How to get a home loan modification

how to get a home loan modification

PROVEN 15 STEPS TO A LOAN MODIFICATION

For additional help, please fill in the form below.

For Fannie Mae and Freddie Mac (Government-sponsored) Loans

and FHA*, Conventional**, VA*** (investor-owned) Loans following:

Making Home Affordable Guidelines (HAMP)

Unemployment benefits. Are they now allowed? (as of 2/10/11) Wells Fargo CEO area has reported that "for the most part" unemployment is not allowed. "A very few investors" now allow unemployment.

Recommendation: Before answering any income verification questions, try to find out first if unemployment is allowed. Assume NO when preparing your numbers for modification. Note: In the 2 modification lessons (Making Home Affordable and Traditional), read "12 ways to show income" to learn ways to augment income for modification purposes.See Updates. See Top Tips.

Click PLAY once to listen to entire lesson. Video sections will play automatically in sequence.

To replay a video, click on the lower LEFT BOX to bring up play list and click on the desired video.

***** This video lesson explains material presented below. *****

Prepare your Numbers First Before Calling Your Servicer

NOTES BEFORE YOU BEGIN:

* Effective August 15, 2009, FHA (investor-owned loans) adopted the general guidelines of the

Making Home Affordable Program for eligibility only. The outcome is different than government

sponsored Fannie Mae and Freddie Mac loans. If you have an FHA loan, follow the steps below. If

you do not qualify, attempt a Traditional modification.

* * Some Conventional (investor-owned) loans follow the formulas of the Making Home Affordable

program (HAMP). Ask your Servicer if your Investor is following HAMP or Traditional guidelines for

eligibility. Outcomes can vary widely. If you are not eligible for HAMP, try to posture your numbers

to fit Traditional guidelines.

** V.A. Loans now follow VA HAMP formulas (if Servicer is utilizing) as well as the Traditional formulas.

Always ask the Servicer first if the Investor is following the V A HAMP or just Traditional formulas.

The following lesson gives VA HAMP. (See STEP 4 below). If you do not meet the requirements

then try posturing for Traditional formulas instead.

Other Resources: Information You Need. Frequently Asked Questions (*recommended).

Do Not Panic. Know the difference between letters.

STEP #1: If you are reading this lesson, make sure that you have a loan that is following the Making Home Affordable program (HAMP). All Fannie Mae, Freddie Mac, FHA, VA ( new! ), and some Conventional loans are following HAMP formulas if Servicers are participating. For a list of participating servicers, go to www.MakingHomeAffordable.gov/contact_servicer.html . Caution!: Approach to calculations is different and outcomes are different. See below. If you have a Conventional loan, ask your Servicer if the Investor (who owns the loan) is evaluating your case based on Making Home Affordable. If your loan is not being evaluated under HAMP, or you do not meet the guidelines of HAMP, then follow the lesson listed here to apply for a loan modification using Traditional guidelines.

STEP #2: Circumstances may require that you need to authorize someone to speak to your Mortgage Servicer --either with you or on your behalf. A Letter of Authorization simply authorizes a third party, such as a Friend, Counselor, or Realtor (if selling property) to speak to your Mortgage Servicer. To obtain a Letter of Authorization click here.

Use one for each Servicer. Fill in the name of the authorized person(s) and then your personal information. Fax this form - without a fax cover - to the Letter of Authorization fax number listed in the first column under Important Numbers 1st Chart Loss Mitigation. Allow 72 hours for it to be uploaded by the Mortgage Servicer. It is becoming increasingly difficult with some servicers for third parties to help Borrowers without a Letter of Authorization already on file. If you need another party to help you, please fax this authorization immediately and confirm with the Servicer that is it has been received to avoid complications later.

If you have filed bankruptcy and you are still under jurisdiction of the court, you can review loan workout options with your Servicer, if a Consent Form from the Bankruptcy attorney is faxed directly into the Servicer’s bankruptcy area. To obtain a sample Consent Form click here. Send this form to your bankruptcy attorney to prepare and ask your attorney to fax it in to the Servicer’s Bankruptcy Department. Find the fax number under Important Numbers 3 rd Chart Bankruptcy Numbers or ask the Servicer’s Bankruptcy area for the fax number.

STEP #3: Prepare your numbers before contacting your servicer to make sure that you fit the guidelines. Read the Steps thoroughly. If you have previously verbally answered the questions incorrectly, do not worry. Prepare and begin again. Contrary to what you may be told, you do not have to call the Servicer first before faxing your information. The Servicer will accept the paperwork via fax. They will mostly likely ask for your financial information when you call to verify receipt of documentation. We have provided scripts to use when calling your Servicer in Step 14 below.

** Remember when you are using the Mortgage Calculator . after you add the back amount owed, keep in mind they are looking for affordability. the ability to make the modified monthly payment without risk of default.

Fannie Mae and Freddie Mac loans (Treasury HAMP) and Conventional loans allowing evaluation under HAMP formulas Click here for PDF of Treasury HAMP

Note: See potential outcomes for Conventional Loans below. Outcomes can differ because Conventional loans are Investor-owned.

To meet eligibility, ALL of the following conditions must be met:

1. You must own and live in a 1-4 unit property. That means a single family property, duplex, triplex, or quadraplex AND

2. You must owe the amount shown (or less) according to this chart AND :

1 unit (single family) $729,750

2 units (duplex) $934,200

3 units (triplex) $1,129,250

4 units (quadraplex) $1,403,400

3. You have Mortgage Payment (PITIA - P rincipal, I nterest, T axes, I nsurance, and prorated Homeowners A ssociation Dues) that is more than 31% of monthly Gross Income (income before taxes)

Division example. PITIA $1,994 / Gross Income $5,800 = .3438 or 34%. This is eligible because it is over .31 or 31%.

4. You must have Total Monthly Expenses (AFTER MODIFICATION PITIA + revolving debt ) that are under 55% of Gross Income. PITIA is P rincipal, I nterest, T axes, I nsurance, and pro-rated monthly A ssociation dues. "Revolving debt" is any mortgage insurance premium, minimum payments on all installment debts/credit cards, monthly payments on all junior liens/2nd mortgages, monthly mortgage payments for second homes.

Division example. AFTER MODIFICATION PITIA + Revolving Debt $2980 / Gross Income $5,800 = .51 or 51%. This is eligible because it UNDER .55 or 55%.

NOTE about #4 above. Borrowers who otherwise qualify for a modification under this program, but who would have a post-modification percentage (%) greater than or equal to 55%, will be provided with a letter stating that they are required to work with a HUD-approved counselor and the modification will not take effect until they provide a signed statement indicating that they will obtain counseling. Borrowers in this category should expect to receive a letter (see sample letter ) from the Servicer.

To fulfill this requirement. call Credit Counseling Services (CCCS) or a HUD counseling agency. Tell them you have to receive credit counseling in order to receive the permanent modification. Give them the same numbers that your Servicer currently has in their system. They should tell you, after the phone session, that they will send a letter to the Servicer stating that the counseling requirement has been completed. If you have any questions, please call Operation Restoration.

IMPORTANT: " Revolving debt " is what shows up on a

credit report.

CALCULATION for TREASURY HAMP (in order of approach): Servicer will attempt the following steps in order to reduce the payment to 31% of Gross Income:

#1. Extend loan out to 30 years, bringing interest rate down to a minimum of 2% to see if the mortgage payment (PITIA) will be reduced to 31% of Gross Income. Important: if 3% or another interest meets the 31% rule, then that interest rate will be offered. (2% is the minimum interest rate).

#2. If loan still not affordable, Servicer can extend to 40 years (*may not be applicable if investor-owned).

#3. If loan still not affordable, Servicer can defer part of the principal balance - a Set-Aside - and place it at the back end of the loan as a balloon payment (*may not be applicable if investor-owned). Important: The maximum principal balance deferment is restricted to the DIFFERENCE between mortgage balance versus fair market value of the property. Example. If a Borrower owes $200,000 and the value of the property is $175,000, the maximum deferment would be $25,000.

#4. Making Home Affordable “Set Asides” and Eligibility

The Making Home Affordable program requires the Servicer to follow guidelines to attempt to reduce the mortgage payment to 31% of Gross Income. If, however, the maximum allowable “Set Aside” (see above) does not bring the payment to 31% of Gross Income, the Servicer cannot offer Making Home Affordable. (*Does not apply to FHA). If you have any questions about this issue, please call Operation Restoration so that they can get verification from Servicer.

Unemployment benefits. Are they now allowed? (as of 2/10/11) Wells Fargo CEO area has reported that "for the most part" unemployment is not allowed. "A very few investors" now allow unemployment.

Recommendation: Before answering any income verification questions, try to find out first if unemployment is allowed. Assume NO when preparing your numbers for modification. Note: In the 2 modification lessons (Making Home Affordable and Traditional), read "11 ways to show income" to learn ways to augment income for modification purposes.See Updates. See Top Tips.

See 12 ways to show income below .

FHA-HAMP: How to calculate for FHA Loans to determine if you are eligible.

Note: This approach is different than the U.S. Treasury approach above!

Step 1. You must have Mortgage Payment (PITI - P rincipal, I nterest, T axes, I nsurance and any MIP - mortgage insurance premium) that is more than 31% of monthly Gross Income (income before taxes). Note: FHA adds MIP in and omits Assoc. Dues, which is different from above. The result must be more than .31 or 31%.

Division example. PITI + MIP (if applicable) $1,994 / Gross Income $5,800 = .3438 or 34%. This is eligible because it is over .31 or 31%.

*******AND*******

Step 2: You must have Total Monthly Expenses ( including AFTER-MODIFICATION mortgage payments - P rincipal, I nterest, T axes, I nsurance, Mortgage Insurance Premium + " Revolving Debt ) that are under 55% of Gross Income. "Revolving debt" is any minimum payment on all installment debts/credit cards, monthly payments on all junior liens/2nd mortgages, monthly mortgage payments for second homes.

Division example. AFTER-MODIFICATION PITI + MIP (if applic.) $2980 / AFTER-MODIFICATION PITI + MIP + REVOLVING DEBT $5,800 = .51 or 55%. This is eligible because it UNDER .55 or 55%.

IMPORTANT: Revolving debt is what shows up on a credit report.

Step 3: Servicers will then calculate a temporary principal balance reduction (called a Partial Claim) using the following formula to see if they can bring the Borrower's payment down to 31%.

Formula for Partial Claim (see EXAMPLE below): Multiply .30 x (times) the outstanding principal balance (not including default amount or late fees) minus the amount of arrearage (up to default of 12 months) and minus foreclosure related costs. Note. this is the maximum partial claim amount. The principal amount deferred for a specific case will be limited to the amount that will bring the mortgage payment down to 31% of Gross Monthly Income (not below).

Step 4: Now use the below calculator and place your new outstanding principal balance in as loan amount, and put the market rate (now reporting around 5.0%) and 30 years (maximum time frame). Put your annual taxes and insurance. What is the result? Is the mortgage payment now 31% (or less) than your Gross Monthly Income? If yes, then you will be eligible for a modification. -- if you meet the requirement in STEP 2 above.

Please note - REPEAT - the Borrower's principal amount deferred will only be what will bring the payment to 31% of Gross Income, not below that.

EXAMPLE CALCULATION for FHA-HAMP :

Gross income: $3500

Current mortgage payment, including MIP: $1220

Recurring monthly debt (on credit report) $800

Unpaid principal balance is $150,000 (do not include amount in default or foreclosure related fees)

Delinquent amount: $3660

Calculate maximum partial claim. 30 x $150,000 - $3660 (also subtract foreclosure- related fees, if any) = $41,340

Take unpaid principal balance $150,000 - maximum partial claim $41,340 = $108,660

Use calculator below, entering 30 year (max), $108,660 as loan amount, 5 interest rate, and annual taxes and insurance $3600. Resulting mortgage payment is $908.46.

Divide $908.46 / Gross Income $3500 = .2596 or 26%. That means that the partial claim will successfully bring your payment down to meet FHA modification eligibility (31%).

Remember, however, Servicers will only offer the amount of Partial Claim (principal deferment) that will bring your payment to .31.

The resulting mortgage payment you will be offered will be:

Gross Income $3500 x .31 (31%) = $1085, including principal, interest, taxes and insurance.

To check if you meet the 55% requirement under FHA -HAMP steps above, add new mortgage payment $1085 + recurring debt payments $800 = $1885

Divide $1885 / Gross Income $3500 = .5386 or 54%. This meets the requirement because it is under 55%.

See 12 ways to show income below .

Servicers will first attempt to modify V.A. loans through the traditional method (see

STEP 4 in Traditional lesson for formula). If the Borrower is not eligible for Traditional formulas, the Servicer will follow the guidelines of the Treasury HAMP (See Calculation for Treasury HAMP above).

• 97% of VA loans are in GNMA securities. GNMA guarantees investors the timely payment of principal and interest on loans insured by the Federal Housing Administration (FHA) and the Department of Veteran Affairs (VA).

• The pools have guaranteed interest rates. That makes it difficult for Servicers to implement according to Treasury guidelines. For a Servicer to modify a loan in a pool, they have to “buy it”, “modify it” and put it back in the pool. This means that the loan has to have the same basic characteristics of the former loan (interest rate, loan period) in order for it to be returned to the pool. Expect the result to be a fixed rate for period of 30 years.

One more note: Remember, VA guarantees to the Servicer a maximum liability of 25% of the original loan amount. Let’s say the original loan amount was $200,000. VA guarantees 200,000 x .25 (25%) = $50,000.

Borrower has current principal balance + accrued interest + delinquency of $210,000. $210,000 x .25 = $52,500 which is over the guarantee of $50,000. This would indicate that the Servicer may not modify as it is too expensive for them.

If the Servicer will not modify:

1) Ask why and know the reason.

2) Ask the Servicer to refer to the V.A. to be reviewed for V.A. Refund. This means that V.A. will consider “buying” it from the Servicer. -- or --

3) Call V.A. 877-827-3702 to request that the V.A. Refund the Loan.

Source: www.operationrest.org

Category: Credit

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