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Mortgage Modifications

Mortgage modifications are changes in the original terms of a mortgage contract agreed upon by both the borrower (mortgagee) and the lender (mortgagor). One can apply for mortgage modification help in case of any loan.

Though any change in the terms of a contract is known as mortgage modification, the term is especially used to imply a change based on either of the following:

  • Borrower’s inability to make payments regularly (as mentioned in the contract)
  • Government mandate to lending institutions

Typically, principal and interest payments are made until the mortgage is paid in full. Till then, the lender has the right to possess the mortgagee’s property as security against the repayment of the loan. If the mortgagee sells the property before paying the mortgage in full, the unpaid balance of the mortgage payment is remitted to the mortgager for releasing the lien.

Types of Mortgage Modification Help

Mortgage modification help is provided to benefit the borrower in the following ways:

  • Reduction in the principal amount. This option works to forgive a portion of the original amount borrowed, which can reduce your monthly mortgage obligation.
  • Waiver on penalties, such as late fees.
  • Lowering the interest rate (change from floating to fixed rate).
  • Changing the way in which the floating rate is calculated.
  • Extending the term of the loan by five to ten years. This can reduce monthly payments.
  • Setting a percentage of income as the cap on the monthly payment.
  • Refinancing the current mortgage or changing some or all of the terms of the original contract.
  • Allowing mortgagees to skip some mortgage payments, helping them to become current on their loan.

Also, mortgage modifications can be classified into the following categories on the basis of the role of the state or the federal government in structuring these programs:

  • Voluntary: The government gives incentives to lenders for participating in such programs.
  • Mandatory: Lenders have to modify mortgages while meeting the various criteria related to the borrower, property and the history of loan repayment.

To make lenders alter the terms of mortgages without them facing losses, the federal government offers grants to subsidize these modifications. The programs of mortgage modification available vary according to the borrower’s status in terms of repayment at the time of application. Borrowers can be current, in default, late, in foreclosure or in bankruptcy.

 Mortgage modification help may be provided at the lender’s discretion. Lenders have two motivations for offering modified terms to borrowers:

  • There is an expectation that a lower payment will be more affordable for the borrower.
  • A loan in which the payments have been current will probably be more acceptable than the proceeds from selling a foreclosure.

Mortgage Modification Help: Frequently Asked Questions

The US Department of Housing and Urban Development has provided answers to some frequently asked questions for those looking for mortgage modification help:

 Q: Can mortgage lenders check out the interior of homes for verifying the property’s condition?

A: Yes, mortgage lenders can take a look at the condition of a property for determining its value in relation to the terms of the loan and the scope of mortgage modification.

Q: Does a lender analyze escrow payments while computing a mortgage modification?

A: Yes, mortgage lenders take into account:

  • the monthly escrow payment to modify the mortgage terms.
  • the escrow amount to suit the modified monthly payment.

Q: If the mortgage is in your spouse's name and s/he was laid off, do lenders consider your income before structuring the mortgage modification program?

A: This varies from one mortgage lender to another. Often, the mortgage modification department and the legal team of the lending institution review the household income and expenses before changing the terms.

 Q: If you are already delinquent on your mortgage and are granted a modification, will all corporate advances and fees be included in the modified contract?

 A: Mortgage lenders have certain guidelines regarding legal fees and other costs for services provided related to the property. These can be computed into the due amount after modifications have been made.

 

Mortgage Modification Help through MHA plan

President Barack Obama introduced the Making Home Affordable (MHA) plan in March 2009 to help homeowners pay their mortgage payments. Under this plan, homeowners qualifying for the loan can renegotiate their mortgages until 2012.

  • The person must be living in the home on which the loan is being paid. Mortgages on investment properties, second homes or vacation homes disqualify one for modification.
  • The loan must not exceed $729,750 and should have been taken prior to 2009.

Fix an appointment with a financial counselor certified by the US Housing and Urban Department. Many services available for free can help people manage their financial condition and facilitate the process of mortgage modification. Under this plan, mortgagees can get their payments reduced to less than 31% of their income. Then, a new amount is computed, to be effective for five years.

Negotiations: Mortgage Modification Help

Follow the steps mentioned below to negotiate for mortgage modification help with your lender:

  • Assess your financial situation (monthly income, bills to be paid and scope of cost cutting). To start with, take assistance from a consumer credit counselor.
  • Start negotiations for modifications with the lender. Tell the lender about your situation and ask how it can help you.
  • Make a plan around how you will repay the loan. Submitting a proposal takes the negotiation forward.

A mortgage modification attorney knows how to approach with negotiations and the extent to which one can go in order to get the maximum waiver possible. An attorney trained to handle such cases and experienced in acting as a third party simplifies the mortgage modification process by eliminating legal ambiguities. A qualified mortgage modification attorney can spot mortgage modification scams and go through your mortgage documents to check for any RESPA or Truth in Lending violations on the loan. The success rate of mortgage modification negotiations involving a third party is higher.

 

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