A mortgage modification is a change to your current mortgage loan terms. It is similar to a refinance however you are not paying off your current loan and taking out a new one, and since you are simply “modifying” your current loan, it is not based on your credit score.
A new modification program was recently released by the name of the “Flex Modification” and this program gives homeowners who may have had trouble with refinancing a potential way out. The program is exclusive to those with mortgages owned/insured by Fannie Mae and Freddie Mac, however many different lenders follow similar program guidelines. Aside from Flex, there are also other modification programs still available such as “FHA-HAMP”, “streamlined modification”, “in-house modification” and more. Successor to the Home Affordable Modification Program; with Flex; you do not have to be behind on mortgage payments. You can be current and on time with your payments and unlike a refinance, it doesn’t matter if your credit is poor, have had late mortgage payments, are in bankruptcy, upside down or currently in foreclosure.
Adjustments that can be made through a modification
Typical adjustments through modification include one or more of the following:
- Lowering of the Interest Rate
- Deferment of any missed/skipped payments to the remaining principal
- Extending the loan term (some investors leave the maturity date the same)
- Principal Reduction (possible but rare in today’s real estate market)
A forbearance is a deferment of mortgage payments that are due and lenders at times can issue a forbearance for three months and with some cases up to twelve months. A forbearance allow borrowers to defer/skip the payments for a certain time period (3 month, 6 month, 9 month 12 month etc). This doesn’t mean the payments disappear for good and you will never owe it, they just become due and payable at the end of the three months or 6 months whichever you are doing. In fact at the end of forbearance you may have to pay back the entire deferred/skipped payments in a lump sum or the lender may agree to capitalize it into your previous loan or into a new/modified loan.
How to apply for a Mortgage Modification
If you want to be considered for a modification, you have several options. You can call your lender directly, contact a local HUD approved counseling agency or hire a professional third party. If you’re going to choose to hire a third party, never ever pay anything upfront as it is against the law to charge a borrower for a modification until the third party secures an offer from your lender that you choose to accept.
Steve Kay from New Vision Direct says: “Hiring a third party representative to help you get a modification is similar to hiring a CPA to do your tax returns, or going to a doctor for a broken bone. There is no law that says you must hire a CPA, and you can treat your own broken bone if you choose. It’s a similar consideration with modifications. Just like the doctor doesn’t technically‘heal’ your broken bone, the third party doesn’t ‘give’ you a loan modification.
“You’re not hiring and paying someone for the modification itself, but the work that goes into putting together a qualified package and more importantly the strategic planning involved with putting together the best possible package for the lender’s review. Most people don’t have the time, experience, knowledge and resources to negotiate a modification.
You really want someone on your side to advocate and help you get the lender’s bottom line offer. Keep in mind that no matter what anyone says or does, a lender may not agree to your proposal or be able to approve a mortgage modification. It’s at the lender’s discretion to give you one; however if presented and packaged strategically and correctly, a lender may be convinced a modification is a win-win for them – as well as you. Lenders want to avoid liability, defaults, lawsuits and foreclosures from happening.”
New Vision Direct work with you $0 upfront and work on a contingency where we are only due a fee if we successfully get you an offer you accept.”
Hiring an Expert
You should consider hiring an expert to represent you in negotiating a loan modification for several reasons such as:
- Your mortgage company trains its agents and representatives to act in the best interest of the investor/note holder of the loan.
- In some cases, you may have only one shot at submitting your request application correctly. Having an experienced expert prepare and package your application is like having a headhunter craft your resume.
- A loan modification expert knows the system and how to work it for your benefit.
- An expert can take all the hassles off your plate, freeing up your time and energy to get a better handle on your finances.
- A seasoned pro knows immediately whether the offer a lender pitches is fair and square.
- You’ll probably more than recoup the cost of hiring an expert from the amount of money he or she saves you by getting a better deal than you could on your own.
Lenders often try to dissuade distressed borrowers from hiring their own representation. After all, lenders often claim, “We’ll modify your mortgage for free.” Sure, they’ll modify it, but are they going to modify it to true affordability?
Any company engaged in assisting a consumer with negotiating a loan modification must make certain disclosures to you, including:
- “You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [insert amount or method for calculating the amount] for our services.”
- “[Name company] is not associated with the government, and our service is not approved by the government or your lender;” and
- “Even if you accept this offer and use our service, your lender may not agree to change your loan.”
- It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting hud.gov.