Loan modifications are a complex subject for a lot of homeowners. Whether you need to make your payments current or reduce your monthly mortgage payment, some standard loan modification requirements apply to get approval from your lender.
However, before we examine those factors, it’s essential to understand why homeowners choose to ask for a modification in the first place.
Basics Of Loan Modification
“Loan modification” is a term used in the loan servicing industry to describe the process by which borrowers and their providers collaborate to avoid foreclosure on account of a loan holder or “investor.” Numerous loss mitigation strategies are available, including
- loan modifications,
- forbearance agreements
- repayment programs.
- Short sale
Modifications are perhaps the most sought-after type of loss mitigation.
What Is a Mortgage Loan Modification?
A “loan modification” is a formal agreement that permanently alters the conditions of the promissory note to make the mortgage costs more reasonable for the borrower.
Typically, a modification decreases the interest rate and lengthens the duration of the loan. If you fall behind on your payments, you may be eligible to add the late amount to the loan balance as part of a modification.
Generally, however, lenders and investors will not authorize principal reductions as part of a modification, even if your home is underwater.
To apply for a modification, you must contact your loan servicer. You will be required to provide information about your income, expenses, and financial condition on the application.
Additionally, you must supply supporting documentation. While the process may appear daunting, most people may apply for and, assuming they meet investor-specific conditions, obtain a change without paying for assistance.
How is loan modification accomplished?
Obtaining a home loan modification may entail extending the duration of your loan, lowering your interest rate, or switching from an adjustable-rate to a fixed-rate mortgage.
While the lender determines the parameters of your modification, the final result is lower, more affordable monthly mortgage payments.
Lenders face significant costs associated with foreclosure, which is why many are ready to accept loan modification as a strategy to avoid it.
Who is eligible to apply for a loan modification?
Not everyone who is having difficulty making a mortgage payment is eligible for a loan modification. In general, homeowners must be delinquent or face imminent default, which means they are not currently outstanding but have a significant possibility of becoming delinquent.
Imminent default can be caused by the loss of a job, the death of a spouse, a disability or disease that impairs your ability to repay your mortgage according to the original loan terms.
Modification Process and Requirements
To apply for a modification, contact your servicer’s loss mitigation department, occasionally referred to as “home retention,” and request a loss mitigation application. Contact information is available on your monthly mortgage statement or the servicer’s website.
You’ll need to apply to your mortgage servicer, which will most likely include the following:
- A questionnaire that has been completed and contains your personal information,
- Mortgage data, property data, and so forth
- Recent pay stubs or, if self-employed, a profit and loss statement
- Financial statements
- Returns of income
- A financial worksheet for income and expenses, and
- A statement of hardship (hardship letter) or affidavit.
Depending on the circumstances, you may also be required to supply additional evidence or respond to service queries.
To be qualified for a mortgage modification, in addition to meeting other investor-specific criteria, you must generally demonstrate the following:
- Your primary abode is your house.
- You’ve encountered financial difficulties, such as being forced to take a lower-paying job.
- You’ve lost your work, or you’ve gone through a divorce and suffered a loss of household income, and
- You have a stable source of income that will enable you to make monthly payments under a modification.
In the majority of circumstances, you’ll be required to complete a trial period plan, which is frequently approximately.
For a detailed explanation on How to Qualify for a Loan Modification
Loan Modification Programs and Alternatives
Depending on the type and circumstances of your mortgage, you may be eligible for a government modification program. Borrowers with Fannie Mae, Freddie Mac, FHA-insured, VA-guaranteed, or USDA mortgages have various options.
For instance, you may be eligible f you have a Fannie Mae or Freddie Mac flex modification. Investors may also offer their private improvements, referred to as “proprietary” alterations.
How a loan modification is helpful
- You avert a foreclosure auction. Even if an appointment has already been planned, we may be able to reschedule it after examining your information.
- You pay less. Your modified payment amount is determined by your current financial status and takes into consideration your financial hardship.
It may have a less detrimental effect on your credit score than a foreclosure auction.
Take this into consideration: A loan modification permanently alters your loan, so it may not be a choice if you are experiencing a brief financial crisis.
If you have home equity loans or any other liens against the property, they may need to be addressed independently from your original mortgage. Ensure that you contact any other lien holders to determine your alternatives.
How a Loan Modification Attorney Can Assist You in Your Loan Modification
Failure to return a debt following its original terms is a frustrating experience for anyone. As the borrower, you entered the arrangement certain that you would be able to adhere to its terms. Still, events beyond your control have almost certainly intervened to make that impossible.
Unfortunately, lenders are not always sensitive to their borrowers’ extenuating situations. Certain debt collectors can be dishonest in their collection practices, resulting in creditor harassment. Nonetheless, a loan is a legal contract, and you are legally bound to repay.
Some individuals look into a loan modification, which alters the terms of this arrangement, including through bankruptcy. While you can attempt to negotiate a modification or even manage bankruptcy on your own, hiring a reliable loan modification attorney will put you in a far better advantageous position tactically.
The following section discusses why retaining legal counsel can significantly aid you in requesting a loan modification.
Combating Lenders Is Ineffective.
Specific debtors will attempt to sue lenders without the assistance of a lawyer. This is generally not a good idea, as lenders legally hold all of the leverage. Your loan agreement details the due dates for installments. If you are unable to make those loan payments, you are in default, and your lenders have a legal basis for seeking collection or other remedies.
In actuality, they are also unlikely to be concerned with any troubles that lead to your incapacity to pay. Lenders are primarily interested in recouping their investment.
When lenders are indifferent to your circumstances and solely interested in collecting payment, some borrowers grow irritated or enraged. Berating or being angry with your lender is not a realistic way to resolve a loan-related issue.
Experiential lenders, such as those at financial institutions, have likely seen it all when it comes to borrower reactions, and even the most vehement diatribe is unlikely to influence them.
It’s understandable if you’re frustrated that your lender is unwilling to comply, mainly if your loan is secured by your home or automobile. However, you must keep in mind that this is not an emotional transaction for your lender. They simply want the loan settled.
Even if you propose a loan modification to fix an issue, lenders will assess which course of action is the most financially wise.
You can attempt to negotiate a modification, but if you are unfamiliar with all of the elements and vocabulary governing these agreements, it is easy to become overwhelmed or fail to recognize when you are putting yourself in a vulnerable position.
Lenders React to Attorneys.
When lenders realize that clients have retained a competent attorney to assist them in a loan modification negotiation, they typically perk up. The employment of legal counsel indicates to a lender that the borrower is committed to resolving the loan.
Your lawyer can handle all of the lender’s day-to-day discussions. When negotiating with lenders, attorneys are trained to be sensible, relaxed, and forthright.
Additionally, they understand the language and can more effectively communicate your viewpoint and prospective resolutions. You won’t have to waste time on lengthy phone calls; your lawyer will manage those talks and attempt to resolve the issue as quickly as feasible.
A knowledgeable bankruptcy attorney will also be able to assess your unique circumstances and assist you in understanding your legal alternatives for loan modifications. Lenders will not advise you on a course of action that is financially unfavorable to them, which includes, in general, bankruptcy.
Bear in mind that lenders are solely concerned with their interests. A lawyer will look out for your best interests.
Keep in mind that simply the process of retaining legal counsel can help you live a more comfortable life as you pursue a loan modification.
Your lender, for example, cannot contact you for collection purposes after they learn you have retained a lawyer. Lenders must instead contact their attorney on debt-related matters.
Each party wants a resolution of the debt issue. Lenders know that a lawyer will not be bullied, and many will even cooperate to avoid a lengthy, costly exercise.
Educate yourself: Know Your Rights Against Abusive Creditors!
Take Caution When It Comes To Loan Modification and Foreclosure Rescue Frauds.
Scammers posing as mortgage rescuers fraudulently claim to be able to seek a loan modification or other form of relief to escape foreclosure. Certain individuals may pose as representatives of a government agency or a housing help program.
Others falsely promote themselves as providing legal counsel, conducting “predatory lending investigations,” or conducting “forensic loan audits” of your mortgage papers. These companies may claim that by utilizing their services, they may exert pressure on your lender and facilitate the negotiation of a “good bargain.”
Unfortunately, these organizations frequently fail to deliver on their promises, and some companies collect funds in advance and make little or no attempt to assist consumers.
Seeking Legal Assistance from a Michigan Loan Modification Attorney
Getting a mortgage modification is tricky. Sometimes it requires additional paperwork or testimony. Sometimes it requires a new survey. Sometimes it requires the lender to re-examine the original loan documents.
If you need a mortgage modification, call us. We’ll explain what needs to be done, and we can help you get it done. Our Hammerschmidt Stickradt and Associates legal team has extensive experience advocating on behalf of clients seeking loan modifications and is prepared to assist you in overcoming your debt.
We can evaluate your position, communicate with your lender on your behalf, and advise you on your legal choices.
However, to apply for a loan modification, you first have to qualify financially. If your financial situation has deteriorated, you may not be qualified for a loan modification. In this case, bankruptcy will be your only option.
If you have already filed for bankruptcy, we can help you get a mortgage modification.
Do not attempt to negotiate with your lender on your own. Contact our Michigan bankruptcy lawyer to engage the services of a professional loan modification attorney today.