The home loan modification information provided here is meant to educate borrowers facing foreclosure on the general rules surrounding the foreclosure and loan modification application process. The processes of each loan modification and foreclosure will be affected by the individual lender responsible for servicing the loan in question and the laws that affect mortgage contracts in the state where the property is located.
A home loan modification is simply the modification of original mortgage contract terms, agreed to by lender and borrower, in an effort to make monthly mortgage payments more affordable for struggling borrowers. This can be done in several ways, including: the lowering of an interest rate, the forgiving of certain parts of debt associated with late fees, the reduction of principal, etc. Which tactic the lender uses to modify their borrower’s loans will depend on usual lender practices and the effectiveness of the borrower’s negotiation efforts, which is why it is always recommended for borrowers to have an attorney represent them through the loan modification process, since attorneys usually have far more experience negotiating with lenders than borrowers do.
The federal government does offer assistance to struggling borrowers in the form of President Obama’s Home Affordable Modification Plan (HAMP), but the assistance does not go far beyond offering incentives to participating lenders who modify loans. This means that the government will not actually purchase or otherwise service the loan and the borrower will still be responsible to their lender for payments, not to the government. A person may apply for HAMP assistance through their lender. The process involves the filling out of an assistance application and the submittal of various personal financial documents that illustrate the borrower’s need for a modification. A hardship letter is often requested with the application and is the borrower’s chance to explain, in their own words, the problem that led to the need for assistance and what steps the borrower expects to take to ensure they will stay current on future payments if the modification is approved. The hardship letter should be no more than a few paragraphs. Two pages of double spaced text should be sufficient. The letter should be easy to read and should only contain facts.
For those who do not qualify for HAMP assistance, the borrower may apply for a loan modification directly through their lender for an in house solution. Depending on the circumstances of the borrower and the ability of the lender to offer assistance, an in house option may be more beneficial than a federally controlled option. As far as the application goes, the process will remain mostly the same as described above. The borrower will still have to submit financial documents and a hardship letter.
Another reason an attorney is recommended for borrowers is because of the number of complaints recorded by borrowers without legal representation who attempt to modify their loans without an attorney. These borrowers report being mistreated by their lenders, being lied to, having their application documents lost, and being given conflicting information by lender employees. Attorneys generally have much faster results from lenders because lenders know that attorneys won’t hesitate to take them to court for failure to offer the assistance they should, especially if the lender continues to threaten foreclosure while the borrower is trying to apply for a modification.