PROVEN 15 STEPS TO A LOAN MODIFICATION
For additional help, please fill in the form below.
For Fannie Mae and Freddie Mac (Government-sponsored) Loans
and FHA*, Conventional**, VA*** (investor-owned) Loans following:
Making Home Affordable Guidelines (HAMP)
After reading this page, go to Calculate Your Mortgage.
Unemployment benefits. Are they now allowed? (as of 2/10/11) Wells Fargo CEO area has reported that "for the most part" unemployment is not allowed. "A very few investors" now allow unemployment.
Recommendation: Before answering any income verification questions, try to find out first if unemployment is allowed. Assume NO when preparing your numbers for modification. Note: In the 2 modification lessons (Making Home Affordable and Traditional), read "12 ways to show income" to learn ways to augment income for modification purposes.See Updates. See Top Tips..
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***** This video lesson explains material presented below. *****
Prepare your Numbers First Before Calling Your Servicer
Click here to learn: Formulas and Outcomes Per Loan Type.
NOTES BEFORE YOU BEGIN:
* Effective August 15, 2009, FHA (investor-owned loans) adopted the general guidelines of the
Making Home Affordable Program for eligibility only. The outcome is different than government
sponsored Fannie Mae and Freddie Mac loans. If you have an FHA loan, follow the steps below. If
you do not qualify, attempt a Traditional modification.
** Some Conventional (investor-owned) loans follow the formulas of the Making Home Affordable
program (HAMP). Ask your Servicer if your Investor is following HAMP or Traditional guidelines for
eligibility. Outcomes can vary widely. If you are not eligible for HAMP, try to posture your numbers
to fit Traditional guidelines.
** V.A. Loans now follow VA HAMP formulas (if Servicer is utilizing) as well as the Traditional formulas.
Always ask the Servicer first if the Investor is following the V A HAMP or just Traditional formulas.
The following lesson gives VA HAMP. (See STEP 4 below). If you do not meet the requirements
then try posturing for Traditional formulas instead.
Other Resources: Information You Need: Frequently Asked Questions (*recommended).
Reasons Denials Occur. Cover this checklist.
Do Not Panic. Know the difference between letters.
STEP #1: If you are reading this lesson, make sure that you have a loan that is following the Making Home Affordable program (HAMP). All Fannie Mae, Freddie Mac, FHA, VA (new!), and some Conventional loans are following HAMP formulas if Servicers are participating. For a list of participating servicers, go to www.MakingHomeAffordable.gov/contact_servicer.html. Caution!: Approach to calculations is different and outcomes are different. See below. If you have a Conventional loan, ask your Servicer if the Investor (who owns the loan) is evaluating your case based on Making Home Affordable. If your loan is not being evaluated under HAMP, or you do not meet the guidelines of HAMP, then follow the lesson listed here to apply for a loan modification using Traditional guidelines.
STEP #2: Circumstances may require that you need to authorize someone to speak to your Mortgage Servicer --either with you or on your behalf. A Letter of Authorization simply authorizes a third party, such as a Friend, Counselor, or Realtor (if selling property) to speak to your Mortgage Servicer. To obtain a Letter of Authorization click here.
Use one for each Servicer. Fill in the name of the authorized person(s) and then your personal information. Fax this form - without a fax cover - to the Letter of Authorization fax number listed in the first column under Important Numbers 1st Chart Loss Mitigation. Allow 72 hours for it to be uploaded by the Mortgage Servicer. It is becoming increasingly difficult with some servicers for third parties to help Borrowers without a Letter of Authorization already on file. If you need another party to help you, please fax this authorization immediately and confirm with the Servicer that is it has been received to avoid complications later.
If you have filed bankruptcy and you are still under jurisdiction of the court, you can review loan workout options with your Servicer, if a Consent Form from the Bankruptcy attorney is faxed directly into the Servicer’s bankruptcy area. To obtain a sample Consent Form click here. Send this form to your bankruptcy attorney to prepare and ask your attorney to fax it in to the Servicer’s Bankruptcy Department. Find the fax number under Important Numbers 3rd Chart Bankruptcy Numbers or ask the Servicer’s Bankruptcy area for the fax number.
STEP #3: Prepare your numbers before contacting your servicer to make sure that you fit the guidelines. Read the Steps thoroughly. If you have previously verbally answered the questions incorrectly, do not worry. Prepare and begin again. Contrary to what you may be told, you do not have to call the Servicer first before faxing your information. The Servicer will accept the paperwork via fax. They will mostly likely ask for your financial information when you call to verify receipt of documentation. We have provided scripts to use when calling your Servicer in Step 14 below.
STEP #4: FORMULAS
** Remember when you are using the Mortgage Calculator, after you add the back amount owed, keep in mind they are looking for affordability, the ability to make the modified monthly payment without risk of default.
Fannie Mae and Freddie Mac loans (Treasury HAMP) and Conventional loans allowing evaluation under HAMP formulas Click here for PDF of Treasury HAMP
Note: See potential outcomes for Conventional Loans below. Outcomes can differ because Conventional loans are Investor-owned.
To meet eligibility, ALL of the following conditions must be met:
1. You must own and live in a 1-4 unit property. That means a single family property, duplex, triplex, or quadraplex AND
2. You must owe the amount shown (or less) according to this chart AND:
1 unit (single family) $729,750
2 units (duplex) $934,200
3 units (triplex) $1,129,250
4 units (quadraplex) $1,403,400
3. You have Mortgage Payment (PITIA - Principal, Interest, Taxes, Insurance, and prorated Homeowners Association Dues) that is more than 31% of monthly Gross Income (income before taxes)
Division example: PITIA $1,994 / Gross Income $5,800 = .3438 or 34%. This is eligible because it is over .31 or 31%.
4. You must have Total Monthly Expenses (AFTER MODIFICATION PITIA + revolving debt) that are under 55% of Gross Income. PITIA is Principal, Interest, Taxes, Insurance, and pro-rated monthly Association dues. "Revolving debt" is any mortgage insurance premium, minimum payments on all installment debts/credit cards, monthly payments on all junior liens/2nd mortgages, monthly mortgage payments for second homes.
Division example: AFTER MODIFICATION PITIA + Revolving Debt $2980 / Gross Income $5,800 = .51 or 51%. This is eligible because it UNDER .55 or 55%.
NOTE about #4 above: Borrowers who otherwise qualify for a modification under this program, but who would have a post-modification percentage (%) greater than or equal to 55%, will be provided with a letter stating that they are required to work with a HUD-approved counselor and the modification will not take effect until they provide a signed statement indicating that they will obtain counseling. Borrowers in this category should expect to receive a letter (see sample letter) from the Servicer.
To fulfill this requirement, call Credit Counseling Services (CCCS) or a HUD counseling agency. Tell them you have to receive credit counseling in order to receive the permanent modification. Give them the same numbers that your Servicer currently has in their system. They should tell you, after the phone session, that they will send a letter to the Servicer stating that the counseling requirement has been completed. If you have any questions, please call Operation Restoration.
IMPORTANT: "Revolving debt" is what shows up on a credit report.
CALCULATION for TREASURY HAMP (in order of approach): Servicer will attempt the following steps in order to reduce the payment to 31% of Gross Income:
#1. Extend loan out to 30 years, bringing interest rate down to a minimum of 2% to see if the mortgage payment (PITIA) will be reduced to 31% of Gross Income. Important: if 3% or another interest meets the 31% rule, then that interest rate will be offered. (2% is the minimum interest rate).
#2. If loan still not affordable, Servicer can extend to 40 years (*may not be applicable if investor-owned).
#3. If loan still not affordable, Servicer can defer part of the principal balance - a Set-Aside - and place it at the back end of the loan as a balloon payment (*may not be applicable if investor-owned). Important: The maximum principal balance deferment is restricted to the DIFFERENCE between mortgage balance versus fair market value of the property. Example: If a Borrower owes $200,000 and the value of the property is $175,000, the maximum deferment would be $25,000.
#4. Making Home Affordable “Set Asides” and Eligibility
The Making Home Affordable program requires the Servicer to follow guidelines to attempt to reduce the mortgage payment to 31% of Gross Income. If, however, the maximum allowable “Set Aside” (see above) does not bring the payment to 31% of Gross Income, the Servicer cannot offer Making Home Affordable. (*Does not apply to FHA). If you have any questions about this issue, please call Operation Restoration so that they can get verification from Servicer.
Unemployment benefits. Are they now allowed? (as of 2/10/11) Wells Fargo CEO area has reported that "for the most part" unemployment is not allowed. "A very few investors" now allow unemployment.
Recommendation: Before answering any income verification questions, try to find out first if unemployment is allowed. Assume NO when preparing your numbers for modification. Note: In the 2 modification lessons (Making Home Affordable and Traditional), read "11 ways to show income" to learn ways to augment income for modification purposes.See Updates. See Top Tips.
See 12 ways to show income below.
FHA-HAMP: How to calculate for FHA Loans to determine if you are eligible.
Note: This approach is different than the U.S. Treasury approach above!
For the formal circular (not needed) Click here for PDF of FHA-HAMP Mortgagee Letter 2009-23
Step 1: You must have Mortgage Payment (PITI - Principal, Interest, Taxes, Insurance and any MIP - mortgage insurance premium) that is more than 31% of monthly Gross Income (income before taxes). Note: FHA adds MIP in and omits Assoc. Dues, which is different from above. The result must be more than .31 or 31%.
Division example: PITI + MIP (if applicable) $1,994 / Gross Income $5,800 = .3438 or 34%. This is eligible because it is over .31 or 31%.
Step 2: You must have Total Monthly Expenses (including AFTER-MODIFICATION mortgage payments - Principal, Interest, Taxes, Insurance, Mortgage Insurance Premium + "Revolving Debt) that are under 55% of Gross Income. "Revolving debt" is any minimum payment on all installment debts/credit cards, monthly payments on all junior liens/2nd mortgages, monthly mortgage payments for second homes.
Division example: AFTER-MODIFICATION PITI + MIP (if applic.) $2980 / AFTER-MODIFICATION PITI + MIP + REVOLVING DEBT $5,800 = .51 or 55%. This is eligible because it UNDER .55 or 55%.
IMPORTANT: Revolving debt is what shows up on a credit report.
Step 3: Servicers will then calculate a temporary principal balance reduction (called a Partial Claim) using the following formula to see if they can bring the Borrower's payment down to 31%.
Formula for Partial Claim (see EXAMPLE below): Multiply .30 x (times) the outstanding principal balance (not including default amount or late fees) minus the amount of arrearage (up to default of 12 months) and minus foreclosure related costs. Note: this is the maximum partial claim amount. The principal amount deferred for a specific case will be limited to the amount that will bring the mortgage payment down to 31% of Gross Monthly Income (not below).
Step 4: Now use the below calculator and place your new outstanding principal balance in as loan amount, and put the market rate (now reporting around 5.0%) and 30 years (maximum time frame). Put your annual taxes and insurance. What is the result? Is the mortgage payment now 31% (or less) than your Gross Monthly Income? If yes, then you will be eligible for a modification. -- if you meet the requirement in STEP 2 above.
Please note - REPEAT - the Borrower's principal amount deferred will only be what will bring the payment to 31% of Gross Income, not below that.
EXAMPLE CALCULATION for FHA-HAMP:
Gross income: $3500
Current mortgage payment, including MIP: $1220
Recurring monthly debt (on credit report) $800
Unpaid principal balance is $150,000 (do not include amount in default or foreclosure related fees)
Delinquent amount: $3660
Calculate maximum partial claim: .30 x $150,000 - $3660 (also subtract foreclosure- related fees, if any) = $41,340
Take unpaid principal balance $150,000 - maximum partial claim $41,340 = $108,660
Use calculator below, entering 30 year (max), $108,660 as loan amount, 5 interest rate, and annual taxes and insurance $3600. Resulting mortgage payment is $908.46.
Divide $908.46 / Gross Income $3500 = .2596 or 26%. That means that the partial claim will successfully bring your payment down to meet FHA modification eligibility (31%).
Remember, however, Servicers will only offer the amount of Partial Claim (principal deferment) that will bring your payment to .31.
The resulting mortgage payment you will be offered will be:
Gross Income $3500 x .31 (31%) = $1085, including principal, interest, taxes and insurance.
To check if you meet the 55% requirement under FHA -HAMP steps above, add new mortgage payment $1085 + recurring debt payments $800 = $1885
Divide $1885 / Gross Income $3500 = .5386 or 54%. This meets the requirement because it is under 55%.
See 12 ways to show income below.
VA Loans: VA HAMP Click here for Questions and Answers about VA HAMP
Servicers will first attempt to modify V.A. loans through the traditional method (see
STEP 4 in Traditional lesson for formula). If the Borrower is not eligible for Traditional formulas, the Servicer will follow the guidelines of the Treasury HAMP (See Calculation for Treasury HAMP above).
• 97% of VA loans are in GNMA securities. GNMA guarantees investors the timely payment of principal and interest on loans insured by the Federal Housing Administration (FHA) and the Department of Veteran Affairs (VA).
• The pools have guaranteed interest rates. That makes it difficult for Servicers to implement according to Treasury guidelines. For a Servicer to modify a loan in a pool, they have to “buy it”, “modify it” and put it back in the pool. This means that the loan has to have the same basic characteristics of the former loan (interest rate, loan period) in order for it to be returned to the pool. Expect the result to be a fixed rate for period of 30 years.
One more note: Remember, VA guarantees to the Servicer a maximum liability of 25% of the original loan amount. Let’s say the original loan amount was $200,000. VA guarantees 200,000 x .25 (25%) = $50,000.
Borrower has current principal balance + accrued interest + delinquency of $210,000. $210,000 x .25 = $52,500 which is over the guarantee of $50,000. This would indicate that the Servicer may not modify as it is too expensive for them.
If the Servicer will not modify:
1) Ask why and know the reason.
2) Ask the Servicer to refer to the V.A. to be reviewed for V.A. Refund. This means that V.A. will consider “buying” it from the Servicer. -- or --
3) Call V.A. 877-827-3702 to request that the V.A. Refund the Loan.
STEP #5: Click here to obtain Operation Restoration's Financial Worksheet for Making Home Affordable (different from worksheet for Traditional guidelines). This will bring up a blank form and a sample. It is critical that you prepare your answers before you contact your Mortgage Servicer so that you will answer the financial questions correctly to meet Making Home Affordable Program guidelines.
We recommend practicing with Operation Restoration’s financial worksheet. Include this in your package to the Servicer,
- or -
Your Servicer may require their own financial worksheet. If you see your Servicer here, click on the Servicer's name to obtain their required financial worksheet. See Chase, EMC, and Washington Mutual (all owned by Chase), Saxon, RBC, American Home Mortgage, Indymac and One West (Indymac was sold to OneWest), Capital One (Capital One includes Financial Worksheet and Hardship Affidavit, Ocwen. Sign and date it.
Some important notes to consider:
» If the co-borrower has income, show the co-borrower’s income.
» You can also add other income contributing to household. See Ways to Show Income below.
» Show Income for the most recent one (1) month/30 day period or if you are self-employed or your income fluctuates, provide a profit and loss sheet. Profit and Loss sheets are covered in Ways to Show Income below.
Important Tips about preparing your numbers for the Financial Worksheet (refers to Operation Restoration’s financial statement):
1. Include property taxes and homeowner's insurance in the right expense column of the financial statement only if they are not included in the mortgage payment. Pro-rate them into monthly amounts. Do not show taxes and insurance if they are included in the mortgage; instead, write "included" in the available space.
2. Present all expenses in terms of monthly amounts, even if you are billed every 6 months, 3 months, etc. For example, if you pay your auto insurance every 6 months, divide the amount by 6 and give the result next to "auto insurance".
3. Do not double count expenses. If a loan or other amount is deducted from your Gross income, do not place it under Expenses.
4. If you are self-employed and using a profit and loss sheet, deduct business expenses from Gross Income. Do not put business expenses under Expenses on the financial worksheet. The financial worksheet is for personal expenses.
5. If you are not paying on your credit cards or other loans, place monthly minimum amount(s) due anyway – they are used in the calculations to determine if you meet Investor guidelines. Remember, Mortgage servicers pull credit reports to verify numbers you report on the Worksheet. (If you have filed bankruptcy which has eliminated credit card debt, then put 0 next to credit cards). If you are unsure about your minimum payments, call your credit card company or ask for a free credit report from a credit bureau such as Equifax.
6. If you have other Loans, such as other mortgages, place these amounts in empty or unused spaces on the Financial Worksheet and mark “Loan 1, Loan 2, etc”. Report rental income in the “Other Income” box on the Worksheet. (Please note: Servicers only count 75% of rental income as income.)
7. Bankruptcy clients: place your Trustee amount in the expense column if the amount is not automatically taken out of your pay every month.
8. If you receive food stamps and this covers food expenses, write "Food Stamps" next to Food and put "0" for monthly food expenses.
Reporting Assets and Income:
1. List estimated value of all autos even if you do not have auto loans.
2. List a realistic, conservative value for your property. Do not use the property tax assessment and do not list the mortgage balance unless this is substantiated by a professional. The following recommendation is not mandatory but is meant to help you be aware of your current market value. You may want to ask 1-2 Realtors who work in your area to give you a “CMA 1 page Summary”. This is free and will take a Realtor just a couple of minutes. If later you decide to sell your property, this Realtor may be the one you ask to sell it. If you do get the help of a Realtor, ask them not to pull records older than 6 months and to use properties similar to yours (not extreme variations). Mortgage Servicers do run internal valuations so it is better for you to be knowledgeable.
3. For income, do not estimate Gross and Net Income amounts! These amounts have to be exact and verified by documentation.
4. Remember, do not use unemployment income (see note at top of the page). It is considered temporary income and is not eligible.
5. If you have other income (listed in the Additional Other Income box), please circle all income types that apply.
Ways to Show Income
To avoid confusion use one (1) method per Income. (In other words, do not show the same income via a pay stub and by circling direct deposits on bank statements). Always show the most recent one (1) month/30 day period. Please note: this does not apply to people using Profit and Loss sheets who are reporting Average monthly gross and net incomes. Profit and Loss sheets are explained below.
Recommendation: Write on documents you are using to verify income: "Use As Income Verification". This will help the Servicer’s employee to quickly identify what you are using as supporting documents.
These are 12 ways to verify income listed here:
1. Pay stubs from full-time or part-time employment (most common request from Servicers). Remember to show the most recent 30 days or 1 month period. As paystubs are sometimes hard to read, we recommend that you circle Pay Dates, Gross Income and Net income. (Gross Income is BEFORE any deductions. Net income is AFTER all deductions).
» Write Gross and Net Income numbers CLEARLY somewhere on the stubs.
» Write somewhere on paystub: "PAID TWICE A MONTH" or "PAID EVERY TWO
WEEKS" or "PAID ONCE A WEEK". Click here for an example.
2. Profit and Loss Sheet. Click on the desired format here to obtain a template: Template in Excel Template in PDF. Use the Profit and Loss Sheet If you are self-employed or if your income fluctuates considerably month to month and you want the servicer to use average income. (Make sure to explain this fluctuation in your hardship letter). If you are self employed, take total Gross and Net income during the self-employed time period (use at least 6 months and 12 months if you can) and divide by the number of months to get an average monthly amount for Gross and Net Income. One word of caution: Many investors serviced by Bank of America may require a Profit and Loss sheet signed by a CPA, but if you develop your own and afterwards are asked to provide one by a CPA, you can then meet that requirement at that time.
NOTE: If you show that your NET INCOME is what you receive AFTER business expenses (suggestion: leave out income taxes in profit and loss sheet), Servicers will most often consider NET INCOME from your Profit and Loss Sheet as GROSS INCOME and then they will divide this GROSS INCOME by 1.25 to get NET INCOME (figuring taxes). Present the Profit and Loss Sheet with your numbers but remember to present your Gross Income and Net Income numbers on the Worksheet based on the way the Servicers are calculating Gross and Net explained above.
3. Direct deposits. Use the page or pages from the most recent bank statement and circle the deposits. Click here for an example. Use this way only as an alternative if you do not have pay stubs. Remember to write “Use as Income Verification” somewhere on the page. This does not replace the requirement to submit full bank statements. This is only to verify income.
4. Pension/Benefits Statement showing the monthly pay to you or a contributing member to household. Click here for example pension statements. To obtain one: Call the number listed on any correspondence from the benefits provider and request a copy of the statement. The benefits provider is also listed on checks. Some providers will fax letters and others will mail them.
5. Social Security Rewards Letter showing the monthly pay to you or a contributing member to household. Click here for example social security letters. To obtain: Go to the local Social Security office and give your id for immediate response or call 1-800-772-1213 and request the rewards letter. They will mail a statement at your request.
6. Disability benefits statement showing the monthly pay to you or a contributing member to household. Click here for an example V.A. Disability letter. To obtain a V.A. Disability letter: Go to the local V.A. Administrative office or call 1-800-827-1000 , press 0, and give your social security number or military I.D. They will fax and mail a statement at your request.
7. Child support agreement. If you receive court ordered child support, you will be required to provide the court document or agreement.
8. Alimony agreement. If you receive alimony, you will be required to provide a document verifying alimony, such as a divorce settlement.
9. DFACS agreement. If you receive income from DFACS for a dependent, then a document verifying this fact will be required.
10. Rental Agreement. Click on the desired format here to obtain a template: Template in Word Template in PDF. Use a rental agreement if you rent a room or property to another party. Please note: Some Servicers -- such as Saxon -- require a rental agreement, even from a family member.living or contributing to household. Most of the time, however, income verification from a contributing household member will suffice. You can either ask the Servicer up front or provide documentation and learn it later when you ask (per our scripts) if there is any documentation missing.
11. A notarized Letter from another person contributing to household. If you use this method, proof of income (most recent 1 month) from the person contributing to household is also required. Click here for examples: Example in Word. Example in PDF.
1. If you are using several income sources or several deposits during the most recent month, it is best to use an income summary. Click here for examples: Example in Word. Example in PDF. All borrowers are to sign, print, and date this page.
2. Cash received for services must be verified! Before spending cash, deposit cash immediately into a bank account so that deposits may be verified from bank statements. Then withdraw the amount needed.
If you do not qualify for this plan right now, you have 5 options:
1. Ask for a Partial Payment Forebearance. Click here for an example. This is a temporary solution which is generally offered for temporary financial losses associated with illness (which resulted in time off work and medical bills), death in the family (resulting in time off work and funeral expenses), and temporary cut in pay (necessitating a 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 meet the guidelines of -- and request -- a Loan Modification at the end of the Forebearance period.
2. If you are not at immediate risk of foreclosure, you may be able to wait until you are able to meet the guidelines and then apply. Also remember guidelines can change. Wait 30 days and ask the same question : Is the Investor evaluating under the Making Home Affordable program or under conventional guidelines? Look under the subject Do Not Panic on the website for samples of letters from Servicers and foreclosure attorneys so that you will understand the differences. Also know the laws in your state regarding notice of foreclosure.
3. Read here Proven 15 Steps to Modification using Traditional Guidelines, particularly Step 4 and learn if you can posture yourself to meet traditional guidelines. Then ask your Servicer if your case can be evaluated under traditional/conventional guidelines. If yes, then prepare according to the instructions listed on the website.
4. Sell your home. You can sell if the value is under the Mortgage balance. Please consult the lesson by clicking: Proven 15 Steps to Short Sale: Selling Your Property Under the Mortgage Balance.
5. If you are at immediate risk of (a few days from) foreclosure and just need to stall it to get prepared, you can file bankruptcy. Please consult the website for more details. Bankruptcy is considered more minor than foreclosure. You can recover from Bankruptcy more easily than Foreclosure. Produce the Note is less dependable but is another option to try.
STEP #6: This is a reminder to check your numbers again. See Step #4 above for your calculations under Making Home Affordable (for you loan type). If you do not meet the criteria go to Traditional modification.
If you meet this criteria and submit the required documentation, you will most likely receive a “Loan Modification” after an initial trial period.
Have you decided to sell your house or do you have questions about the documentation and process of selling (even if it is valued under the mortgage balance)? If yes, please consult the page on the website entitled Sale of Property.
STEP #7: What is the structure of a Treasury's Making Home Affordable Program (HAMP) for Fannie Mae and Freddie Mac loans versus the FHA-HAMP versus VA-HAMP or Conventional loans that are following the Making Home Affordable formulas?
For Fannie Mae and Freddie Mac loans ONLY
» You do not have to be in default to request a Fannie Freddie modification. The Servicer will attempt to lower the payment to 31% of Gross Income but the interest rate will never go below 2% to do so.
» Depending on your expenses (which can be up to 55% over gross income), the Servicer may extend the loan period to 40 years to make the payments affordable.
» Depending on the Servicer, you may be offered a modification based on a lower principal balance to help 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)..
» There will be a Trial modification for three months at a lower rate. If you make payments on time all 3 months,
• The Servicer will then create a permanent modification agreement that will give a fixed interest rate for 5 years.
• After 5 years, if the modified interest rate is below the market rate at the time of modification (let’s say you received a 2% interest rate but the current market rate right now is 5%, :
• Then in Year 6: the rate may increase by no more than 1% or, in this example, to 3%.
• Then in Year 7 and beyond the rate may increase 1% until the original market rate (that existed at the time of modification) is reached.
For FHA Loans, the outcome is a little different.
Note: Although guidelines say you have to be in default to request an FHA-HAMP modification, the Servicers will probably let you start the trial period if you are at risk of default.
» Expect your Servicer to offer a market interest rate (i.e. 5.5%) – fixed, for 30 years. FHA, V.A., and conventional loans are owned by investors and are located in investment pools that have guaranteed returns. The pools (or funds) have different interest rates and the decision is made according to Investment pool guidelines.
» There will be a Trial modification for three months. If a Borrower makes payments on time all 3 months, the Servicer will create a permanent modification agreement.
For Conventional Loans following the HAMP formulas, the outcomes can dramatically vary.
(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.
Here is a mortgage calculator so that you can practice. Remember that the Servicer will try to bring your mortgage payment to 31% of Gross Income (multiply .31 x total Gross income). See your loan type above for outcomes and interest rates. Remember, in order to be eligible for evaluation under HAMP, you have to meet ALL the requirements listed under Step 4.
STEP #8: If you have 2 loans with the same Mortgage Servicer, treat them separately.
STEP #9: Documents to prepare for your Mortgage Servicer:
1. One (1) month (last 30 days) most recent income (pay stubs, etc). See 11 ways to show income on the website.
2. Hardship Affidavit. Click here on the 3-page affidavit. Sign and date the form. See Sample in Word. See Sample in PDF format.
3. Hardship Letter. Prepare a letter explaining your hardship. Write a ONE-page letter following this format and remember to remain brief. Use relevant (current) reasons for hardship. Please note: if letters are over 1 page, pages can get separated, and can cause file delays or closure of your file. Make sure to sign, print, and always currently date your letter.
4. Financial Worksheet (Income and Expense Sheet). See Step 5 above. We recommend practicing with Operation Restoration's Financial Worksheet first. Then use your Servicer's if it is listed in Step 5.
5. Collect two (2) months most recent bank statements – ALL accounts, ALL pages. (Note: Wachovia requires 3 months at this time). We recommend that you send literally 2 months of bank statements, not 60 days of transactional detail because they are looking for 2 months. If you do not have paper statements available, you can usually go online, choose "VIEW PAPER STATEMENTS", and retrieve an actual bank statement. If you have a business account and are reporting income as a self-employed person, also send two (2) months most recent business bank statements (only if you have a business account). If the negotiator needs more later, you can send more at that time.
6. Fill out the IRS tax form 4506T. Get 4506-T form. This form allows the Servicer to pull tax records to verify information you present to them. Fill this form out per our instructions on the website. Please make sure to sign and date the form. An incomplete form can result in the Servicer not working your file.
Follow these instructions to fill out the form:
1a. Print Name as it appears on tax return.
1b. Give social security number.
2 a and b. Give 2nd person's Name and Social Security number (if applicable).
3. Print your current name(s) and complete address
4. Print previous address shown on tax return if different from #3.
6. Your most likely answer will be "1040".
6a. You will most like cross this box and not "b" or "c".
7. Cross this box ONLY IF you did not file last year.
9. Fill in 12/31/2009 and 12/31/2008 in areas provided (or two years most recently
Sign, date, and give telephone number.
7. Make a copy of recent utility bill. Note: This is to prove occupancy.
8. NEW! Get new Dodd-Frank Certification here. Fill it in and include with your other documents. 9. Collect the most recent year full tax return. If you have not filed your tax return, an extension you can get here will suffice. Warning: Make sure you sign and date tax returns before sending, even if they are a copy. Failure to do so could result in a denial, or your file not being worked.
Note: In instances where Borrowers are self-employed or providing rental agreements, sometimes negotiators may later ask for the previous year's tax return as well.
10. EXTRA documents (if applicable):
Homeowner's Association bill or proof of payment
Rental agreement (see above under Ways to Show Income)
Profit and Loss sheet (for borrowers who are self-employed or who variations in
income). See Ways to Show Income.
For school loans that have been deferred: proof of deferment. (Sometimes credit
reports do not indicate deferment and documentation is necessary for proof.)
STEP #10: 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.
Note: If you have signed a contract with an organization, please know that they cannot do anything beyond what you can do yourself. Sometimes third parties can actually hinder your progress. We recommend telling your Servicer that you want to proceed yourself.
STEP #11: Deadline for Making Home Affordable requests is December 31, 2012. A trial modification must be in place by then.
STEP #12: Do you want us to check your Financial Worksheet before you send it to the Servicer?
» If the answer is YES: fax your Financial Worksheet to the number listed under Contact Us. We will email you the suggestions, or call you directly. Please do not send other documents to Operation Restoration.
» Before you fax your documents, if you want us to verbally review the package’s contents, please call or email some alternative times. Make sure you have your fax cover sheet filled out and supporting documents behind it.
» Remember, write loan numbers on ALL documents and pages before you send them to your Mortgage Servicer.
STEP #13: Write loan numbers on all pages and fax your work to the Servicer after you have checked it thoroughly for accuracy and completeness. You are welcome to use the fax cover provided on the website. This may start a community effort to work together to help each other. There are fax covers for Loss Mitigation regular, Loss Mitigation if you are in bankruptcy, and Loss Mitigation if you are in Imminent Default, meaning you are at risk of defaulting on your loan. If you are in Imminent Default, ask you Servicer if there is a separate area handling Imminent Default cases and ask if there are different phone and fax numbers to use.
Prepare to fax:
» Print out the appropriate fax cover sheet, fill in your personal information at the top, and Mortgage Servicer name, fax number, and phone number.
» Use one fax cover per Loan.
» If your Mortgage Servicer is handling both of your loans, remember they are treated separately. Know the loan types for both loans and Fax paperwork for each loan separately.
» Follow the check list on the cover sheet and place everything in order. Change your cover sheet, as needed to reflect your personal items, for example - income from 2 sources, or a profit and loss sheet.
» Click here for Important Numbers. Look under the appropriate chart for your Servicer's phone and fax numbers. Numbers are always being added or changed according to what we learn. We always recommend that you call the number found in the third column and verify the numbers before sending documents
» Do not send the hardship documents to the Fax number for Letters of Authorization. Instead fax documentation to the number located under the 2nd column next to the name of of your Servicer. We recommend that you call the Servicer first and verify the number before sending. Servicers’ phone numbers are listed in column 3.
CRITICAL!: Record the following information and save it with your financial worksheet for follow up calls to your Servicer: Date and Time fax was sent in, fax number faxed FROM and fax number you faxed TO.
FAX COVER for LOSS MITIGATION Click on one: Word format PDF format
Note: Use this cover if you are behind in your payments. See fax numbers here: Important Numbers. Customize fax cover as needed.
FAX COVER for BANKRUPTCY Click on one: Word format PDF format
Note: Use this cover if you have been in Bankruptcy and your case is still considered in Bankruptcy by the Servicer. See fax numbers here: Important Numbers.
Customize fax cover as needed.
FAX COVER for IMMINENT DEFAULT Click on one: Word format PDF format
Note: Use this cover if you are risk of default. Some Servicers are providing modifications to Borrowers who are not late yet but are at risk of default, i.e. they have had a drop in pay and have run out of savings to cover expenses relating to hardship. Call to learn the Imminent Default fax number and follow up phone number for Imminent Default Loan Modifications. Customize fax cover.
STEP #14: Here are the scripts to use when following up with your Servicer. Remember, if you are not paying your mortgage, you will continue to receive calls from the Collections area. If you do speak with them, please tell them to notate that you are under review for a loan modification. They are trained (and are measured) to attempt to collect money from you. This will not stop the calls as this is an automated function with all Servicers. It is your choice whether or not to make a payment during the period of loan modification review (making payments will help you from being further behind). Please note: it is recommended that you do not spend money on other items as you may be asked what funds you have available upon loan modification agreement.
Always ask, if you receive a call from the Servicer, to what department you are speaking. The Foreclosure/Collections area is designed to collect money and to set up Repayment plans and they do not normally communicate with the Loss Mitigation or Short Sale areas.
Use these scripts closely as there is a reason for the wording. You do not have to say anything else. Because of backlogs, the entire process from beginning to end may take several months. Remember to remain calm and patient.
SCRIPT TO DETERMINE PAPERWORK WAS RECEIVED - Call every day until documents are confirmed received.
» Note: Use this script 72 hours after faxing (to give Servicer time to upload).
» Starting 72 hours after faxing, call every day until documents are received. If documents have not been received within one week, check the loss mitigation number with the Servicer and fax again.
IMPORTANT: Your Servicer may ask you to read your financials when you call in. Be prepared! Have your financial worksheet available when you call and make sure you stay on the phone until they have recorded everything correctly. Don't rush, even if you have to review 2-3 times.
YOU: "A request for loan modification and all documents were faxed on _______, at
______ time. I am calling to see if they were received.
(If yes): Are there any documents missing? Note: ask this every time as
documents do get lost or additional verification may be needed.
(Make sure the Servicer checks the system).
Is there a status on my account?
(If no): If I give you the fax information, will you be able to find the documents?
(If yes): give the date and time of the fax, and fax numbers to and from
(If no): I will call back. Thank you."
SCRIPT TO USE AFTER PAPERWORK IS RECEIVED - Call once a week until Negotiator is assigned..
IMPORTANT: Re-verify your financials with your Servicer each time you call in.
(Always make sure the Servicer's system reflects the numbers you reported so that your case will be analyzed based on correct information). Be prepared! Have your financial worksheet available when you call.
YOU: "A request for loan modification and all documents were faxed on ______, at
______ time. They were received ________ date (give date you learned).
Are there any documents missing? Note: ask this every time as documents do
get lost or additional verification may be needed. (Make sure the Servicer
checks the system).
I am calling to check status.
Is there a negotiator assigned?"
(If yes): May I have the name, phone number and email address of negotiator?
Note: if they do not give this out:
» Ask if you can have the name, and
» Ask if you can be transferred to the negotiator (BEST) or if they can
email the negotiator to call you.
SURVIVALTIP: If you believe you have a foreclosure date in the system, ASK them to look it up. If you do, 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.
SCRIPT TO USE AFTER A NEGOTIATOR HAS BEEN ASSIGNED. Call once a week until you receive an agreement.
Note: Call the Negotiator if you have his/her name and direct contact information. Otherwise, call the Loss Mitigation area.
YOU: "A request for loan modification and all documents were faxed on ______, at
______ time. They were received ________ date (give date you learned).
I am calling to check status.
Are there any documents missing?" Note: ask this every time as documents do
get lost or additional verification may be needed. (Make sure the Servicer
checks the system).
STEP #15: Please report your outcome to Operation restoration. This is optional but appreciated.
What are the possible outcomes of a modification request? 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% over 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.
For 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. See: Example of a Fannie Mae/Freddie Mac Loan Modification.
For FHA 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 (i.e. 5.5%) and remember the interest rate is determined by Investment pool guidelines.
FHA-HAMP. See the structure of FHA-HAMP located under Step 7 above. 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 above). 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.
Conventional loans. (This is the area of most variation). Some investment pool guidelines follow the formulas of 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. Some investment pool guidelines literally follow the formulas and agreement structure of the Treasury HAMP for Fannie and Freddie loans. However, 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.
See information about interest rates, deferred principal amounts, and periods of time under Step 7 above.
A loan modification actually restructures your loan, and reports as “Current” on credit reports.
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More Notes on FHA
FHA-HAMP Modification Notes and Guidelines
See Guidelines from the most recent Mortgagee Letter 2009-23
NOTE: Follow the STEPS as defined above to obtain a modification.
These are a few points from the Mortgagee Letter 2009-23:
• The Servicer of the modified FHA-HAMP mortgage must be FHA-Approved.
• While the Mortgagee Letter 2009-23 states that the loan must be in default, the Servicer (upon presentation that the Borrower is at risk of default) may set up a trial modification program (see steps above). Note: Borrowers with Fannie and Freddie loans do not have to be in default.
• The current Borrower(s) on the existing mortgage must be the same as on the FHA-HAMP modification (except for divorce, death whereby Borrower needs to provide documents).
• A new Borrower may be added to the HAMP mortgage, provided at least one existing Borrower(s) is retained.
• Mortgage cannot be default more than 12 full mortgage payments.
• Mortgages previously modified under HAMP are not eligible.
• The FHA-HAMP modification allows for re-amortization over 30 years versus the Treasury HAMP (Fannie and Freddie loans) which may spread payments over 40 years (if necessary).
• Modification will be at a 30 year fixed rate and must meet guidelines in Mortgagee Letter 2008-21.
• Primary residences only and only single family properties (1-4).
• The Mortgage Servicer must place the Borrower under a trial modification payment plan for the modified mortgage payment prior to completing the FHA-HAMP.
• The Borrower must make the first three consecutive trial monthly mortgage payments on time before the FHA-HAMP can be completed.
• Mortgage Servicer combines a partial claim (partial claim is like the regular HAMP temporary deferred principal balance) with a modification. No interest will accrue on the partial claim.
• The payment of the partial claim is not due until (i) the maturity of the HAMP mortgage, (ii) a sale of the property, or (iii) a pay-off or refinancing of the HAMP mortgage.
• FHA-HAMP requires that taxes and insurance be included in payment.
• The Servicer will waive all late fees.
• The Servicer cannot require the Borrower to contribute cash.
• FHA-HAMP can only be utilized if the Borrower does not qualify for current loss mitigation home retention options (FHA Special Forbearance, Loan Modification and Partial Claim) under existing guidelines (ML 2008-21, 2003-19, 2002-17).
This information is provided free of charge by Operation Restoration. Donations are critically needed to help this mission move forward. If this material has helped you or someone you love, please click on the Donate button below. May God bless you.
- Anne Batte, Executive Director