Mortgage Loan Modifications Now that HAMP is Over
The best way to avoid foreclosure and stay in your home is with a loan modification. A loan modification is an agreement with your lender that allows you to get past the time when you were not making payments, and start making monthly payments again. There are many types of loan modifications and it is important to understand the differences between them
Many times, a modification will include a restructuring of your mortgage by changing one or more of the payment terms, including reducing the interest rate, extending the term of the loan, or reducing the interest-bearing amount of the loan. Most homeowners seek a reduction in the monthly payments, but it is possible that a modification would actually increase the amount of the monthly payment.
However, if you don’t know what modification program applies to your loan, you don’t know how to best prepare the application.
Understanding Different Types of Loan Modifications
The type of loan modification available will depend upon the investor and servicer for your loan. Some of the most common modifications are:
- Principal Reduction Loan Modification – Also called principal forgiveness, this is the most preferable form of loan modification, but also the least common. A principal reduction loan modification permanently removes or ‘forgives’ a certain amount of the total amount owed to the lender and provides a new smaller monthly payment based on the new total. Some lenders who currently review borrowers for Principal Reduction Modifications are:
- Principal Forbearance – These modifications are more common and provide great assistance to homeowners. With a forbearance, a portion of the amount owed is simply ignored for purposes of calculating your monthly payment. You would only have to pay that amount if you sell or refinance the property, or reach the end of the loan term. (For example: with FHA loans, there is a program that permits them to “forbear” up to 30% of the amount due.)
- Interest Rate Reduction Loan Modification – Your lender may agree to lower the interest rate on your loan to help reduce your monthly payments.
- Loan Term Extension – Your lender may lower your monthly payments by extending the total life of your loan. Many lenders will offer a modification with a new 40 year (480 month term).
- Late Fee Forgiveness – Your lender may agree to forgive any additional late fees you have accrued due to missed payments.
- Capitalization of Arrears – This is the most common modification. With Capitalization, all of the missed payments and fees are simply added to the end of the loan, and the lender may extend the term of the loan and reduce on all of the factors. It is possible that the modified payment will actually be higher than the original monthly payment.
The Modification Program that you are reviewed for can depend upon what you put in your application. It is very important to know what your lender is looking for in your application.
At the law firm of Ira J. Metrick, we have the resources to identify the Investor and Servicer of your loan, and identify the modification programs that should be offered for your loan. We can also conduct an analysis to determine whether you should be eligible for a loan modification, and we can give you an estimate of the payment terms.
HAMP has ended and modifications are no longer based upon 31% of your income. Additionally, the NJ Foreclosure Mediation Program is closed. It is important to know which types of loan modifications are options for you. Contact us today to discuss your situation.