Information You Need: Frequently Asked Questions about Loan Modifications, Outcomes, Prevention Options, How to work with your Servicer, and Effects of foreclosure.
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What are the most used Options to stop foreclosure?
1. Request a Loan Modification: This is a permanent restructuring of the current loan which places delinquent payments at the back end of the loan, extends the number of years, most of the time lowers the interest rate, and consequently lowers the monthly payment. Modifications bring your loan current. Eligibility for Modifications and Outcomes depend on the type of loan and your ability to posture your numbers to meet the formulas required for your loan type. See Eligibility and Outcomes. Learn your loan type first and prepare your numbers first.
See Example Fannie Mae/Freddie Mac modification.
See Sample FHA Modification
See Example HAMP Trial period
Note: Anything evaluated under HAMP will include a trial period. See individual lessons.
2. Request a Partial Payment Forebearance. This is a temporary solution which is generally offered for temporary financial losses associated with illness (time off work and medical bills), death in the family (time off work and funeral expenses), temporary cut in pay (mandatory leave of absence, for instance). Depending on the Servicer, the Borrower may be able to use reduction in income or loss of income, but that varies by Servicer. A Partial Payment forebearance allows lower payments (sometimes one-half the current payment) for a limited time but Borrower must posture to sell property, request a loan modification, or pay the past due debt as a permanent solution.
See Sample Forebearance Agreement.
3. Submitting an offer for your property with correct hardship documentation, and then confirming receipt of the documentation by your servicer. prior to the Foreclosure Date, is another way to stop foreclosure. Please note: You can sell your property if the value is below the mortgage balance. While it is not recommended to wait until the last minute, sale of property can occur in a matter of days if the price is right. See 15 Steps to Short Sale: Selling Property Under the Mortgage Balance. Also see Servicer Required Documentation.
4. Ask for a Deed-in-lieu of foreclosure. This is a situation in which a borrower conveys ,or deeds, the property back to the Lender to satisfy a loan that is in default in order to avoid foreclosure. First of all, there is no guarantee that the Lender will accept a deed in lieu of foreclosure. Secondly, deed in lieu of foreclosure can be as damaging to credit scores as foreclosure is. Scores can drop 200 to 300 points, depending on overall condition of credit.
Options to stall foreclosure are as follows:
1. Bankruptcy. Filing bankruptcy up to a day before foreclosure gives the court jurisdiction over you. In other words, your creditors cannot contact you by phone, letter, or otherwise while you are bankruptcy. This is a temporary solution. See the versus bankruptcy tab on the website. Many bankruptcy attorneys will provide a free consultation. Please consider all options carefully.
» If you do not pay the mortgage as directed by Chapter 13 guidelines (Chapter 13 is a restructuring of your debt), the Servicer will file a motion for relief of stay which will allow the Servicer to foreclose on the house. After a certain period of time after a Borrower files a Chapter 7 bankruptcy, the Servicer will file for relief of stay in order to proceed with foreclosure.
» A Borrower, while under bankruptcy (under jurisdiction of the court), can 1) review workout (modification/forebearance) options with the Servicer's Bankruptcy Loss Mitigation area or 2) sell a property -- provided they receive consent from the bankruptcy attorney to speak with the Servicer regarding the mortgage ONLY. You can find a Sample Consent Form here. This has to be faxed by the Bankruptcy attorney directly to the Servicer's Bankruptcy area. For sale of property under Chapter 7, the Borrower must verbally request permission from the Servicer and then must go through their bankruptcy attorney to present contract and standard hardship documents to the court.. For sale of property under a Chapter 13, follow regular procedures under Sale of Property on the website, except documents have to be sent to the Liquidation Bankruptcy area of the Servicer.
2. Require the Mortgage servicer to "Produce the Note". When a homeowner is faced with a foreclosure suit, “Produce the Note” requires the lender to prove it has the actual authority to foreclose, by requiring it to officially produce the original promissory note in the lawsuit. This is an option for borrowers, but less dependable. One person’s experience is listed under Produce the Note. A "how-to" will be forthcoming.
What is a REPAYMENT PLAN (sometimes called forebearance)? This is an option offered by the Servicer's foreclosure or collection department if: a) Investor guidelines for a loan modification are not met OR b) Borrower shows too much income over expenses ($800+ is a general rule) OR c) you happen to communicate with the foreclosure/collections department instead of the LOSS MITIGATION (Loan Modification) department. Note: This offer normally requires a lump sum payment or regular mortgage payment plus some of the delinquent amount, thereby causing the payment to be higher.
You actually have a foreclosure date in the Mortgage Servicer's system. (Please ask the Service for verification as letters from the Servicer or Attorney do not necessarily mean there is a date). First of all ASK the Servicer to look it up in the system. If you do have a foreclosure date in their system, do not panic. When your documents are sent to the Servicer, they will continue to push the foreclosure date FORWARD in their system to give themselves time to work the file, or they will take the date OUT. Make sure to call the Servicer, starting three (3) days before the foreclosure date, to verify that the foreclosure date has been moved or stopped. CRITICAL: Then call the ATTORNEY and make sure the attorney has been notified. Also read Do Not Panic to see examples of letters and calls.
Do you have to be late to receive a loan modification? If you have a Fannie or Freddie (government-sponsored loan), you do not have to be late on your payments. For FHA, by the guidelines, you do have to be late. But Servicers tell us that they can start the trial period which is the preliminary requirement of modifications anyway. For VA, we believe the same to be true as FHA. For Conventional loans following HAMP, this answer could vary per servicer. For Conventional, we recommend that Borrowers call the Servicer to ask if they handle cases in "Imminent Default" - in other words, at risk of default considering their financial situation. Some Servicers actually have Imminent Default areas with their own contact phone and fax numbers. They will do modifications, in this case, before a borrower is late.
Can you use unemployment income for your modification? Check the website on this issue... we are confirming the implementation of the following: according to new guidelines, unemployment will be allowed for consideration when requesting a loan modification if at least 9 months remain on unemployment once a trial period starts. We are verifying if this is loan specific (Fannie, Freddie, FHA, VA, Conventional) or just evaluation under the Making Home Affordable program (HAMP). Please call with questions until verification can be obtained.
Can you receive a loan modification if your expenses are more than your income? Easy to follow step by step instructions to obtain a loan modification using HAMP guidelines or a loan modification using Traditional guidelines are listed as lessons.
Yes you can receive a loan modification if your expenses are more than your income if you have a Fannie Mae and Freddie Mac, FHA, VA (new!) loan or a conventional loan which is following HAMP guidelines. For conventional loans, please ask your servicer if you are being evaluated based on HAMP.
The HAMP program states that recurring monthly expenses (mortgage payments, loans, credit cards, court-ordered payments) cannot be more than 55% of your monthly Gross income (income before deductions). Note: If expenses are over 55%, Borrowers will most likely be required to obtain credit counseling prior to permanent modification.
No if your conventional loan is not following HAMP (the investor who owns your loan is not accepting HAMP, then follow Traditional formulas where Net Income has to be greater than Total Monthly Expenses, including household expenses. See Traditional formulas here.
You had another plan set up with your Servicer or you have given your Servicer information that is now different. You want to request a loan modification based on new information. What do you do?
Make sure you do not have any hinderances with your Servicer. This is extremely important: If you have previously given your Servicer information about yourself or household, and it was incorrect, OR you want to ensure your Servicer is making a decision based on correct material,
» Call your Servicer to CLOSE OUT / BACK OUT any previous information. Otherwise your new material may not be uploaded correctly or may not be uploaded at all.
You have signed a contract with an organization to do your Modification. Do you have to proceed with them? Please know that they cannot do anything beyond what you can do yourself. Sometimes third parties can actually hinder your progress. We are now seeing Foreclosure happen because people were not aware of the status of their cases with their Servicers. We recommend telling your Servicer that you want to proceed yourself. We have provided easy to follow scripts at the end of our lessons which give wording how to speak with your Servicer.
What is the difference between Operation Restoration, NACA, and the Hope Now Alliance (the network of HUD counseling agencies/CCCS who received federal funding)? None of the above entities are "Programs". None can make decisions about your loan. None can make guarantees. They are ALL entities who are facilitators for loan modification or forebearance assistance, helping Borrowers with documentation, which is needed by the Servicers who then send it through the appropriate guidelines. Results achieved depend on the quality and thoroughness of the data presented to the Servicer.
Operation Restoration provides online education, encouragement, and assistance with both foreclosure prevention options - Loan Assistance and Sale of Property. They also urge Borrowers to learn the information because education empowers people to help themselves and to be aware and in control of their lives. Dependency on third parties can lead to fear and helplessness.
Should you believe guarantees like, "We can cut your payment in half, or we can get you a 2% interest rate?" Absolutely not. This type of advertising is designed to appeal to your fear, and possibly to obtain money from you as a result. Read the material on this website. The "payment cut in half" most likely refers to the Partial Payment Forebearance. The 2% is most likely referring to the Making Home Affordable program modification (offered to eligible Borrowers with Fannie and Freddie loans, or Conventional loans following HAMP). Please do not make decisions based on fear.
Can Attorneys or “Loan Modification Specialists” achieve better results than you can? No. Learn your loan type first, and then follow the guidelines and tips exactly as stated for your loan on www.OperationRest.org. You do not have to pay someone to do this work as they are following exactly the same procedures (or should be).
How long does the process of modification normally take?
Usually 30 days for the file to be assigned to a negotiator and 30-60 days more for a decision to be reached. However, the period can be longer.
What are the possible outcomes of a modification request?
Making Home Affordable - General.
The Making Home Affordable program attempts to bring the mortgage payment down to 31% of a Borrower’s GROSS monthly income (if monthly expenses do not exceed 55% of Gross Income). Expect the Servicer to give a trial modification for three months. If you make payments on time all 3 months, the Servicer will then create a permanent modification agreement.
Government sponsored Fannie Mae / Freddie Mac loans (and some conventional loans)
The interest rate to take the Borrower to 31% will never go below 2% to do so. See the structure of a Fannie Mae and Freddie Mac HAMP agreement under Step 7 here. Notice that the interest rate to take the Borrower to 31% will be offered for 5 years and then escalate by 1% year 6 and beyond until the market rate (at the time of the permanent modification) is reached. For Fannie and Freddie loans, the period of time offered may be 30 years -- or 40 years (if this will make the payment affordable). Finally, the Servicer may defer a portion of the principal balance to make the payment more affordable. This is not a permanent principal reduction! It will be treated as a deferred amount that is due as a balloon payment at the end of the loan period (at which time terms can be negotiated). We have provided a mortgage calculator on the home page bottom right column.
FHA, VA, and Conventional loans
These loans are located in investment pools (or funds) that have guaranteed returns. These pools (or funds) have different interest rates. Expect your Servicer to offer a market interest rate and remember the interest rate is determined by Investment pool guidelines.
FHA-HAMP. See more notes about FHA-HAMP located here. While these guidelines specifically state that the Servicer will attempt to bring the mortgage payment down to 31% of a Borrower’s Gross Income, the interest rate will be fixed for 30 years. Expect a market interest rate. The rate is determined by Investment pool guidelines. To make payments more affordable, the Servicer may offer a Partial Claim (see Step 7 here). A Partial Claim is a deferred portion of the principal balance which is due as a balloon payment at the end of the loan period at which time terms can be negotiated.
V. A. Loans. Expect your Servicer to offer a fixed rate for 30 years.
Conventional loans. (This is the area of most variation). Some investment pool guidelines follow the formulas and outcome of the government sponsored Treasury HAMP – in other words, the Servicer (following the investor guidelines) will attempt to bring the mortgage payment down to 31% of a Borrower’s Gross income but the interest rate offered to do so may – or may not – go as low as 2% to so. Other investment pool guidelines follow the Making Home Affordable formula and/or Traditional formula for eligibility but the outcome is market rate. Remember that conventional loans are in pools with guaranteed returns. Market interest rates are commonly offered. It is at the discretion of the investor who owns your loan whether they will allow modifications at all, or allow an offer of 40 years, or allow a deferred principal balance reduction to make the payment more affordable. Bottomline, posture yourself for eligibility...you can control that. The investor controls the outcome.
How do you get a loan modification on the second mortgage? Most likely you will follow the lesson for Traditional modifications as the HAMP formulas would not work. The Obama administration has introduced a plan to modify 2nd mortgages (more details forthcoming). In the meantime, if you have an Equity line, we are seeing some investor-owned 2nd mortgages reduce the principal balances permanently once the Servicers complete a valuation of property. These decisions are made by the individual investors who own the 2nd mortgages. We recommend that you ask if this is an option (we have not seen this with 1st mortgages - yet - although the Obama administration has introduced incentives to Servicers who "own" the loan (Bank of America-owned loans, for instance). Ask your Servicer if they will consider a modification based on the current market value.
Will the Servicer review a loan modification request while you are in Chapter 13 bankruptcy? Maybe, if two procedures are done first: 1) a Consent Form (Sample Consent Form) needs to be faxed directly from the bankruptcy attorney to the Servicer's BANKRUPTCY area 2) Modification documents have to be sent to the BANKRUPTCY Loss Mitigation/Home Retention area, not the regular Loss Mitigation area. The most important thing to know is: 3 entities have to agree: the judge, the Trustee, and the Servicer.
You filed Chapter 7 or Chapter 13 bankruptcy. Is your house protected from foreclosure? No. If you do not pay the mortgage as directed by Chapter 13 guidelines (Chapter 13 is a restructuring of your debt), the Servicer will file a motion for relief of stay which will allow the Servicer to foreclose on the house. After a certain period of time after a Borrower files a Chapter 7 bankruptcy, the Servicer will file for foreclosure. As mentioned in the question above, with a Consent Form from the bankruptcy attorney, the Servicer will review a loan modification request or sale of property with the permission of the Servicer, Judge, and Trustee.
Your Servicer has your documentation, but you continue to get collection letters from the Servicer or Foreclosure attorney, or phone calls from the Servicer, or Solicitation letters from firms stating you may be at risk. DO NOT PANIC. Continue to follow up with the Servicer, using the Scripts on the loan pages, and you will always know the truth about your case. Disregard any letters or calls which are not consistent with what your Mortgage Servicer's loss mitigation department tells you. Collections areas (within the Servicer) do not communicate with other areas (within the Servicer) such as bankruptcy, home retention (loss mitigation), or short sales (liquidation/sale of property).
You received a collection letter from your servicer or your servicer's foreclosure attorney stating that you need to pay a lump sum payment or to contact them about payment terms. Does this mean you are in foreclosure? No, you may receive many letters and calls from different areas who are assigned to proceed with collection efforts. See Do Not Panic for example letters.
You call your Servicer and they tell you to send a certain payment and then they will consider reviewing you for a loan modification. Should you do this? We do not recommend it! You are most likely speaking with the Foreclosure or Collections area of the Servicer. This is not the Loss Mitigation/Home Retention area. If you will be requesting a loan modification or forebearance agreement, wait until you receive a written agreement and follow the money requirements stated in the agreement.
You are tired and wonder if you should leave the house. We encourage you not to give up. Foreclosure on one's record is much worse than bankruptcy. Foreclosure can hurt one's chances of getting employment or alternative housing because employers and prospective landlords pull credit reports to screen. Consider all your options first, such as selling your property if other options are not feasible.
Who is making the Decision about your modification?
The entity you may call the "Lender", such as Bank of America, Wells Fargo, J. P. Morgan Chase, Litton, or Ocwen, etc. is most likely performing the function of a "Servicer" (They do own a small percentage of the loans). The Servicer is responsible for collecting paperwork and money from the Borrower -- and determining eligibility for, and processing, loan modifications or short sales.
Your property value has dropped. Will Servicers modify loans based on your property's current value? Yes and No. If the mortgage is a Fannie Mae, Freddie Mac, FHA, or VA loan (and some Conventional loans), Servicers can and may defer a part of the principal balance to make the payment more affordable (with FHA this is called a partial claim). This is not a permanent principal reduction! It will be placed at the end of the loan and will be due as a balloon payment at the end of the loan period (this can most likely be renegotiated in the future). On the other hand, the Obama administration and U.S. Treasury will give incentives to encourage principal balance reductions. Caution: be aware that reductions are most like to occur on loans that are actually owned by the institution, i.e. applicable for Bank of America-owned loans (not Bank of America "serviced" loans). A good example would be Wells Fargo Equity loans (they own these) and consequently they can make the decision on their own loans. Also we have seen reductions on 2nd mortgages and equity lines. Ask your Servicer if this is an option.
You prepared correctly for a loan modification but you were denied and learned that your investor does not do loan modifications. Can that be true?
Yes, some Investors do not do modifications at this time. If this occurs, you may have the following options: make another request in 30 days (guidelines can change every 30 days), or ask for a partial payment forebearance and re-file after the forebearance period. Or, you can use bankruptcy or the "produce the note" strategy to stall foreclosure before re-filing. Or, proceed with selling your property.
You prepared correctly for a loan modification but you were denied. You were not given a reason.
ASK WHY. Denials can occur for the following reasons:
1. Your numbers did not meet guidelines. Consult Step 4 in each modification lesson for the formula.
2. There was not enough documentation to verify income.
3. There was Missing information either because documents were not uploaded completely by the Servicer or because the Borrower did not send a complete package.
4. Loan numbers were not written on all documents.
5. There were Missing signatures on the financial worksheet, tax returns, hardship letter or affidavit, or the 4506T tax form. This is a big one.
6. Modification paperwork was sent in when a repayment plan had already been put into place for the Borrower. To correct this, call and BACK OUT the repayment plan from the system and then fax in paperwork 3-5 days later (make sure to call the Servicer first to make sure their system is clear of any other plan).
7. Some investors do not do loan modifications. You can, however, make another request in 30 days (they can change their minds) OR ask for a partial payment forebearance and re-file after the forebearance period. Or, you can use bankruptcy or the "produce the note" strategy to stall foreclosure before re-filing. Or, proceed with selling your property.
Why is the news reporting that a multitude of people are receiving trial periods and no modifications?
1. Verbal answers were given but borrowers, when asked for supporting documentation, could not provide it.
2. Occupancy - Borrowers gave numbers on rental or 2nd homes when the property had to be owner-occupied.
3. Self-employed Borrowers did not give correct supporting documents, like Profit and Loss. (See Making Home Affordable and Traditional Modification lessons to find Profit and Loss sheet templates).
4. N.P.V. is negative. Servicers input numbers into a "calculation model" which gives them a "Positive" or "Negative" score. NPV is used with evaluation of HAMP eligibility for Fannie, Freddie, non-government sponsored (Conventional) loans using HAMP, and VA loans. Basically this tells the Servicer which is more financially beneficial - to modify or to foreclose. Borrowers should always ask for the reason if they receive a "Negative Score". (A more detailed definitiion about NPV is below). To ensure compliance, call the HAMP Solution Center at 866-939-4469.
5. Payments during trial period were not completed by the end of the trial period. If the Borrrower is being evaluated under HAMP, by HAMP regulations, the Servicer cannot modify again under this plan. The Borrower should try to fit Traditional guidelines.
You received a "Negative" NPV score (see question above) and were denied. What does this mean and what do I do? Basically this tells the Servicer which is more financially beneficial - to modify or to foreclose.
Negative NPV. The Home Affordable Modification Program requires a calculation of the net present value (NPV) of a modification using a formula developed by the Department of the Treasury. The NPV calculation requires Servicers to input certain financial information about Borrower income and the loan including the factors listed below. When combined with other data in the Treasury model, these inputs estimate the cash flow the investor (owner) of your loan is likely to receive if the loan is modified and the investor’s cash flow if the loan is not modified. Based on the NPV results the owner of your loan has not approved a modification. Borrowers should request what input values were used (to avoid errors in Servicer input) and ask what factor caused the NPV to be negative so that the Borrower can attempt to correct it.
Available N.P.V. Inputs
a. Unpaid balance on the original loan as of [Data Collection Date]
b. Interest rate before modification as of [Data Collection Date].
c. Months delinquent as of [Data Collection Date]
d. Next ARM reset date (if applicable)
e. Next ARM reset rate (if applicable)
f. Principal and interest payment before modification
g. Monthly insurance payment h. Monthly real estate taxes
i. Monthly HOA fees (if applicable)
j. Monthly gross income k.Borrower’s Total Monthly Obligations
l. Borrower FICO
m. Co-borrower FICO (if applicable)
n. Zip Code
Now let’s say you have checked documentation and are sure the Servicer has all the required documentation that is correctly filled out, signed and dated.
Call in and ask for the representative to look in the notes to give you an explanation of the denial. Most likely the notes will not be complete and will not give a sufficient explanation. Ask to be transferred to a supervisor or escalation area to determine the reason.
Please note: Mistakes sometimes occur in the input of numbers. Please request verification of the plan by which you are being evaluated and also verify that the Servicer has the correct numbers.
You applied for a Loan Modification through your Mortgage Servicer (or facilitator/counselor) 5 months ago and have heard nothing.
Most likely your file has not been worked or has been closed because you did not meet the guidelines, or your file is missing required documentation. Call your Servicer directly (even if you used a facilitator) and ask 2 questions: 1) Is there a status? 2) Is there any missing documentation? If your file was closed, prepare your answers using the guidelines on this website and re-submit the documentation. Note: Make sure there is no request or plan in the system that may coincide with your new documentation submission.
Can a foreclosure be stopped just before the foreclosure date? Yes, this can be done but waiting until the last minute is not recommended. The quickest solution is to call and request a Partial Payment Forebearance or file bankruptcy. Remember, however, that bankruptcy is a temporary solution and if the terms of the bankruptcy are not followed, then the servicer will file for a motion for a relief of stay and proceed with foreclosure procedures.
You have a FHA loan, you believe you met the guidelines, but you were denied. What do you do? Your case can be escalated through the FHA National Service Center by calling 1-888-297-8685 or call Operation Restoration for escalation assistance..
You are afraid that your credit scores will affect your chances of a loan modification. Credit scores are not taken into consideration although credit reports are pulled to verify that information you report is indeed the truth. For investor-owned loans, guidelines take into consideration number of days late, number of times delinquent, number of times a modification has been requested/followed through, and perhaps other factors.
What does the Obama Administration offer for its refinancing option? Depending on the Servicer, you may be offered 125% of your mortgage value to start a new mortgage. You must be current with your payments and cannot have been late during the last 12 months. Because of the significant drop in property values, this option rarely works. For more information, click here:
http://www.makinghomeaffordable.gov/borrower-faqs.html See answer to #10.
What happens to your credit score if you foreclose?
Your credit score can be lowered from 200 to 300 points and your credit can be affected for up to 3 years.
Will a foreclosure affect your credit history? Yes, it is on public record for 10 years or more.
Will foreclosure affect employment (current or future)? Employers have the right to check credit regularly for all employees who have sensitive positions or security clearances. Foreclosure can be a cause of immediate reassignment or termination. Many employers are also requiring credit checks on all job applications. Foreclosure is the most detrimental credit item an applicant can have.
How does a foreclosure affect your ability to get a mortgage? Fannie Mae or Freddie Mac (government sponsored) loans allow a mortgage after 5 years. Other mortgage types could be much longer and it will also cause higher interest rates.
If you foreclose, is it possible that the Servicer will pursue a deficiency judgment? Yes, it is possible. For more information on deficiency judgements, watch for the tab deficiency judgments on the website for more information. This can be eliminated through bankruptcy but we are researching further.
You are considering a deed in lieu of foreclosure. What should you know? First of all, there is no guarantee that your bank will accept a deed in lieu of foreclosure. This is a situation in which a borrower conveys (deeds) the property back to the Lender to satisfy a loan that is in default in order to avoid foreclosure. The Lender may consider it beneficial because it is easier, faster, and less expensive than going through the foreclosure process. But, the Borrower should know that credit scores are affected the same as foreclosure. Scores can drop 200 to 300 points, depending on overall condition of credit.
If you need additional guidance or Servicer executive level intervention, write firstname.lastname@example.org or call the number listed under Contact Us.
Also, as we are a mission, we would like to know your outcome. Please write hope@OperationRest.org and let us know.
Consult the website for videos and easy to follow instructions: 15 Steps to Loan Modifications using Making Home Affordable (HAMP), 15 Steps to Loan Modifications using Traditional Guidelines, 15 Steps to Short Sale: Selling property under the Mortgage Balance, Information You Need: Modifications, Information You Need: Short Sales, Produce the Note, working with the Servicer while under Bankruptcy (under Information You Need), and more.
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- Anne Batte, Executive Director
Copyright 2009 Operation Restoration.