Credit Union and Bank Resources

Credit Union and Bank Resources

Learn More About Home Mortgage and Loan Modifications

If you are a homeowner who is facing a major financial crisis, such as a reduction in income, loss of a spouses income, medical debt or other serious financial hardship that could lead to an imminent foreclosure, you may be able to bargain with your lender to receive a loan modification. Loan modifications differ from a traditional refinance. A loan modification will change the terms of the mortgage loan so that you can afford the payments. The creditor or lender may allow a lower interest rate, move you from an adjustable mortgage to a fixed rate mortgage, increase the duration of the loan for smaller monthly payments, allow you to refinance the loan, or allow you to skip a few payments and add them to the end of the loans duration or add the skipped payments into the total loan amount. You do not need to be late on payments to qualify for a loan modification. Loan modifications do not automatically affect your credit score, but they can affect your score negatively, but a loan modification is much better on your credit than a foreclosure or a short sale would be.

It is best to take advantage of a loan modification before you get behind in payments. Your lender is more likely to provide you with a loan modification if you can provide documentation showing your likely to fall behind on your mortgage and that foreclosure could result if action is not taken right away via loan modification or a refinance. The more prepared you are, the faster you can get help. You will need documentation on your mortgage, your current finances, the state of your finances when you first obtained the mortgage, and you need to prove your financial hardships. Information you will need includes the following:

• Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources.

• Your most recent income tax return.

• Information about your savings and any other assets, liquid or otherwise.

• All information about mortgage, such as your monthly mortgage statement, original terms and interest rates.

• Information about any liens or judgements placed on you.

• Information about any second mortgage or home equity lines of credit on the house.

• Account balances and minimum monthly payments for all of your credit cards.

• Account balances and monthly payments on all your other debts and loans.

• A letter describing any circumstances that caused your income to be reduced or expenses to be increased such as sickness, loss of a job, divorce, etc.

At one time you could only get a loan modification if were in default on your loan and your bank or credit union had already begun the foreclosure process. The clock usually would start after 90 days or more of late payments. Now home owners can qualify for a loan modification well before any late payments are made. While some lenders in house rules will require you to be 30 days or more late, some will work with you before you get to that point. This is more likely when your loan is made through a credit union than a bank, as banks are for profit organizations. The new federal programs to help home owners obtain a loan modification do not require you to be late on payments however. The key is acting fast and reaching out the moment you realize you are going to be facing difficulty with paying your mortgage, be it a short term or long term issue.

If you do decide to seek a loan modification, you may require assistance navigating the process and dealing with your lender. Possible help through the process includes an attorney, a loan-modification firm or a nonprofit housing group. Non profits often do not charge for assistance with obtaining a home loan modification, these groups include groups such as ACORN, which is a HUD approved agency. There are many home loan modification scams going on so obtaining the help of a professional could be to your best advantage. Do not provide up front fees or your checking account information to any company or than your mortgage company.

The Obama administration has pushed a Making Home Affordable modification program with a website to help consumers under water on their mortgages, the website is http://www.makinghomeaffordable.gov. One program from the Making Home Affordable modification program that helps troubled home owners is the HAMP program. The Home Affordable Modification Program or HAMP was created in 2009 by the federal government to provide home owners with relief when facing financial hardships with paying their mortgage. HAMP allows home owners under water on their mortgage to to reduce their mortgage payments so that the payments are 31 percent of there pre-tax monthly income. Not all banks and credit unions participate with the HAMP program however. If your loan was through a lender with Fannie Mae or Freddie Mac those lenders must participate. To qualify for HAMP you must have obtained your loan before January 1st of 2009. If you take advantage of the HAMP program consider hiring a lawyer to guide you through the process or neighborhood legal aid or contacting your local HUD-approved counseling agency.


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