In most cases borrowers should be able to complete the loan modification process by themselves. Another free, but often time consuming and frustrating option is to use NACA to negotiate with their lender, servicer and investor. Most people think that attempting to work out a loan modification will further upset them and potentially set them back further financially. This is a flawed assumption: you need to arm yourself with information and facts before you call your lender about a loan workout to delay foreclosure.
The government is introducing new loan workout programs and changing regulatory guidelines at a rapid pace right now. It's impossible for you to "know" everything about the process. You merely need to know "enough" to get your situation resolved. Remember, you are the homeowner and you need and deserve help. Here are some tips to help you through the process:
General Loan Modification Information
It's important to understand that a loan modification is different than a refinance. A modification is a
change to the existing home loan. The goal of a "loan mod" is to lower the interest rate, reduce the principal balance, or both in an effort to lower payments so that the homeowner can afford to continue making payments. It's also important to note that workouts stop foreclosure proceedings from continuing.
There are several advantages to obtaining a loan workout. The Housing and Urband Development association has stipulated that accrued late charges should be waived by the lender. This means an immediate forgiveness of late fees should the loan modification occur. You are entitled to a total breakdown of all fees and penalties from the servicer and investor with complete descriptions.
Your lender and servicer need to know that you will be able to make your new payments in the event they grant a loan modification. This means that you need to be prepared to provide
pay stubs,
bank statements and an accurate financial statement showing your monthly
income and
expenses. In most cases, they have established specific criteria to best know which programs for which you may be eligible.
In addition to specific programs offered by your lender, the Federal government has pledged over $75 billion dollars as a subsidy to investors and servicers who obtain qualified loan modifications with their existing customers. This provides a large incentive for lenders to work favorably with qualified borrowers. In many cases, they also provide an additional incentive to homeowners who make on time payments under their newly modified loan. You may be eligible to receive a one time $5000 credit. Please check with your lender for details.
Another fallacy is that you need to miss one or more payments before your lender will work with you. Now, lenders are trying to stem more foreclosures by working with non delinquent homeowners as well. If you have a pending increase in your interest rate, you are also strongly advised to contact your lender as soon as possible. You need to begin the loan modification process now rather than wait.
Keep in mind that you are not guaranteed a workout. Each borrowers situation is different and the lenders treat each case on an individual basis. This means that you need to prepare a
hardship letter detailing exactly why you will no longer be able to make your payments. There are several compelling reasons in addition to a payment increase. Please make special note of such things as divorce or death of a spouse, job loss, tragic events, illness, birth of a child, unemployment or disability - but please note that you need to have a plan to make payments beginning at a specified time. They will not work with you on an open ended arrangement such as, "when I get a job I'll start making payments again."
In most cases, missed payments will be added back into the loan balance. If the missed payments are forgiven, this qualifies as a principal reduction. The industry jargon for including the past due payments is that they are "terming out" your missed payments. Keep in mind that it is the investor and not the servicer who makes decisions regarding the outcome of your loan. This is because it is the
investor that actually owns your loan!
Keep in mind that you don't need to have a lawyer to start the legal process. First, you need to read, read and read some more. Then you need to begin gathering your paperwork so that you can contact your bank's loan workout or loss mitigation department. If you cannot find your original loan documents, your lender should be able to provide them for you. You may need to submit a
qualified written request (QWR) in order to obtain copies of your documents.