Banks Are Not Require To Give Loan Mods

While banks are looking to give homeowners leniency on their mortgages, they are by no means required to give homeowners a loan modification.

The worse news is that if you are current on your mortgage payments, you are less likely to receive a loan modification than someone who has missed their mortgage payments.

What To Do To Get A Loan Modification?

So if you are paying your mortgage on time, and want to get a loan modification, what are your options?

• You can miss your mortgage payment, and hopefully be eligible to participate in the bank’s loan modification programs.
• You can hire a loan modification specialist to help you obtain a loan modification

If you go the route of trying to miss your mortgage payment, and then hopefully negotiate your loan modification with the bank, you could end up getting knocks on your credit or possibly going into foreclosure proceedings on your home.

As an alternative, if you hire an agent, they can help you negotiate a loan modification without you having to miss your payments. There is a lot of paperwork and complexity involved with a loan modification, and a modification specialist will help you avoid any hiccups and obtain a loan modification while preserving your credit.

Loss mitigation [1]is used to describe a third party helping a homeowner, a division within a bank that mitigates the loss of the bank, or a firm that handles the process of negotiation between a homeowner and the homeowner’s lender. Loss mitigation works to negotiate mortgage terms for the homeowner that will prevent foreclosure. These new terms are typically obtained through loan modification, short sale negotiation, short refinance negotiation, deed in lieu of foreclosure, cash-for-keys negotiation, or a partial claim loan or other loan work-out. All of the options serve the same purpose, to stabilize the risk of loss the lender (investor) is in danger of realizing. The different options are available to homeowners to try getting the homeowner to “perform” (pay timely) and cure the potential loss the lender/investor projects incurring through the foreclosure process[citation needed] and auction sale of the property.

Loss mitigation and its short sale services are one of the ways for a homeowner to have their homes foreclosed in a quick sale, to remedy a partial remedy of any owed payments, and hopefully avoid bankruptcy and the huge impact on credit scores.

The agency’s plan, posted on its Web site Friday, would guarantee 2.2 million modified loans — mainly risky loans made to borrowers with weak credit or small down payments — through the end of next year. Borrowers would get reduced interest rates or longer loan terms to make their payments more affordable.

“If we can avoid those foreclosures, then you will get more stability in the housing market,” said Michael Krimminger, a senior adviser to FDIC Chairman Sheila Bair, in an interview Thursday.

The FDIC says the government’s backing will make the lending industry more willing to modify loans because taxpayers will absorb half of the losses if the borrower defaults again. Also, loan servicing companies, which collect and distribute mortgage payments, would be paid $1,000 for each loan they modify.

Even if a third of borrowers default again on their modified loans, 1.5 million homes would still be saved, the FDIC says. Under the agency’s plan, monthly payments shouldn’t total more than 31 percent of homeowners’ pretax monthly income.

The FDIC says its plans should apply to an estimated 4.4 million loans that are likely to become delinquent though the end of next year. That estimate excludes loans held by mortgage finance companies Fannie Mae and Freddie Mac, which on Tuesday launched their own loan modification program modeled after the FDIC’s effort at failed IndyMac Bank.

Plan Based on FDIC Loan Mod Program in Pasadena California

After taking over failed IndyMac Bank of Pasadena, Calif over the summer, the FDIC launched a loan modification plan in which borrowers receive interest rates of about 3 percent for five years. That plan was used as a model for a loan modification plan announced Tuesday by mortgage finance companies Fannie Mae and Freddie Mac.

If your home is to go into foreclosure, you can face bankruptcy, and have a serious scar on your FICO credit score for up to 7 years.

Freddie Mac Helps Homeowners

But help is available. Each year, Freddie Mac helps over 50,000 families avoid foreclosure. At the end of 2006, only 0.53 percent of Freddie Mac-owned single-family loans were 90-days or more delinquent or in foreclosure, down from 0.69 percent at the end of 2005.

Options Available To Avoid Foreclosure

For borrowers who face foreclosure, there are many workout options they can take advantage of, including loan modifications. Whether it’s reducing the borrower’s note rate or monthly payment, or extending the maturity date, a loan modification is a possible option for a borrower in default.

Applying For the Freddie Mac Loan Modification Program

If you are interested in participating in the free Government program, you can contact your current mortgage broker or lender. We have partnered with licensed brokers to help homeowners receive more information about the loan modification process.

Please use our contact form at the bottom of the page for more information. Once accepted, you will want to follow the steps below if doing a manual application, however, we suggest you use a broker to help you with the process.

How To Complete a FDIC Loan Modification

The following are the five basic steps you must follow to close a loan modification:

Step 1: Deliver two originals of the loan modification documents to the borrower. The borrower must sign, notarize, and return both original documents so you can submit one executed original copy for recordation (if applicable).

Step 2: Execute the loan modification within 25 days of receiving Freddie Mac approval.

Step 3: Submit for recordation if required, and file the loan modification within one business day of receiving the executed Loan Modification Agreement.

* Fax the completed Loss Mitigation Transmittal Worksheet with a copy of the executed Loan Modification Agreement to us at (703) 918-8018 (Attention: Settlement) within one business day of receiving the executed agreement. Do not send Settlement an originally executed Loan Modification Agreement. We require only a faxed copy of the executed agreement.
* Submit one original executed Loan Modification Agreement for recordation (if applicable).
* Send the other original executed Loan Modification Agreement to your document custodian.
* If required, obtain a title policy endorsement or similar title insurance product issued by a title insurance company, such as a Mortgage Priority Guaranty (if available in the state where the property is located), to retain first-lien priority.
* Retain the original recorded (if applicable) Loan Modification Agreement in the mortgage file.

Step 4: Determine if the mortgage is in active or inactive status. After you make this determination, take the following actions during the accounting cycle in which the effective date of the modification occurs (after the Loan Modification Agreement has been executed and before the first modified payment is due):

* Mortgages in Inactive Status
o Report the mortgage as a “reinstatement” in your monthly investor reporting loan-level transaction.
o Remit the reinstatement interest through Global Payments Inc. (GPI) on the applicable remittance due date for the mortgage.

Note: If the existing mortgage is an adjustable-rate mortgage, include any rate adjustments that occurred during the time the mortgage was in an inactive status in the reinstatement interest calculation.
* Mortgages in Active Status
o Report the mortgage as a “non-exception” loan-level transaction in your monthly investor reporting transmission.
o Remit the monthly interest through GPI on the applicable remittance due date for the mortgage.

Step 5: Report and remit using the modified terms.

* Update your mortgage records to reflect the modified terms of the mortgage after you have completed the loan-level reporting and remitting for the accounting cycle during which the effective date of the loan modification occurs, but before you report and remit the first modified payment.
* Report the reinstatement via Electronic Default Reporting using default action code 20 within the first three business days of the month following the month you executed the loan modification, if applicable.
* Report the mortgage, using the modified terms in your monthly investor reporting loan-level transmission, for the accounting cycle in which the first modified payment due date occurred.