Loan Modification
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.
Loan Modification FAQ's
Question 1: In utilizing the Loan Modification option
to bring an asset current, can the mortgagee include all fees and
corporate advances?
Mortgagee 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?
Answer: 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?
Answer: 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?
Answer: 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.