A government loan modification allows borrowers to apply for a loan modification with the assistance of the federal government. The words “government loan modification” have become synonymous with President Obama’s Home Affordable Modification Program, or HAMP. For the residential loan borrower facing foreclosure, a government loan modification holds many benefits.
Before continuing, it is important to remember that government loan modification assistance is only available for residential loans. There is currently no program sponsored by the federal government that is meant to offer loan modification assistance to individuals who hold commercial business loans.
The assistance provided by the federal government only offers incentives to lenders who modify loans of borrowers who request assistance. This means that the federal government will never offer assistance to a borrower unless the borrower specifically requests assistance and it means that the assistance offered to the borrower is never guaranteed by the government. Also, only certain lenders are offered incentives by the government to help struggling homeowners. After the government took over control of lending industry power houses Fannie Mae and Freddie Mac, any loan lender who sold their loans to either of these two companies were forced to participate in HAMP. For the lenders who don’t sell their loans off to Fannie Mae or Freddie Mac, participation in HAMP is optional. To determine whether or not a lender participates in HAMP and whether one’s loan is eligible for government loan modification assistance, the borrower only needs to call their lender and ask a representative if they participate in the program.
When a home loan is modified through HAMP, the borrower is able to avoid foreclosure. By agreeing to modify the terms of an original mortgage contract, the borrower is able to lower their monthly payments and, perhaps most importantly, avoid the mark of foreclosure on their credit report. This is most important for individuals who do not plan on remaining in their current home long term, as the mark of “foreclosure” on a credit report can affect the homeowner’s ability to be issued another loan for several years following the foreclosure.
Borrowers must realize that when they apply for a government loan modification, they will have little to no contact with federal representatives, nor will the federal government offer mediation or negotiation support, nor will the federal government have any say in whether or not the modification is approved. The federal government will only offer incentives to the lender for approving an eligible loan for modification.
To apply for a government loan modification, the borrower will go directly through their lender. Upon request, the lender will provide an application for loan modification under HAMP that the borrower will complete and return to the lender along with various financial documents including pay records, copies of bills, and a hardship letter. Before submitting the application for review, it is recommended that the borrower have their documents reviewed by an experienced foreclosure attorney. Many lenders admit that a large majority of application denials are due to borrowers who fill out their applications wrong. When a typo can mean the difference between modification or foreclosure, the borrower wants to make sure that their application is complete and error free, and an attorney can make sure this is the case.