For homeowners facing financial hardship, it may become increasingly difficult to make payments on their mortgage. This may, understandably, be an overwhelming time for many but it is valuable to know that there are options available to help families traversing financial difficulty. If you find yourself in this situation, one such option is loan modification, which can help prevent foreclosure by ensuring that you are more able to afford your mortgage payments. In this installment from our series on foreclosure prevention, we will discuss loan modification and how it may benefit you.
What is Loan Modification? The U.S. Department of Housing and Urban Development, or HUD, explains that a loan modification is the process of making permanent changes to the terms of a homeowner’s loan. This can include reducing the interest rate (be it permanently or otherwise), forgiving a portion of the debt, or extending the original term. Not only does this result in more affordable mortgage payments but, if you are struggling to make mortgage payments, this can be a lifeline to help you not only stay in your home, but avoid foreclosure altogether.
Am I eligible for Loan Modification? There is a specific set of criteria that lenders use to determine whether or not you may qualify to pursue loan modification as an option to avoid foreclosure. Such criteria include:
- Proof that, due to financial hardship, you are unable to make your current mortgage payments (losing a job, divorce, etc.)
- Proof that shows you will be able to make payments on the modified agreement
- Ability to provide all of the necessary documentation. These documents typically include a hardship letter, proof of income, recent tax return, and financial and bank statements. The requirements may vary depending on lender, so contact yours to find out what they will need to move forward.
For more information on whether or not you qualify for loan modification, be sure to contact your mortgage servicer or locate a HUD Approved Counselor. In addition, HUD provides a comprehensive list of criteria on their portal, along with frequently asked loan modification questions.
What is the process? If you are interested in pursuing a loan modification, it’s best to contact a free HUD Approved Counselor who will help determine what options are available to you. If you may qualify for a modification, your counselor will work with you to complete the necessary intake paperwork for your servicer. Your counselor will be a valuable contact throughout this process and can help fill out forms, gather paperwork, and understand the upcoming process.
If you choose to work directly with your servicer, they will provide a list of required documents to begin the application process. Once your lender receives the necessary information, they will review the options available to you based on eligibility. Your servicer will be able to determine whether you qualify for governmental foreclosure prevention programs, or if a private (or “in-house”) loan modification is a better option. If your servicer informs you that you don’t qualify for a governmental program, but you think that you do, or you run into other problems during this process, contact a HUD Approved Counselor to discuss this further.
It can take a few months to work through the loan modification process, however, this time can vary depending upon the lender and borrower’s unique situation.
To ensure that you’re able to qualify for the best possible modification, it is best to begin this process as soon as you notice you’re having trouble making your mortgage payments. The longer you delay, the more likely it is that your request for modification will be denied.
How does HAMP impact private loan modification? Private loan modifications are negotiated with your lender directly, and therefore are held only the guidelines set in-house. If you qualify, the Home Affordable Modification Program (HAMP) is a loan modification program that works with, incentivizes, and provides guidelines for loan servicers. HAMP is a part of the Making Home Affordable® Program (MHA), which was launched by The U.S. Department of Treasury and aims to help homeowners facing financial hardship avoid foreclosure. Thought it is worked through with your servicer, HAMP sets strict guidelines for servicers that aim to protect homeowners, and help provide modifications that are much more affordable for those who are struggling financially. For more information about which loan modification option is right for you, contact your servicer, HUD Approved Counselor, or visit Making Home Affordable.
How can I be sure to avoid scams? Unfortunately, if you are in need of loan Modification you are a common target for scam artists who are looking to make money from your current financial situation. Be sure to read more about the Loan Modification Scam Alert Campaign to avoid becoming a victim of a Loan Modification scam. Also keep an eye out for future installments of this foreclosure prevention series that focus on how to protect yourself from scams.
If you feel that you may benefit from loan modification, it is best to start by contacting a local HUD Approved Counselor. Not only will contacting a counselor give you a great starting point for loan modification, a counselor will also have your best interest foremost in their mind and know of options your servicer may not mention.
Sources:
U.S. Department of Housing and Urban Development
Making Home Affordable® Program
Making Home Affordable® Program (MHA)
