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Many people have been asking what exactly is a loan modification. These are some common questions and answers.
What exactly is a loan modification?:
Loan 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.
Question 1: In utilizing the Loan Modification option to bring an asset current, can the mortgagee include all fees and corporate advances?
Answer: Mortgagee Letter 2008-21 states in part: Legal fees and related foreclosure costs for work actually completed and applicable to the current default episode may be capitalized into the modified principal balance.
Question 2: May a mortgagee perform an interior inspection of the property if they have concerns about property condition?
Answer: Yes, the mortgagee may conduct any review it deems necessary to verify that the property has no physical conditions which adversely impact the mortgagor’s continued ability to support the modified mortgage payment.
Question 3: Can a mortgagee include late charges in the Loan Modification?
Answer: Mortgagee Letter 2008-21 states that accrued late charges should be waived by the mortgagee at the time of the Loan Modification.
1. “Loan Modification Frequently asked Questions”
Question 4: When utilizing a 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 5: Is there a new basis interest rate which mortgagees may assess when completing a Loan Modification?
Answer: Yes, Mortgagee Letter 2008-21 states that the new basis interest rate is 200 points above the monthly average yield on U.S. Treasury Securities, adjusted to a constant maturity of 10 years.
Question 6: 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 7: Are mortgagees required to perform an escrow analysis when completing a Loan Modification?
Answer: Yes, mortgagees are to perform a retroactive escrow analysis at the time the Loan Modification to ensure that the delinquent payments being capitalized reflect the actual escrow requirements required for those months capitalized.
Question 8: Is the mortgagor eligible for the upfront premium refund at payoff of a modified 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 9: 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: Based upon this scenario, the mortgagee should conduct a financial review of the household income and expenses to determine if surplus income is sufficient to meet the new modified mortgage payment, but insufficient to pay back the arrearage. Once this process has been completed the mortgagee should then consult with their legal counsel to determine if the asset is eligible for a Loan Modification since the spouse is not on the original mortgage.
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Ref- 1. Frequently Asked Question- U.S. Department Of Housing and Urban Development, mortgagee letter 2008/Hud Handbook 12-3-2008
Homeowners who get loan modification may be too quick to get back on the spending track, putting them at risk for second defaults. Residential Capital, LLC, one of the country’s leading mortgage servicers, reports that almost half of the loan modifications they granted last year went back into default after less than six months. This has raised the question of whether loan modifications can really prevent foreclosure, or just hold them off temporarily.
Excessive credit
At last week’s meeting with the American Securitization Forum, ResCap CEO Thomas Marano reported that excessive credit was the main reason for most second defaults. According to Marano, once people get their mortgage modifications, many immediately use their savings to load up on other debt (such as credit cards). He adds that the rise in unemployment, resulting from large-scale cost-cutting by major companies, is also working against loan modification programs.
Debt counseling
Marano says that borrowers need to see loan modification as a long-term commitment rather than a one-off solution to mortgage problems. To do this, he recommends putting borrowers through debt counseling as part of the loan modification program. This will help them make smarter decisions on future credit, particularly on credit card spending.
The move will also benefit credit card companies, who are already starting to feel the crunch from missed and late payments. Last week, Fitch Ratings reported that delinquencies in consumer credit hit a record high in the past month—a figure that’s expected to rise if the current loan modification programs aren’t adjusted.
Qualification adjustments
The general requirement for a loan modification is a debt-to-income ratio of about 35%; that is, the mortgage payments must take up no more than 35% of a borrower’s income. According to Marano, however, this figure often exceeds 60% when other debts are taken into account. Working together, these debts virtually ensure a second default, even when the mortgage is significantly modified.
Government support
The government has long supported loan modification as a promising solution to the real estate slowdown, which has been further fueled by recession. However, implementing the program has proven difficult as servicers find it hard to reach out to borrowers. Also working against servicers is their contractual obligation to match their investors’ financial interests with those of their borrowers.
This is why many mortgage servicers, including ResCap, have teamed up with the Federal Housing Finance Agency (FHFA) to boost foreclosure prevention. FHFA director James Lockhart added that the agency plans to help servicers whose profits have drastically declined due to delinquent mortgages.
Principal reduction
Among the measures being taken to expand modification programs is principal forbearance—a permanent reduction of the principal balance on homes that have lost their value. However, Marano says, this may result in moral hazards since many homeowners consider their homes an investment. ResCap is currently working out a “shared appreciation” system wherein the servicer (or its investors) can mutually recover losses from such modifications.
Homeowners’ options
Loan modification continue to be one of the most viable solutions to mortgage problems. The key for struggling homeowners is to make the right choices both before and after the change, and to work with the right professionals. Attorney-backed loan modification companies can offer sound advice on choosing a loan modification plan and staying on track afterward.
The Loan Modification Department is composed of a team of attorneys, mortgage and real estate professionals, and hardship analysts. Lead by Expert Loan Modification Attorney, Marc R. Tow, Loan Modification Department has helped thousands of American Home Owners save their Homes and decrease their loan payments. For more information just Call 800-738-1170 or Visit our website http://www.cdloanmod.com/ Article Source:http://www.articlesbase.com/mortgage-articles/loan-modification-defaults-excessive-debts-excessive-credit-850241.html
Today more and more lenders are implying that they are doing everything within their power to help home owners that have fallen behind on their payments, but I am sure if you speak to anyone that has attempted to get a loan modification, will beg to differ as they tackle road block after road block from their lender.
Not only are home owners finding that it’s a mission to reach a work out officer within the loss mitigation department of their lender, but to make matters worst, if they do receive an approval for a loan modification from their lender, they are finding that new payments are as unaffordable as the original mortgage.
As more and more borrowers default on their loans for such reasons as job loss or an adjustable rate mortgages, lenders are finding that their loss mitigation departments are flooded with request from home owners who can no longer afford their payments. One of the main causes of this is lenders were not set up for the work load and mortgage restructuring that the rise in foreclosures have caused. The main purpose of servicing companies were to collect monthly payments from the borrowers as there were limited request to help home owners modify their existing mortgages within past years.
Most loan modifications that are offered by lenders result in either a temporary and minimal rate reduction and an increase in the principal amount owed, as the lenders tact on the arrearages with late fees and many other garbage fees that purposively arise from the mortgage going into default. Home owners will find that the amount they owe increases because of the missed payments and these junks fees and as a result the new payment that is being offered by the loan modification is even higher than the original mortgage payment.
In saying that, some home owners need to realize that a loan modification isn’t for everyone and that renting and starting over can be a better options for many, especially if you live in a state like Florida where many Floridians have loss in excess of a hundred thousand in equity over the last 2 years and the Florida market is still declining.
With a combination of the current U.S. economy and sub prime loans, foreclosures are far out pacing the number of loan modifications that are being done.
Many modifications done today tend to be unaffordable, because of no reduction to the principal balance of the mortgage and or a significant rate reduction and as a result we are now finding that over 50% of loan modification done within the last year have gone back into default.
One of the main duties of a servicer is to collect every dollar owed by the home owner for the lenders or investors that actually owns the loan, and this is one of the main reason that home owners are finding that their lenders are sometimes reluctant to modify their loan, as this could result in less income for them and the potential of huge losses for the investors or lenders that hired them.
Marlon Baugh is a nationally-known mortgage expert. Since 2003, he has specialized in Florida FHA Mortgage Loans for people with Bankruptcies, Foreclosure or with other credit issues, as well as Florida Loss Mitigation. If you would like a Free Copy or to get instant access to the remainder of this Insider Mortgage Report, please visit http://specializedfinancialsolutions.com/lendersexposed.htm or Call 954-678-5796 Article Source:http://www.articlesbase.com/mortgage-articles/do-you-know-who-benefits-from-a-loan-modification-851387.html
