Understanding the Mortgage Loan Modification Process
Mortgage loan modification is a home-saving strategy available to borrowers who have defaulted on loan payments or those facing financial challenges that could lead to foreclosure. Banks can reduce interest rates, extend loan terms, or reduce mortgage principal.
The mortgage loan modification process can take months to complete. Borrowers who have entered into preforeclosure must become extremely proactive in attempting to work out a modified loan. Borrowers who are not in preforeclosure, but struggling to meet loan obligations may find obtaining a loan modification nearly impossible until they default on their loan.
The first step of negotiating begins by contacting the bank's loss mitigation department. This is often a frustrating experience because borrowers normally must place multiple phone calls to talk with a human being. The key to success is patience and persistence.
Bank loss mitigation oversees all transactions related to delinquent mortgage loans. These include deferred payments, mortgage forbearance, loan modification, mortgage refinance, foreclosure, deed in lieu of foreclosure, and real estate short sales.
Next, borrowers present a 'Request for Modification and Affidavit' (RMA) to the bank. RMA forms are available at no charge at MakingHomeAffordable.gov, along with tax return authorization forms and income verification worksheets.
Borrowers provide an IRS 4506-T-EZ form which authorizes lenders to obtain a transcript copy of the most recent tax return. Required income verification documents depend on if borrowers are employees or self-employed; if they receive government assistance, pension, or unemployment benefits; and if they depend on child support or spousal alimony to maintain mortgage payments.
Once these documents are provided to lenders, most will request a loan modification hardship letter outlining circumstances that led to financial hardships. Hardship letters should be concise while including sufficient details. Borrowers who have engaged in activities to reduce expenses should include actions taken in their letter of hardship. Banks tend to appreciate borrowers who are being proactive in resolving financial problems.
Bank loss mitigators review financial information and loan documents to determine if a loan modification is the most viable option. If so, they will work with borrowers throughout the process. If not, banks may offer additional remedies such as real estate short sales or deed in lieu of foreclosure.
Making Home Affordable is a government-sponsored entity that can be invaluable to borrowers. In addition to providing required forms, visitors can also locate information and resources that can expedite the process of applying for a mortgage loan modification.
Mortgagors can enter information into mortgage calculators to determine if they meet loan modification criteria; locate HUD housing counselors; and research foreclosure prevention programs.
It is important to note that more than 50-percent of borrowers who enter into mortgage loan modification default on their agreement within the first year. The Office of Thrift Supervision reports default occurs because borrowers do not have sufficient income to remain current with loan installments, or because lenders or borrowers do not complete required paperwork.
When mortgagors receive loan modification approval they must be proactive in remitting payments in full and on time. Borrowers who fail out of loan modification programs will have limited options available to stop foreclosure.
Borrowers facing financial hardship and unable to achieve desirable results with their lender should consult with a HUD housing counselor. These trained professionals can assist borrowers and help determine if a mortgage loan modification is the best option or if other foreclosure prevention strategies should be explored.
"Understanding the Mortgage Loan Modification Process", was submitted 02/20/2012 under category Real Estate.
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