Loan Modification FAQ
Who is eligible for a loan modification under the Home Affordable Modification Program?
To apply for a Home Affordable Modification, you must:
- Be an owner-occupant in a one to four unit property;
- Have an unpaid principal balance that is equal to or less than $729,750 for one unit properties (there is a higher limit for two to four unit properties - consult your servicer);
- Have a loan that was originated on or before January 1, 2009;
- Have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31% of your gross (pre-tax) monthly income; and
- Have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.
If you answered yes to all of these questions, you may be eligible to apply for a Home Affordable Modification. Your servicer will be able to tell you if you qualify. Contact an attorney for more information about your eligibility.
How long does it take to get a loan modification?
The length of time that it takes to get a loan modification depends greatly on how long it takes your mortgage holder to process your loan modification, as well as how long it takes you to provide your mortgage holder with all of the information necessary to modifying your loan. Given the expected increase in loan modification requests as a result of the Homeowner Affordability and Stability Plan, it may take weeks or even months for your mortgage holder to process your loan modification.
What do I need to give to my loan servicer if I am requesting a loan modification?
- Recent paystubs or documentation of your monthly gross household income
- Your most recent income tax return
- Documentation of any debts that you owe, including credit cards, student loans, vehicle loans, etc., which shows the amount of the debts and your monthly payments on those debts
- Documentation of a second mortgage, if you have one, including the amount owed on the mortgage loan and the monthly payment amount
- Information about any other assets that you own
- A letter of explanation as to why you need a loan modification, i.e. the circumstances that have caused your financial hardship, such as job losses, medical expenses, etc.
Will I be eligible for a loan modification if I'm behind on my mortgage but not yet in foreclosure?
As long as you are otherwise eligible under the basic requirements discussed above, you have missed two or more mortgage payments, and your loan servicer is participating in the loan modification program under the Plan, your loan servicer must evaluate your loan for loan modification eligibility. There is no distinction made in the eligibility requirements in terms of whether you are current in your payments, behind in your payments, or facing foreclosure. The only distinction based on the status of your payments in the Plan relates to mandatory consideration of your loan for a modification, and certain financial counseling requirements.
What getting a loan modification cost me anything?
Generally, you must contact your loan servicer about whether your mortgage loan is eligible for a loan modification under the Homeowner Affordability and Stability Plan. You should have your recent paystubs, income tax returns, and documentation of your debts available for your loan servicer to properly evaluate your loan for this program. Using the loan modification program will not cost anything; if there are any costs, such as appraisal fees, your loan servicer will add those costs onto the amount that you owe, and will waive any late fees that you owe.
What's the difference between loan modification and debt settlement?
Debt settlement typically involves working with a professional debt settlement company to negotiate with the creditors to whom you owe debts. Your creditor may, for example, accept a one-time payment of 20 – 75% of your total debt and forgive the remainder of your debt. Loan modification, however, simply changes the terms of your loan to make payments more affordable. It does not reduce the amount of money that you owe to the creditor.
If I am not eligible for a loan modification, how else can I lower my mortgage payments?
If you are not eligible for the loan modification program, you may still be able to refinance your loan, which can result in lower monthly mortgage payments. However, if you currently have an interest-only loan or adjustable rate mortgage, refinancing could actually result in a higher monthly payment, although it may reduce the total amount that you must pay over the life of the loan.
Does a loan modification reduce the amount of money that I owe on my mortgage loan?
Not usually. Most loan modification programs just changes the terms of your loan, not the amount that you owe. However, if you successfully participate in the loan modification program, you may be eligible to receive credits of up to $5,000.00 toward the principal balance on your loan from the government. Other programs, however, may provide for reduction of the principal amount due on your loan.
Should I have an attorney help me with a loan modification?
You may contact your loan servicer directly about applying for a loan modification. You can also receive no-cost housing counseling about the options that might be available to you. However, if you are facing foreclosure or bankruptcy, or otherwise in serious need of a loan modification, you should consult with an attorney.
An attorney has an advantage in negotiating a loan modification with your lender since an attorney is readily familiar with all of the legal obligations the lender owes to you. Also an attorney can counsel you about your eligibility for various modification programs and which program would be best for your situation.
Speak to an Experienced Mortgage Attorney Today
This article is intended to be helpful and informative. But even common legal matters can become complex and stressful. A qualified mortgage lawyer can address your particular legal needs, explain the law, and represent you in court. Take the first step now and contact a local mortgage attorney to discuss your specific legal situation.