Loan modification entails the mortgage lender modifying the interest rate, length of loan and/or principal balance based upon a hardship and a subsequent change in a borrower’s income and expenses. Usually, a loan modification will bring a delinquent loan current by adding the past due amounts to the balance and allowing the arrearage to be paid over the life of the loan. There are a number of different loan modification programs:
Making Homes Affordable Program (HAMP) – a government sponsored program that is based upon a guideline which states an individual’s mortgage payment should not be more than 31% of the person’s gross monthly income. The computation of the mortgage payment includes principal, interest, taxes insurance and HOA/condo dues. The HAMP program gives incentives to both the mortgage company and the borrower to modify the mortgage by lowering the interest rate as low as 2%, extending the term of the mortgage up to 40 years, and modifying the principal balance by forbearance and/or forgiveness, in order to reach the affordable payment amount.
FHA, FNMA and VA sponsored loan modification programs – depending on the type of loan you have, FHA, FNMA and VA each have their own loan modification programs. If you are not eligible for HAMP, you may be eligible under specific guidelines set forth by each of these entities.
In-House loan modification programs – each individual servicing agent and/or investor usually has their own “in-house” loan modification program to review individuals who do not qualify under any of the above programs.
Since loan modification is a relatively new procedure borne through the necessity of Dealing with the real estate market decline of the last few years, it is helpful to have an attorney assist you with loan modification who is educated on the different type of programs available and the criteria for each program.