A Loan Modification is a temporary or permanent change in one or more of the terms of your loan agreement. Most typically, a modification restructures your loan to provide borrowers with more manageable terms. It is important to note that borrowers do not have an absolute right to a modification, and therefore the bank has no contractual or legal obligation to provide a borrower with a modification.
A modification of a mortgage typically includes one or more of the following components:
A change in the loan’s term, often resulting in a longer term than was the case prior to the note’s modification;
The waiver or capitalizing of the fees, charges and penalties associated with the loan’s delinquency or otherwise;
The reduction or forgiveness of principal associated with the note;
A change in the interest rate associated with the note, such as the lowering of the applicable interest rate or the conversion of a interest rate from an adjustable to a fixed interest rate; and/or
A trial period, typical three months in length, to demonstrate the borrowerâ€™s ability to make payment on a permanent modification.
There are many types of modifications, the availability of which varies significantly depending upon the entities or persons that have invested in the note, the extent to which the borrower is delinquent, and the borrower’s overall financial situation. The Federal Home Affordable Modification Program (“HAMP”), the most commonly referred to modification program was created in connection with the United States federal government’s Making Home Affordable Program. HAMP has become the gold standard modification program and has served as a template for many modification programs that are not formerly associated with HAMP.However, not all investors participate in HAMP, and even within HAMP there is variation regarding the criteria and retention options available. For example, FHA loans have a separate and more stringent review process for their own version of HAMP known as FHA-HAMP. There is also a HAMP 2.0 program which relaxes some of the more stringent requirements of HAMP including the requirement the applicant reside in the property.
Aside from HAMP, many loan servicers have created proprietary or in-house modification programs that often incorporate elements of the HAMP program itself. The process of applying for a mortgage modification can be frustrating and confusing. If you are facing foreclosure and are interested in resolving your financial and legal problems by obtaining a modification it may be in your interest to obtain professional counsel.
If you have questions related to mortgage modifications call us today at (973) 500-8024 or (212) 960-8308, or submit your contact information below and we can contact you directly.