Loan Modifications are used for homeowners who have incurred a permanent financial hardship and can not afford the repayment plan. Large numbers of homeowners end up using a loan modification program in order to put a stop to the foreclosure process.
If you are currently able to make your normal mortgage payments, but you find yourself unable to catch up with the past-due amount.
Your best bet is to negotiate with your mortgage lender having them put any past-due amounts including interest, late fees and possible legal fees into the unpaid principal loan.
In a loan modification, the mortgage lender will adjusts the terms of the loan. This will almost certainly either lengthen the amortization schedule or lower the interest rate leading to a lower monthly payments.
Please keep in mind that your lender is more likely to allow a loan modification when you have little or no equity in the home.
If you are accepted for a loan modification through your current mortgage lender your new mortgage note will give you a brand new beginning in your home.
Question 1: In utilizing the Loan Modification option to bring an asset current, can the mortgagee include all fees and corporate advances?
Mortgage Letter 2008-21 states in part: Legal fees and related foreclosure costs for work actually completed and applicable to the current default episode may be capitalized into the modified principal balance.
Question 2: May a mortgagee perform an interior inspection of the property if they have concerns about property condition?
Yes, the mortgagee may conduct any review it deems necessary to verify that the property has no physical conditions which adversely impact the mortgagor's continued ability to support the modified mortgage payment.
Question 3: Can a mortgagee include late charges in the Loan Modification?
Mortgagee Letter 2008-21 states that accrued late charges should be waived by the mortgagee at the time of the Loan Modification.
Question 4: When utilizing a Loan Modification option, can a mortgagee capitalize an escrow advance for Homeowner's Association fees?
HUD Handbook 4330.1 REV-5, Paragraph 2-1, Section B, Escrow Obligations states: Mortgagees must also escrow funds for those items which, if not paid, would create liens on the property positioned ahead of the FHA-insured mortgage.
Question 5: Is there a new basis interest rate which mortgagees may assess when completing a Loan Modification?
Yes, Mortgagee Letter 2008-21 states that the new basis interest rate is 200 points above the monthly average yield on U.S. Treasury Securities, adjusted to a constant maturity of 10 years.
Question 6: Will HUD subordinate a Partial Claim, should a mortgagor subsequently default and qualify for a Loan Modification?
If a mortgagor subsequently defaults and qualifies for a Loan Modification, HUD will subordinate the partial claim.
Question 7: Are lenders required to perform an escrow analysis when completing a loan modification?
Yes, lenders are to perform a retroactive escrow analysis at the time of loan modification to ensure that the delinquent payments being capitalized reflect the actual escrow requirements required for those months capitalized.
Question 8: Is the homeowner eligible for the upfront premium refund at payoff of a modified loan?
It depends upon when the closing date occurred. For assets closed:
After July 1, 1991 but before January 1, 2001, the 7-year unearned premium refund schedule shown in Mortgagee Letter 1994-1 remains in effect.
On or after January 1, 2001 that are subsequently refinanced, the 5-year refund schedule shown in the attachment of Mortgagee Letter 2000-46 applies, or
On or after December 8, 2004, refunds of upfront MIP are eliminated except, when the mortgagor refinances to another FHA insured mortgage. The refund schedule attached to Mortgagee Letter 2005-03 has been modified to a 3-year period.
Question 9: Can a mortgagee qualify an asset for the loan modification option when the mortgagor is unemployed, the spouse is employed, but the spouse name is not on the mortgage?
Based upon this scenario, the mortgagee should conduct a financial review of the household income and expenses to determine if surplus income is sufficient to meet the new modified mortgage payment, but insufficient to pay back the arrearage. Once this process has been completed the mortgagee should then consult with their legal counsel to determine if the asset is eligible for a loan modification since the spouse is not on the original mortgage.