Loan Modification Questions

What is a loan modification?

A Loan Modification will change your existing mortgage note and give you a fresh new start in managing your home. These changes can be in your interest rate, length (term) of the loan, late charges can be waived or added to principle, change from ARM mortgage to a fixed. There are several other possibilities and modifications that can be made. But it is on a case by case basis.

A large number of clients will find themselves using a Loan Modification Plan to stop foreclosure. If you can currently make your regular payment, but you can’t catch up with the past-due amount, we will negotiate with your lender to fold any past-due amounts, including interest and escrow, into the unpaid principal balance. This new amount will be re-amortized over a new period of time.

What is a loan workout?

A loan workout is just another term for loan modification. However it is more of a broad term and can be applied to several other loss mitigation techniques, such as negotiating a short sale and a deed in lieu of foreclosure.

Are you a good candidate for Loan Modification?

Any homeowner currently stuck with an adjustable rate mortgage that has been or will be adjusting upwards is a premier candidate for loan modification. Millions of Americans were lured into signing up for interest only mortgage loans and while initially the loan was low and affordable, the double impact of rising interest rates and the inclusion of principal into the payment have caused borrowers to see their payments triple or even quadruple! The temporary one or two month forbearance your lender offers is a Band-Aid but not a bona fide solution to the problem that will get worse and the only way to halt the skyrocketing house payment and keep your credit intact at the same time is with the help of a loan modification.

Remember that waiting too long to get the process started may actually disqualify you from the program! Do not wait until your ARM or Interest-Only Loan resets again but instead act as soon as you realize that your financial situation is putting you at risk for foreclosure

What is predatory lending?

I often am asked, “What is Predatory Lending?” This term can apply to all aspects of the mortgage industry and refers to the practice whereby a creditor puts a borrower into a loan that the borrower will probably not be able to repay. Federal laws like the Truth In Lending Act (”TILA”) and the Real Estate Settlement Procedures Act (”RESPA”), as well as many state laws, require that creditors disclose certain terms of loans to borrowers, and when those terms are not disclosed or are inaccurately disclosed these laws provide severe monetary penalties against these creditors.

Predatory lending tactics include the classic bait and switch. You’re sold on the phone by a smooth talking loan officer who pitches you a great rate. Things move quickly and when you go to sign your loan documents with a notary, that great rate isn’t so great anymore.

Elder abuse is common because retirees often have a large amount of equity in their homes, and are prime targets for greedy and crooked creditors. We have seen mortgage sellers cold call elderly homeowners and then scam them into a loan which they do not need, cannot afford, and which provides the seller with an incredibly large commission.

Both federal and state law prohibit the mortgage industry from providing different loan terms to people based on race, sex, ethnicity, or other protected class. Such a transaction may be subject to a cause of action under the Unruh Civil Rights Act or other law. Equity theft also called equity skimming, refers to the situation whereby the same creditor refinances the same property with the same borrower multiple times uses up the equity in the borrower’s property.

What is a loan forbearance?

Forbearance means you are allowed to delay or reduce payments for a short period, with the understanding that another option will be used at the close of that time to bring your account to a current status. Your lender, if in agreement, will then temporarily cease legal actions.

Lenders may agree to combine your Forbearance with Reinstatement or a Repayment Plan if you know you can provide the needed funds to bring your account current by a specific date. This plan works for people who have just experienced a sudden living expense increase or income loss. We will negotiate with your lender to explain this hardship and hopefully get you the time you need to readjust your spending and recover financially.

What is a deed in lieu of foreclosure?

The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principle advantage to the borrower is that it immediately releases him from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he would in a formal foreclosure.

If you have been unable to make your monthly mortgage payments and have also been unsuccessful trying to sell your home at the market value, this form of foreclosure may be what is necessary to get you back on track. This procedure allows you to transfer your property voluntarily to your lender or Mortgage Company and your debt or deficiency is often forgiven. This will not save your home, but it will help you with your chances of getting another mortgage loan in the future and it will help you avoid the lengthy legal process of foreclosure. Although it is a negative strike on your credit rating, it is less harmful than a mortgage foreclosure.

Typically your Mortgage Company will require that your home has been listed with a Real Estate Agent for at least 30 days and there are no other liens on the property for them to approve you. Some companies may also require that the property be vacant, an interior appraisal of the property and a minimum of 60 days prior to a Foreclosure sale. Let us help you with filing the necessary paperwork and negotiating with your Mortgage Company.

What is a short sale?

A short sale is when a lender accepts a discount on a mortgage to avoid a possible foreclosure auction or bankruptcy. Instead of buying from a seller, you are purchasing the property directly from the lender for a discount. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $300,000. You write an offer to the lender for $220,000, which is accepted as full payment for the loan. This is a short sale. Why are they willing to take such a discount? Several reasons. First of all, banks do not like excess inventory and bad loans on their books; therefore, if they see an opportunity where they can sell the property without a huge loss, they will do it. Secondly, lenders know they could lose a lot more money if the property goes to auction. There are so many fees involved if the property goes to auction, that they would be better off taking the discount beforehand and be finished with the headache of it all.

Your lender will use the proceeds from the sale to pay off the mortgage and the remaining balance will be negotiated or perhaps even forgiven. This avenue is open for homeowners who are willing to part with their property but keep their credit rating with the least amount of negative reports.

Negotiating a Short Sale with the lender is a difficult process, generally because it is very hard to find the bank officer who has the authority to accept a discount. Much like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and being bounced around an intricate maze of automated voice mail systems. Once you get in touch with the right person, then the hard work and the negotiating can begin.

What are the right foreclosure solutions for me?

Our consultants look at your case individually based on your financial situation, past and present. We want to stop your foreclosure, keep you in your home, establish a financial plan with mortgage payments you can truly afford. We don’t want to give you a band-aid but a permanent solution to the danger of foreclosure.

Foreclosure Timeline

Once you become 90 days past due the Mortgage Company will typically issue a NOD (Notice of Default). After you receive this notice your mortgage company will hire an attorney and begin the Foreclosure with the Court system. The Foreclosure must follow a strict procedure laid out by your State laws. Eventually the house will be sold at auction if nothing is done to stop the Foreclosure.

Can the lender include late charges in the Loan Modification?

Usually, late charges are waived and back payments are rolled into the end of the loan.

Can the bank require an interior inspection of the property if they have concerns about the property condition?

Yes, the lender may conduct a review of the home if it deems necessary to verify that the property has not been significantly devalued by homeowner abuse.

How do I know if I will qualify for a loan modification in Arizona?

The number one criteria your lender is looking at is your ability to make the new modified payment now and in the future. Typically, the lender requires proof of income, recent bank statements, two years tax returns and a hardship to show them that if granted the loan modification, you will be able to afford the new, lower payment.

Do I have to be delinquent on my payments to get a loan modification?

Theoretically, no, but the fact is that it is significantly harder with many lenders to modify a current loan. Many lenders are now realizing that they need to deal with borrowers who are presently current, since they are, many times, the late borrowers of tomorrow. President Obama’s new plans make it easier for people who are current to get help if you are Fannie Mae or Freddie Mac. Call to find out if you qualify.

What is an acceptable Hardship situation?

Each homeowner has a unique set of circumstances that caused them to fall behind on their home loan, but generally the lenders consider divorce/separation, loss of income, death of spouse, co- borrower or family member, illness, job relocation, or military service to be acceptable reasons to consider a loan modification. A compelling hardship letter included in your loan modification application is a very important part of a successful loan modification.

Will an Arizona loan modification help me stop foreclosure?

Yes, that is the main goal of a loan modification. We work with your lender to find a loan workout solution, bring your loan current and make your foreclosure.

Can my missed payments be added back into my new loan modification?

As a rule, the arrears are either added to the new loan balance and spread out over the term to allow the loan to be brought current, or added to the end of the loan.

Have more questions that we did not answer here? Contact George Alper at 480-580-8822

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