“Is A Loan Modification Right For You?”

Mike Nelson
Mike Nelson

© 2009 Edward / loan-mortgage-insurance.com

HUD defines a loan modification as a permanent change in one or more of the terms of a mortgagor’s loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.  There are several types of modifications that can be made to a loan: reduction in interest rate, transition to a fixed rate, reduction in principal owed, reducing penalties or late fees, restructuring the length of the loan term, and several others.  The current status of your loan doesn’t prevent a loan modification.  You can be current, in default, in bankruptcy or in foreclosure at the time you begin the loan modification process. The loan modification is not one sided.  The lender can also offer a modification to the borrower which will be mutually beneficial.  The borrower has a loan they can afford to make payments on and the lender will ultimately make more than they would from a current foreclosure sale.  A popular program in the Atlanta market is the HAMP.

A recent post to Wikipedia describes HAMP as the Home Affordable Modification Program.  “HAMP set out to help up from 7 to 8 million struggling homeowners at risk of foreclosure by working with their lenders to lower monthly mortgage payments. The Program is part of the Making Home Affordable Program which was created by the Financial Stability Act of 2009.  The program was built as collaboration with banks, services, credit unions, the FHA, the VA, the USDA and the Federal Housing Finance Agency, to create standard loan modification guidelines for lenders to take into consideration when evaluating a borrower for a potential loan modification. Over 110 major lenders have already signed onto the program. The Program is now looked upon as the industry standard practice for lenders to analyze potential modification applicants.”

Eligibility Requirements of Program:

The program abides by the following eligibility and verification criteria:

-Loans originated on or before January 1, 2009

-First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750

-Higher limits allowed for owner-occupied properties with 2-4 units

-All borrowers must fully document income, including signed IRS 4506-T, proof of income (i.e. paystubs or tax returns), and must sign an affidavit of financial hardship

-Property owner occupancy status will be verified through borrower credit report and other documentation; no investor- owned, vacant, or condemned properties

-Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default

-Modifications can start from now until December 31, 2012; loans can be modified only once under the program

The HAMP program is being widely used by Bank of America customers in Atlanta.  According to the Atlanta Business Chronicle, “In Georgia, there have been 33,059 active trial loan modifications through January. Of them, 4,508 have been permanently modified.  Atlanta is among the top 15 metro areas for HAMP activity, accounting for 3.2 percent of overall HAMP activity. The city had 30,285 active trial loan modifications through January. Of those, 3,692 were permanently modified.”  For more on that story, http://atlanta.bizjournals.com/atlanta/stories/2010/03/08/daily80.html.

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