Loan Modification Frequently Asked Questions
A Loan Mortgage Modification is a permanent change in one or more of the terms of a mortgagor’s loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford. Through Loan Modification, even the interest rate and payment amount can be negotiated and adjusted.
QUESTION 1 – In utilizing the Mortgage Loan Modification option to bring a mortgage loan current, can the mortgagee include all fees and corporate advances?
ANSWER – Mortgagee Letter 00-05, page 21, paragraph F, “Allowable Provisions” states: “All or a portion of the PITI arrearage (principle, interest, Taxes and Insurance) may be capitalized to the mortgage balance. Foreclosure costs, late fees and other administrative expenses may not be capitalized.
QUESTION 2 – Does the mortgage repayment plan have to be completed prior to completing the Loan Modification documents, or can the mortgagee attach the plan once the option has been completed?
ANSWER – It is a mortgagee decision as to when to complete the repayment plan for outstanding fees, costs and administrative expenses.
QUESTION 3 – When utilizing a Mortgage Loan Modification option, can a mortgagee capitalize an escrow advance for Homeowner’s Association fees?
ANSWER – HUD Handbook 4330.1 REV-5, Paragraph 2-1, Section B, Escrow Obligations states: Mortgagees must also escrow funds for those items which, if not paid, would create liens on the property positioned ahead of the FHA-insured mortgage.
QUESTION 4 – Will HUD subordinate a Partial Claim, should a mortgagor subsequently default and qualify for a Loan Modification?
ANSWER – If a mortgagor subsequently defaults and qualifies for a Loan Modification, HUD will subordinate the Partial Claim.
QUESTION 5 – When an asset is modified is the homeowner eligible for the upfront premium refund at payoff of the loan?
ANSWER – It depends upon when the closing date occurred. For assets closed:
After July 1, 1991 but before January 1, 2001, the 7-year unearned premium refund schedule shown in Mortgagee Letter 1994-1 remains in effect,
On or after January 1, 2001 that are subsequently refinanced, the 5-year refund schedule shown in the attachment of Mortgagee Letter 2000-46 applies, or
On or after December 8, 2004, refunds of upfront MIP are eliminated except, when the mortgagor refinances to another FHA insured mortgage. The refund schedule attached to Mortgagee Letter 2005-03 has been modified to a 3-year period.
QUESTION 6 – Can a mortgagee qualify an asset for the Loan Modification option when the mortgagor is unemployed, the spouse is employed, but the spouse name is not on the mortgage?
ANSWER – The mortgagee should consult with their legal counsel to determine the legality and validity of such a mortgage instrument. In many cases the answer is yes.