Frequently Asked Questions (FAQ)
Below are the most frequently asked questions about loan modification. (If your question isn’t answered on this page, please send your question via our Contact page, which we’ll add — along with the answer — here, on the loan modification FAQ page.)
- Why Would a Bank Even Consider Modifying My Loan?
Banks and other lending institutions do not want to foreclose on your home. They earn more money if you can make your payments. When they foreclose, they not only lose your monthly payments, but they also have the expense of foreclosing (attorney fees), rehabbing the home, and then selling it (agent commissions). In today’s market, there’s a good chance they’ll have to sell the home at a loss. This is all good news for you – it means the bank is highly motivated to work with you or your attorney on a loan modification or loan workout.
- Can I Qualify for a Loan Modification with a Low Credit Score?
Yes! Your credit score is much less of a factor in determining whether you qualify for a loan modification. Unlike the option of refinancing out of trouble, which requires you to apply for a new loan, loan modification simply adjusts the terms and perhaps reduces the balance of a loan you already have. In addition, a successful loan modification can actually improve your credit score over time, especially if it prevents you from ending up in foreclosure or bankruptcy.
- Can I Qualify If I’m Current on My Mortgage Payments?
Yes! The truth is that the eligibility requirements for loan modification are constantly changing and differ among lenders. Many lenders are now completing loan modifications with borrowers who are up to date on their payments. It’s difficult to determine whether you qualify until you actually discuss your situation with the lender or with an attorney who is knowledgeable and experienced in loan modifications.
- Can I Qualify If I’m in Bankruptcy?
Traditionally, filing for bankruptcy immediately disqualified homeowners from the loan modification option, but this may change. Some politicians and consumer advocacy groups are pushing for new legislation that would allow the courts to order a loan modification as a way of restructuring debt in bankruptcy.
- Can I Qualify If I’ve Received a Foreclosure Notice?
Yes! As long as you still reside in the home – that is, you didn’t voluntarily abandon it, and the home hasn’t been sold at a foreclosure auction – you may still have time to work out a loan modification with your lender. The sooner you take action, the more options you have available and the more time you have to pursue the best option, but you can still negotiate late into the process. By contacting the lender or, better yet, having an attorney contact the lender on your behalf, you demonstrate a good faith effort to work out a solution and can often buy yourself extra time to negotiate a loan modification.
- Can I Trust a Loan Modification Service That Charges Up-Front Fees?
In some instances, yes. Not paying fees up front is a good rule of thumb for avoiding scams, particularly those involving credit counseling services and some companies that offer loan modification services. If the loan modification company is offering legal representation, however, the rule of thumb changes. Attorneys almost always charge up-front fees in the form of a retainer. The key is to work with a reputable loan modification company that has a reasonable refund policy if it cannot help you.
- Can I Modify the Loan on My Vacation Home or Investment Property?
Maybe. Loan modification is designed for homeowners, not investors, so you have a better chance of negotiating a loan modification for your primary or secondary residence – that is, for a home you actually live in rather than an investment property. However, lenders are facing such a huge increase in defaults that they may be willing to negotiate loans on investment properties, too.
- How Long Does a Typical Loan Modification Take?
The loan modification process typically takes anywhere from 30-90 days, depending mostly on your lender and your ability to efficiently work through the process with your attorney or other loan modification professional. A professional can often reduce the amount of time required by processing your paperwork efficiently, presenting your application exactly the way the lender wants it, and knowing from past experience what the lender is able and typically willing to agree to.
- How do I begin to discover who actually holds my mortgage?
This can be a difficult task to accomplish. The relationship between the Servicer and the Investor is governed by a private contract. Who the Servicer forwards payments to is sometimes a closely guarded secret. Start by asking the Servicer who the investor is on the loan. You have the right to know who the investor is on your loan, so start by just asking. If the Servicer tells you they cannot disclose that information you’ll know you have to dig a little deeper. Generally, Servicers have relationships with a group of investors, so you can probably narrow it down. You might also be able to contact Fannie Mae and Freddie Mac to see if they hold your note. Fannie and Freddie own billions in adjustable and subprime loans, and are more forthcoming with information. In any event, make sure you have your loan number available.
- My family and I had to move to a different town due to my job. We’ve had our house on the market for one year and have not sold it yet. I have been paying two house payments for the last six months and it is getting extremely difficult to keep paying two house payments. I have a son in college, an eleven-year-old daughter and a wife to support. I would like to find out what are my options to survive until the house is sold. I do not want it to go into foreclosure. I am looking for different financing options to lower my house payment.
You may find it difficult to refinance since you have multiple mortgages. If you can refinance and that solves it, then great. If you can’t refinance or if refinancing doesn’t completely solve the problem you sound like a good candidate for a short sale (or you might consider asking your lender to allow you to make partial payments or for a payment forbearance while you’re attempting to sell. They might not be willing to go that far, but there’s no harm in asking). A short sale is when you sell the house for less than the remaining balance on the note. Lenders often require that you have the house on the market for at least 90 days before they’ll entertain a short sale. You’ve been doing the right thing by continuing to pay on the note and not just walking away leaving the lender to deal with a huge loss and a mess. But, now it’s beginning to affect your ability to provide for your family. Sounds like you need to contact the lender to discuss a short sale. A short sale will allow you to maximize the return to the lender at the same time as it allows you to free yourself of the burden this house has become. It’s not the ideal solution but it’s a solution the lender might be willing to live with. The alternative is that you eventually lose the house to foreclosure and the lender is stuck with another REO in a down market. It’s likely that they’ll allow you to sell it for them via a short sale. A short sale will negatively affect your credit score, but not as badly as a foreclosure.