Loan Modification Faqs

Loan Modification

What does a DTI ratio have to be when applying for a Loan Modification?
They are not looking at your D/I. They are looking at your housing ratio. Modifications aren't generally given in regard to other bills, but to your total p & i payment, any escrow, home owners assoc. fees, etc; compared with your gross income. They will ask you for proof of any income reported. Most mortgage companies now qualify anyone with an H/I of >30%. They reduce interest rate on a temporary basis to get the H/I within an acceptable 30% H/I.

If you're H/I with honest gross income is <30% you're very lucky, and you don't need a modification.

Modifications are temporary, keep that in mind, and are meant for mortgage holders with reduced income, unemployment income, disability, etc., so that they can have 4+ years to sort out income shortages (hopefully!).

As of today If your investor is FNMA then 31%-37%. With FHA, FMHA, GNMA and other Prime loan lenders the DTI should be about 36%.

You can look at www.hud.gov for a more detailed breakdown if necessary.

What are the benefits of a loan modification?
Loan modification is intended to lower your payments through reduced interest rates, extended payments, or even writing off part of your principal (last option) in order to bring the payments down into an affordable range.

When you modify your loan you bring down your monthly payment. the bank gives you a better interest rate which could intern cut your payment essentially in half. also, they can get you into a fixed rate if you are not currently in one and it can also decrease the term of your mortgage. there are many different ways to modify your mortgage loan and some can be negative.

Do you have to have funds to put towards a loan modification?
It sounds like a modification is another term for re-financing. These funds they require are closing costs just like there were with your original loan.

If you have an adjustable rate mortgage, it might be a good idea to pay the costs to re-finance to a fixed rate loan. If it will take you a long time to recover the closing costs and you already have a fixed rate loan, it might be a good idea to just put some extra payments towards principal.

Is Loan modification the answer to not lose my home?
Yes a Loan Modification may be your best option. Due to the current housing crises the banks and government are working to keep people in their homes. You can get your late payments forgiven, demand a lower interest rate, extend your loan beyond 30 years, and even negotiate a reduction in principle!

Countrywide for example had to settle with multiple States Attorneys due to Predatory Lending practices. Based on the Settlement, Countrywide's loan modification programs will provide payments within the limits of an Affordability Equation set out in the agreement and be targeted to equate to 34% of the borrower’s household income.

You can do Loan Modification yourself or hire a professional company. The advantage of hiring a company is they do hundreds of modification with all of the lenders and mortgage servicing companies. A loan modification company will typically cover their fees by getting back payments waived and potentially by getting you a one to three month grace period before you mortgage is reinstated.

You really have several options when facing foreclosure. I suggest you check out the fee site below to find about a dozen options for those facing foreclosure. The explain things that most borrowers are unaware of including; VA Loan Refunding & FHA Partial Claims.

How can I submit a qualifiable application for loan modification?
First of all contact some mortgage lender and get advise about how to apply for loan modification. Or you can try some online mortgage lender where u just fill the form and then they will contact you and guide you about loan modification.

How difficult is a loan modification?
Negotiating with your mortgage company can be difficult and time consuming. That is why many people choose to hire a company to do it for them.

That being said you can do it yourself. There are books and do it yourself kits that provide you with advice, documents and even scripts to use when speaking with your lender.

I have a loan modification and they are not removing any late fees or back payments. Should I negotiate that?
Typically the lender wants any fees/costs paid upfront especially if any of the fees required payment from the lender. However, they may be willing to negotiate a short term payment plan for the back payments. You will want to talk to the lender and try to negotiate with them. Be business like and pleasant but impress upon them the need for a repayment plan. Don't in any way indicate that if you can't get a payment plan you won't be able to do the loan modification, even if that is probably the case.

Show the lender how with your new mortgage payment you will have adequate funds to pay them over a short term. Also, start looking for alternative resources for funds so you can keep the loan modification alive.

When you are getting a home loan modification is it normal for an outside company to take pictures?
The Lender needs to order an appraisal to determine the value of the property to determine if it is in their best interest to enter into a loan mod. Typically these appraisals are done through independent contractors and not necessarily someone who works for the bank.

How long does a loan modification take?
Depends on the lender, shouldn't take longer than 3 weeks since it's easier than a refinance.

Would I have better results if I go to a Law firm for a loan modification or to a non profit organization?
A non-profit will not get you the best deal and will likely take much longer to complete and a law firm will cost you more than you need to spend. Look for a good loan modification company that is licensed in your state and offers a written guarantee!

Is it true that if a mortgage loan modification is processed and loan has been modified, credit companies or banks close your credit accounts because of the modification?
Typically to even get loan modification you have to be in a position where your lender does not think you will be able to pay as much. So it may not be the loan modification that hits your credit, it may be that using too much credit and/or not enough income dings your credit, before even being considered for loan modification.

Is not getting immediate news after a request for a loan modification. Good or bad?
Neither; they are backed up big time right now.

I have multiple properties, how can I apply for loan modification or similar product?
No programs are available for non-owner occupant properties. Lenders are only doing loan modification on your primary resident.

Can you get a loan modification while being current?
If you are current on your mortgage payments, it's called refinancing. You can refinance any time you want, if you find a better loan. Get in touch with a lender (your lender, or any other lender) tell them what kind of loan your have now and ask if they have anything better.

Loan Modification and Bankruptcy

Is a loan modification process always granted while in Chapter 13 bankruptcy?
No, not always. If the lender and the trustee believe that you cannot honor the payment plan then they will take the home out of the bankruptcy filing by a motion from the lenders attorney and foreclose on your home.

Loan Modification and Taxes

Can you qualify for a loan modification if you owe the county property taxes?
Yes you can. Also depends on how far behind you are on your property taxes. If there is some sort of Tax lien put on the house than you wont be able to modify it.

How does a loan modification affect your income during tax time? Does the company write off the loss?
See IRS publication 4681. You will get a 1099-C if the loan modification writes off any part of your loan balance.

Depending on when the modification occurs, you may be able to postpone including the money as income on form 982. (If the house ever recovers in value, you would have to include the money as income in the year you sell.)

Lender Loan Modification

Is it good to ask my lender for a loan modification?
Lender has their objective to keep you paying on home that may be upside down.

Disclaimer: This all depends on your current financial situation and your homes value & location.

Use a loan modification company that has an attorney. Review their successful loan modifications. Attorney loan mod companies do a forensic analysis on your loan file to catch errors that lender made demanding they restructure your loan or to take the loan back. As a note, about 80% of loans originated have errors so your chances are good.

Now, you can also DIY as someone suggested but you need to prove errors and are at their mercy. Plus, once they get your info, going to an attorney later hurts your chances a lot more. Just telling you the facts, It's up to you. Attorneys have demand letters and there are laws whereby the lender must respond in a certain time period vs. people who do it on their own will wait sometimes 4ever, 6 months or never get thru to the right people.

Yes, you will save money by doing it yourself. I would think a loan purchase pr refinance is do-able on your own but this topic when it comes to foreclosure and dealing with a lender who is losing money requires a legal expert even if it costs $2 to $3k.. at least it is done, no daily stresses on your part and you continue with what you do instead of tracking down people all day.

One thing don't go with just any loan mod company as some are just loan officers doing loan modifications now with loan processors vs. attorney staffed companies with paralegals and loss mitigation experts.

Can I get a loan modification from my lender if I'm not behind on my payments?
Loan modifications are for people that have been having trouble making their payments. You need to have at least a 30 day late.

Can a lender threaten foreclosure, when you are in the middle of a loan modification?
They can threaten all they want. The fact of the matter is certain legal proceedings will take place to notify you. Foreclosure doesn’t happen immediately it is a process. My advice is to call the customer service number and speak to someone directly. Tell them about the loan modification; speak with their lending department if necessary. You will need to find out their policies on behind payments, foreclosure and modifications. Tell them the situation. Also, make sure they understand the late payments are to added on the back of your loan.

Get the names and extensions of everyone you speak with. Make sure you note the date and time of the conversations and make a note of the subject matter. Keep a log for your personal records.

Call the company handling your modification. Make sure they are doing their job. Ask if they gave your loan company notice of the modification. Although, you still should be making payments.

If you are getting nowhere with either company on the telephone call around and ask a lawyer to make some calls for you. You may have to give a retainer but at least you won’t loose your home!

Loan Modification and Credit

Does the Loan Modification always affect credit score?
It is important to keep in mind that a loan modification does not affect a person's credit score as long as the modification is completed before late payments begin. This puts a vast majority of the people who could benefit the most at a disadvantage. This is because many of them are already struggling and have missed a payment or two. A loan modification involves a change in the terms and conditions a particular loan. Late payments will always negatively affect a person's credit score. Therefore, loan modification can be a good thing, unlike a short sale or foreclosure.

Now that we are paying our mortgage and on time will our credit score improve once our mortgage states "current" as opposed to "past due"?
Positive actions give positive results. Current is much better than past due. Yes, your score will improve over time. Each month you continue adding positive actions to your credit report, without also adding negative ones, will add to your credit score.

Your score is a complex equation which considers number of credit lines, payment history, amount of credit available vs. amount of credit being used, judgments, and charge-offs, inquiries by other companies, and lots more.

How long will it take to see an improvement? It's really hard to say. But as long as you continue to stay current, reduce your balances on open accounts, and don't add any negative info to your report (don't apply for new credit, don't make late payments, don't get sued, don't close a whole bunch of accounts at once) it will get better month after month. (Of course, you won't see that happening, because you will be WISE and not have your credit report run unnecessarily just to find out!)

Generally, most people will not notice SUBSTANTIAL changes in their credit score over less than 6 months to a year AFTER negative situations are corrected.

Will my bank do a credit check during the loan modification process?
No they will not run a credit check for a loan modification because it is based on what you can afford not your credit score. You may have to list your debts however so they can come up with a plan to get back on track. The pre-qualification just means that any collection activity including foreclosure has been suspended to give you time to payback your back payments. Just be honest with the bank about your income because if you do not get current and break the plan they can go ahead and take your house.

Loan Modification and Refinance

Is it possible to refinance after you get a loan modification?
Before this recession, refinancing would have been far easier than obtaining a loan modification but the variables have changed, now refinancing a mortgage can be more difficult.

Generally speaking, a bank should refinance your loan if you have a reasonable amount of equity (after the huge drop in values). Typically they look for about 20% equity, good credit and strong proof of income to refinance your loan. With lower interest rates, this could be a very good option for some, but certainly not for the majority of people who are under water on their mortgages.

Loan modifications are becoming more available because so many resources are being placed behind these programs to help struggling home owners. But loan modifications are not available to everyone.

Loan Modification for Unemployed

What should I do to get Loan Modification if I am not currently employed?
We are now witnessing that most lenders will accept loan modification applications from homeowners who foresee a problem meeting their home loan payments due to interest rate resets or financial hardship. The Federal government is urging lenders to proactively reach out to homeowners who face potential default. The Loan Advocacy Group’s loan modification process allows you the homeowner to apply for a loan modification without being currently employed.

Will being on unemployment affect getting a mortgage loan modification?
The answer is yes it may affect getting a loan modification. The lender is going to look at your current situation and make a decision based on your ability to pay for the loan after it is modified. If they feel like you won't be able to pay new loan amount they will deny you.

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Loan Modification Faqs

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