If you have become delinquent on your home mortgage you are probably searching for options for how you can avoid foreclosure, get approved for a loan modification and make your mortgage payments more affordable to keep your home. If you have been delinquent in your mortgage payments for at least the last 90 days, your bank servicer may have mailed you a notice of pre-foreclosure options or even a notice of default or notice of trustee sale. These are the first steps in the foreclosure process in Washington state, but as the notice of pre-foreclosure options and notice of default tell you, you may have options to retain your home and one of those options is to get approved for a loan modification.
A loan modification can help you reduce your interest rate on your mortgage payment, allow arrears to be placed on the back end of a loan, or even lowers your overall mortgage payment. So why would a bank agree to a modification? The answer is because it is cheaper for the bank to give you a modification rather than foreclose on your home. With that said, a loan modification is not guaranteed just because you apply and the bank has several guidelines that they will use to evaluate whether it is in their best interest to approve you for a loan modification.
After the housing crash of 2008, the government created a program called Home Affordable Modification Program (HAMP) which allowed for banks to adjust mortgage payments to 31% of a borrower’s income. This program was phased out at the end of 2016 and replaced by a program called the Flex Modification program which applies the same measures, but it allows lenders to also consider how many days delinquent borrowers are and the value of their home. The flex loan modification program aims to reduce monthly mortgage payment by 20% for eligible borrowers.
What are the requirements to get approved for a loan modification?
(1) You mortgage must be owned or guaranteed by Fannie or Freddie Mac. Loans from FHA, VA or USDA do not qualify.
(2) Your mortgage must be at least a year old.
(3) The mortgage you are trying to modify must be in first position on your home.
(4) You must be at least 60 days delinquent on your mortgage payment.
(5) The mortgage loan must not have been modified 3 or more times.
(6) You must submit a borrower response package provided by your loan services as well as a completed 4506T form requesting a copy of your taxes, last filed tax return, a letter of hardship as well as proof of your last 60 days of income and bank statements.
With this information your bank will evaluate whether to approve you for a loan modification and if you are more than 90 days delinquent on your mortgage loan you may be eligible for a streamline version of flex modification in which a full forms and income verification package may not be required. The streamline modification goal is also to reduce mortgage payments by 20%.
Once the bank receives all of the required documents, they will do their own analysis to determine whether you qualify for a modification. The most important factors that will impact whether you receive a modification or not are going to be how much in arrears you are, the value of your home and whether you can afford a modified payment moving forward. The bank needs to make a business decision on whether it is more beneficial for them to give you a modification or foreclose on your home.
If you live in Washington state and would like to apply for a loan modification and get the protection and peace of mind of not being foreclosed upon while in the modification process you should consider applying for a modification through the states foreclosure fairness program in which a mediator as well as local attorneys for the bank and yourself will be present to hopefully make sure things go smoothly.
If you are denied a modification or have not applied in time in which to stop a foreclosure sale on your home, you may qualify to file a chapter 13 bankruptcy in order to stop a sale and make up your arrears over 60 months. You can also apply for a loan modification while in a chapter 13 bankruptcy.
If you live in Washington State and are looking for assistance with applying for a loan modification give Symmes Law Group a call at 206-682-7975 to speak to a loan modification attorney and learn about your options.