Experienced Loan Modification Attorneys Handle Matters in Orlando and Across Central Florida
With the intent to assist homeowners with the mortgage crisis, the Obama administration created Making Home Affordable (MHA). MHA offers several instruments to help homeowners with their mortgage problems, including the Home Affordable Modification Program (HAMP), the principal government program lenders use for loan modification requests. The Obama administration has expanded HAMP to reach a greater number of homeowners impacted by the housing crisis. The main goal of HAMP is to lower a mortgage payment to 31 percent of the financially troubled borrower’s gross monthly income. For example, if a homeowner’s gross monthly income has fallen to $3,000 due to pay cutbacks while his monthly mortgage payment remains at $1,500, he would be paying 50 percent of his gross pay in mortgage expense. If he qualified for HAMP, his payment would be reduced to 31 percent of his gross monthly pay, or $930, most likely by restructuring the mortgage with a lower interest rate and extended term. In some cases, the loan balance might be reduced, too. If a homeowner doesn’t qualify for HAMP, lenders often turn to their own loan modification programs, some of which could provide even greater relief than HAMP.
Why do you want your mortgage modified?
Some of the most common reasons to seek a loan modification are:
- You have suffered a financial hardship that has made it impossible to meet your current monthly mortgage payment. Financial hardships include job loss or income reduction, medical or family crisis, such as a death in the family or divorce.
- Your original loan carries an interest rate that is much higher than current rates, making your payment prohibitively high.
- You have an adjustable rate mortgage that has gone up, increasing the payment at a time when you’re financially unable to meet the higher amount.
- Your home is now worth less than its loan value, meaning you have negative equity in it. This situation is commonly referred to as being “underwater.” Roughly 16 million homeowners, about a third of all homeowners in the U.S., are underwater, according to the real estate website Zillow.com. Breaking the number down further, it is estimated that 39% of borrowers between ages 20-24, 48% between 25-29, and 51% between 30-34 are underwater. Significantly, approximately 48% of all borrowers under age 40 are underwater.
Goal of a Loan Modification
The goal of loan modification is to secure a lower mortgage payment, and there are four key ways to make this happen, with the lender’s approval, of course.
- Lower the loan’s interest rate: This is the most common option lenders offer homeowners seeking mortgage modification. It’s a win-win situation, given that both the interest rates banks pay to borrow money and homebuyers pay to finance a home purchase are at historic lows. Lenders also may offer a graduated interest rate, which provides substantial relief with a below-market rate for the first several years of the modified loan. This type of modification helps borrowers get back on their feet faster by yielding a greatly reduced monthly payment for the first several years of the loan. The borrower now has more time to grow his or her income for when the higher payments come due in the mid-term of the loan.
- Lower the principal amount of the mortgage loan: This is not a common remedy, but there are some instances when lenders agree to reduce the amount of a loan’s existing principal.
- Extend loan term at a lower rate: This option provides substantial relief because it reduces monthly mortgage payments by spreading repayment of the balance over a longer term at a reduced interest rate.
- Reduce the monthly payment with a longer term, but make a “balloon payment” before the end of the loan: This comes due before the loan has fully matured, requiring a substantial amount to be paid at once. However, monthly payments are based on the full length of the loan, so you get a lower payment. A hypothetical scenario would have the loan amortized over 40 years but the principal would be paid off with a balloon payment in year 20. If the homeowner has built up enough equity by then, refinancing or selling the home would be two options to consider as the balloon payment comes due.
Loan Modification: Paperwork Needed
Normally, all leading mortgage companies request the same documentation for their mortgage adjustment records. The documents you will need to provide include:
- Hardship letter: The hardship letter should make clear to the mortgage company the circumstances (e.g., income reduction or job loss, family medical emergency, death or incarceration of income-earning spouse, divorce, etc.) that have impacted your ability to pay your current mortgage. This letter also should communicate the reasons you would be able to make your modified monthly mortgage payments. Keep in mind that the mortgage company needs proof that you have sufficient income to make the modified payments.
- Two most recent months’ paycheck stubs: The bank will want the last two months of pay stubs. If you work on commission or if your pay was inconsistent, be sure to note that to the lender in a cover letter attached to the paycheck stubs. Any type of reimbursements for expenses, overtime pay, or bonus should be explained to the lender.
- Last two months’ savings and checking account records: You should submit actual bank statements, not printouts of online statements. The mortgage lender will want to see all bank statements. This means if you and your spouse are on the mortgage, you will need to provide statements for both separate and joint accounts. Furthermore, if the bank statements list some deposits that exceed regular wage income, you may need to address the nature of the unusual deposits in a note attached to the statements. For example, if a tax refund appears on a statement, explain it as a one-time deposit. You want to make sure that any non-recurring deposits can be explained. To not do so could mislead the mortgage lender into thinking your income is too high to justify a loan modification, or it may ask you for further clarification of the extra deposits, delaying your application. The same is true of excess withdrawals; be sure to explain them in a note.
- Last two years’ income tax records: Include all supporting schedules with your tax returns. So, for example, if you sold stock or own rental property or a small business, you will need to disclose all related schedules. You will not have to disclose receipts or supporting tax documents, such as Forms 1099 or 1098. If you filed electronically and did not retain a copy of your return, contact the IRS (800-876-1715) to obtain a copy.
- Financial Information Worksheet: Your mortgage company will need a financial information worksheet showing your current income and expenses. The mortgage company will review the document very closely and might compare it to your credit history as it considers your mortgage modification application.
- Request for Mortgage Assistance (RMA), or Form 710
Lender’s Decision: Results Of The Loan Modification Process
If the review of your loan modification application is favorable, the lender will offer you a reduced monthly payment for a trial period of three to four months. If you succeed in making the trial payments, the bank likely will approve you for a permanent loan modification. You will be notified of approval by phone or mail. Within seven to 14 days of approval, you will receive the loan modification documents to sign and remit to the lender.
Your mortgage modification will fall under one of the following two areas:
- The Home Affordable Modification Program (HAMP) - With it, most lenders follow a government-backed incentive program to reduce your monthly payments. The HAMP loan modification follows strict guidelines that the mortgage company must follow.
- Bank-issued loan modification - Here the original lender services your loan modification. The lender sets its own guidelines and requirements— neither of which are publicly disclosed—for the loan modification.
If you were rejected you may be able to resolve this issue and re-apply for a modification. A lender may consider subsequent applications for modification, even if it has previously rejected you. If the lender continues to reject your modification requests, and you still wish to save your home, you may want to consider filing a Chapter 13 bankruptcy case. Under Chapter 13, you may be allowed up to five years to repay your delinquent payments and address other debt issues as well. You should contact an bankruptcy attorney to see if this is a good option for you.
Contact Our Loan Modification Attorneys in Orlando, FL
Help is Here! Our Law Firm's philosophy is that no case is too small or too complex and that every client deserves the very best representation. Our team of loan modification attorneys has helped many clients in the past obtain a loan modification and we would be honored to help you too. Please contact our Orlando real estate lawyers! We can be reached at our offices 7 days a week at 407 500-0000. You may also fill out the online form provided on this page or email us at RealEstate@NeJameLaw.com. One of our attorneys will contact you shortly. We value your privacy are will keep any information strictly confidential.
We treat our customers with care, respect and confidentiality. We will do anything we can do to get the best result on their behalf.