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Resources to help industry understand, implement, and comply with the mortgage servicing rules. — Today the Consumer Financial Protection Bureau finalized amendments and clarifications to its January 2013 mortgage rules in order to help industry comply and to better protect consumers. The changes made today answer questions that have been identified during the implementation process. But for homeowners on the brink of losing their homes, the benefits of a loan modification can far outweigh the potential credit risks and extra interest. Refinancing entails replacing your loan with a new mortgage, whereas a loan modification changes the terms of your existing loan. Loan modification changes the terms of your mortgage so it's more affordable, but it could affect your credit and the amount of interest you'll pay.
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Here’s what you need to know to get a mortgage loan modification and stay in your home. These companies have been taken over by the federal government through a conservatorship since the Great Recession. If your mortgage has been sold to Fannie Mae or Freddie Mac, you'll be able to benefit from the special requirements the federal government has enacted to help people keep their homes. For example, the CARES Act relief for homeowners applies to Fannie Mae and Freddie Mac just as it applies to FHA loans, VA loans, and USDA-backed loans.
HAMP’s goal is to offer homeowners who are at risk of foreclosure reduced monthly mortgage payments that are affordable and sustainable over the long-term. If you are struggling to make your mortgage payments, contact your lender or servicer immediately and ask about your options. Avoiding phone calls or procrastinating will only make matters worse. The loan modification application process varies from lender to lender; some require proof of hardship, and others require a hardship letter explaining why you need the modification.
Attorney Jerry E. Smith
Though these modifications require less paperwork, a borrower's chances of redefaulting on a streamline modification tend to be higher, according to Urban Institute. You need proof of hardship in order to qualify for a loan modification. There are many reasons why you might not qualify, from not providing sufficient proof of hardship to having a high debt-to-income ratio . A high DTI means that you have a lot of debt relative to your income, which might signal that you can’t afford your mortgage, even at a modified amount.
Some lenders don’t usually allow loan modifications, so it may not be an option. There are COVID-19-related mortgage modification programs, but you may not qualify, and they may not be a good idea for you. By setting standards for what constitutes a sustainable modification across the mortgage industry, HAMP has helped to make private loan modifications more affordable for homeowners. In fact, thanks in part to HAMP, the proportion of private loan modifications that reduce monthly payments for homeowners has more than doubled. Together, public and private efforts have helped nearly 5 million Americans get mortgage assistance to prevent avoidable foreclosures. The largest program within MHA is the Home Affordable Modification Program .
Rules on mortgage servicing
Your lender may go through the motions without much faith that foreclosure will be avoided. Between fees and penalties for late payments, your lender may see mortgage loan modification as a way of getting more money from you before it forecloses. If you have a conventional mortgage, you can ask your lender or servicer about the Fannie Mae and Freddie Mac Flex Modification programs. These programs allow borrowers to extend their loan terms to 40 years .
Another reason is that the homeowner makes too little money, meaning that even with the modification it’s not likely that the homeowner would be able to make the reduced mortgage payments. This example results in a 20% reduction in the monthly payment through an interest rate reduction alone. The options that a homeowner has when it comes to mortgage modifications depend on their lender. Government-backed loans usually have more opportunities to benefit from loan modifications. The U.S. Treasury Department has revised its rules to help simplify and improve the process of obtaining a mortgage loan modification under the government's Home Affordable Modification Program program. When submitting documents for a mortgage loan modification, the information stays relevant for 90 days after submission.
This means that a servicer is required to review eligible borrowers for the option and provide loan modification documents which will significantly reduce the borrower’s monthly payments. A borrower is not required to contact their lender or servicer to receive this modification. Government-backed loans have their own programs to help borrowers avoid foreclosure. For instance, the FHA loan modification program can lower the borrower’s monthly payment with a stand-alone modification that extends the loan term, a stand-alone partial claim or a combination of both.
Getting one might just complicate and worsen your situation. Not everyone struggling to make a mortgage payment can qualify for a loan modification. In general, homeowners must either be delinquent or facing imminent default, meaning they're not delinquent yet, but there's a high probability they will be. Loan modifications, however, can also be the source of legal disputes.
I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future. These rules do not preempt other rights that homeowner’s have in this arena that give them greater rights. This may influence which products we review and write about , but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research.
A mortgage modification changes your repayment plan and lowers your monthly payments. You might be eligible if you show your lender your financial situation has changed and you can’t make payments. A home loan or mortgage modification is a relief plan for homeowners who are having difficulty affording their mortgage payments. Borrowers who qualify for loan modifications often have missed monthly mortgage payments or are at risk of missing a payment. A mortgage loan modification changes the original terms of your home loan to reduce monthly payments, eliminate arrearage, defer payments, and/or reduce the total amount you owe on your mortgage.
The mortgage modification approval process often takes about three to four months. Most people aren’t allowed to make payments during that time and fall father behind, which will cause your Chapter 13 plan payments to be larger. A successful bankruptcy will discharge your personal liability for the loan, but the lender’s security interest in your home remains in place. Your lender may foreclose on your home if you don’t make payments.
Throughout 2013, the CFPB has been working with industry to ensure a smooth transition. In addition to clarifying critical questions about the new mortgage rules, the Bureau has also published plain-language guides for each rule and interim examination procedures. The CFPB also plans to educate the public about their protections under the rules.
Consumer Financial Protection Bureau, “I applied for a loan modification or other options to avoid foreclosure, but was denied help. If you’re denied a loan modification, you do still have some options. First, you can file an appeal with your loan servicer, but you must send it within 14 days of receiving the initial loan modification decision. The servicer is obligated to assign the review to an individual who wasn’t involved in the decision and give you a written response within 30 days, according to the Consumer Financial Protection Bureau. Whether a lender decides to reduce the principal likely depends on the current local housing market, how much you owe and what their loss would be if they went this route versus a foreclosure.
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