A loan modification occurs when the owner of a mortgage agrees to alter one or more of the following elements of the loan: the interest rate, term, and/or principal balance.
It is important to understand who is the true “owner” of the mortgage. The institution you make your mortgage payment to is typically a servicing company. They collect payments on behalf of an investor, who has the ultimate say in whether a loan will be eligible for modification assistance. The process of how mortgages are bundled and sold is very complex, but the important thing to remember is to approach your servicing company with an open mind and patience. It also helps to research and understand the programs that are available.
In March, the Department of Treasury announced the Making Homes Affordable initiative. There are two components — the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP). HARP provides an option for homeowners who have stayed current on their mortgage to refinance and take advantage of today’s low interest rates even though values have dropped below normally accepted levels. The current guidelines allow for refinances up to 125 percent of appraised value. The investor or owner of your mortgage must be either Fannie Mae or Freddie Mac in order to qualify for this program.
The more widely used program is HAMP. Any servicing company or investor is eligible to participate in this program, and there are financial incentives for each loan that is successfully modified. The goal of the program is to bring the total housing payment down to 31 percent of the gross household income. Total housing payment includes principal, interest, taxes, insurance and association dues, if applicable. It would also include private mortgage insurance if it is a part of your current mortgage payment. You must have verifiable income in order to qualify for assistance through this program. All eligible loans will enter into a 90-day trial period. You will be required to submit updated income documents at the time the trial modification is offered. If you comply with the terms of your trial modification and the income is appropriately verified, you should receive a permanent modification to your mortgage.
The new payment will be achieved through the use of three options in order: 1) reduction in interest rate; 2) extension of mortgage term to a maximum of 40 years from the date of modification; 3) forbearance of principal creating a balloon payment at maturity.
It is important to note that each and every file is reviewed for assistance based on income qualification and need, and everyone’s situation is different. Modification of your existing mortgage cannot be guaranteed by anyone. You should not pay for modification assistance on your primary residence loan.
If you have questions about the Making Homes Affordable program, you can find more information at www.makinghomesaffordable.gov. If you would like to consult with a HUD-approved housing counselor, you can contact the HDC of SW FL at (239) 434-2397 or visit www.collierhousing.org. All consultations are free of charge, and the counseling staff has access to the latest information, contacts and resources to assist you in preventing foreclosure.
This article contains general information only, and is not intended or to be construed as legal advice. You are encouraged to consult with a licensed Florida attorney to discuss your individual circumstances.