What are the typical terms of a permanent loan modification?
Homeowners that are facing a change in their finances may not be able to uphold their original mortgage agreement. If you are falling behind or are at risk of missing a payment, a permanent modification is the smartest way to avoid losing the home to foreclosure.
Understanding Loan Modifications
Changing the terms of a mortgage loan is a way to permanently reduce the amount due each month. This type of permanent change is an agreement designed to give the borrower a more affordable plan that will prevent falling behind. The lender typically agrees to reduce the principal balance, reduce the rate of interest, extend the term length, or switch from a variable rate to fixed interest.
Common Violations in Loan Modifications
A homeowner may try to do the right thing and act quickly to get a modification in motion before the circumstances get out of control. Unfortunately, the modification process can get complicated if the mortgage servicer fails to handle any of the following aspects of the process properly.
- Untimely Application Processing
Lengthy delays waiting on the official decision often occur if the servicer fails to notify the homeowner of missing documents. The reason for this is a failure on their part to review the request within a reasonable amount of time. As of January 2014, rules changed to ensure that the servicer has to review the application, determine if it is complete, and update the borrower within a reasonable time.
- Claiming The Homeowner Must Be In Default
It is not necessarily true that a homeowner must have a late payment to get approved for a modification, but some mortgage servicers may state it as fact. According to the Home Affordable Modification Program (HAMP), a homeowner can qualify when in danger of falling behind on their payment schedule.
- Asking for Resubmitted Information
A homeowner may be asked more than once to submit new information, such as updated income verification paperwork. It may also be requested again if prior paperwork is lost by the servicer. It is necessary to resubmit the information, but keep a detailed record of the date, recipient, and any tracking information.
- Requiring a Down Payment
A down payment is not required to receive a HAMP modification, and this is also true of most other modifications.
- Processing the Application with Incorrect Income Information
The modification process is influenced by an evaluation of financial information, property information, and the original loan. A comparison is made between the cash flow to the investor if foreclosed and cash flow if the loan is modified. The servicer does not have to agree to a modification if there is more profit from a foreclosure.
- Slipping a Waiver into the Documents
It is not allowed a servicer to ask a borrower to waive any of their rights in the process of applying for a modified loan. On occasion, they may try to put a waiver into the agreement stating an agreement to release legal claims against the lender or servicer.
- Not Converting the Trial Modification into Permanent Status
Under some programs, a three month trial period is set into motion under the new terms. If payments are made on-time, then the modification should become permanent if all criteria is met. The servicer may fail to uphold their end of the agreement after a homeowner meets their obligations.
- Servicing Transfers During the Modification
Anytime a servicing transfer occurs during a modification, the old servicer is responsible for sending the new servicer any agreements made with the borrower and information regarding current status discussions with the borrower. The new servicer has to honor any existing agreements made in the modification.
When You Should Hire an Attorney
If any of the violations have been committed, you should get legal help on your side. Consequences that you may be faced with include wrongful foreclosure, financial loss, increased fees, and missed opportunities to take advantage of foreclosure alternatives.