments being capitalized reflect the actual escrow requirements required for those months capitalized.
Question 10: Can a Mortgagee qualify an asset for the Loan Modification option when the Mortgagor is unemployed, the spouse is employed, but the spouse name is not on the mortgage?
Answer: Based upon this scenario, the Mortgagee should conduct a financial review of the household income and expenses to determine if surplus income is sufficient to meet the new modified mortgage payment, but insufficient to pay back the arrearage. Once this process has been completed the Mortgagee should then consult with their legal counsel to determine if the asset is eligible for a Loan Modification since the spouse is not on the original mortgage.
*Information Acquired from U.S. Department of Housing and Urban Development
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