HOW TO USE LOAN MODIFICATION TO SAVE YOUR HOME
IN FORECLOSURE?
If
your home is facing foreclosure for whatever reasons that you were not be able
to make mortgage
Then,
what is loan modification?
A
Loan Modification is a permanent
change in one or more of the terms of a mortgagor’s loan, allows the loan to be
reinstated, and results in a payment the mortgagor/borrower can afford. In the
other words, borrower/mortgagor makes a request to change one or more terms on
the mortgage loan.
Since
you are facing foreclosure, that means you already have some PITI arrearage
(that is, unpaid principle, interest, Taxes and Insurance). All or portion of
the PITI arrearage can be added to the current balance of your existing
mortgage in the loan modification.
By
doing this, you don’t need to make a lump sum of PITI arrearage in one time
now. The amount of PITI arrearage could be several thousand or more than ten
thousand dollars depending on how long you did not pay your mortgage payments
and how much it was per month. Rather the dollar amount of PITI arrearage
will be paid back by amortizing for many years depending on what terms the
lender is going to decide.
In
order for your lender to agree for the loan modification, you have to show that
you have a capability to pay the new monthly payment. For example, you just got
a new job after several months of unemployment and you new salary will be
enough to pay the monthly payment after loan modification.
Let’s use
an example to illustrate how this can save your home in foreclosure:
You
have a home worth $200,000 dollars with a mortgage loan balance of $180,000
with 15 years term and 5.5% interest rate. Your monthly PITI payment is
$1670/month ($1471 principle and interest and $200 tax and insurance). You have
been living in this house for almost 2 years. Now, you have not been able to
make your mortgage payments for last 4 months and you got a notice of default
that tells you “if you do pay, you cannot stay” from the lawyer of your lender.
The lender requested you pay a one time payment of $8,880 in lump sum including
$6,680 PITI arrearage plus later penalty of $700 and $1,500 legal fee in order
to make your loan current.
You
were just wondering what you could do in order to make the loan current and
keep your home.
Right
at that moment, you opened a letter from a company you were interviewed two
weeks ago. It was a job offer from that company and it asked you to start
working next Monday. You are very happy about this good news. But, the
bad news is that the annual salary for this new job is few thousand dollar less
than your previous one. The new salary only allows you to pay $1450 per month.
Your excitement and happiness now are gone immediately after you realize that
not only you do not have the $8,880 lump sum to pay the lender, but also you
are about $220 dollar short to pay the current mortgage payment of $1670 per
month.
You
thought that there was no way you can save your home from foreclosure with this
new job. But, you did not quit and you went online to search for solutions. You
just came across this article that offered you the exact solutions you were
looking for.
Following
Are Step by Step on How to Do a Loan Modification:
- Pick up your phone and call
your lender at the phone number in the letter of the Notice of Default;
- Tell the staff member in the
Department of Loss and Mitigation that you just find a job and want to do
a loan modification;
- Send the letter of employment
from your new employer to the lender by FAX;
- If your request is rejected
because the lender think that you didn’t have enough income to cover your
new mortgage payment, send your request again by a FAX to the lender with
following calculation results;
a. Request one – Add the $8,880 PITI arrearage to the current loan balance: Total new loan balance = $188,880
b. Request two – Change the term from 15
years at 5.5% interest rate to 30 years at 6.5% interest rate.
The new monthly mortgage payment = $1,194
The monthly tax and insurance payment still the same $200 as
before.
Total new monthly PITI payment is $1394.
If you want to do the calculation by
yourself, click HERE for the mortgage calculator.
- Now, what you need to do is to
wait for the lender to arrange a time to sign the new legal papers or
mortgage.
- Once your request is accepted
by the lender, I want you to send other request to the lender for the waive
of the later fee, legal fee, or any other administration fees.
Why you can do that? You can go back
to read your Mortgage Letter. In your previous Mortgagee Letter 00-05, page 21,
paragraph F, “Allowable Provisions” states: “All or a portion of the PITI
arrearage (principle, interest, Taxes and Insurance) may be capitalized to the
mortgage balance. Foreclosure costs, late fees and other administrative
expenses may not be capitalized.
So
your lender cannot add amount of Foreclosure costs, late fees and other
administrative expenses to your mortgage balance. But, can lender ask you to
pay upfront for that? I don’t know. Can lender waive those fees for you? Yes.
They may and may not. You may never know until you ask. If lender agrees for
that, your monthly payment will be even lower than what we calculated above.
Now,
you congratulate for not giving up lightly and for knowing how to do the loan
modification. Now you and your family members have a home to stay.
In
a summary, I have shown you how to use loan modification step by step to save
your home in foreclosure in this example. Your case or situation may be
different from this example. But, there are important points I want you to
remember and you can apply those principles to your case:
1. By modifying the loan, you can avoid paying
the lump sum of the PITI arrearage upfront and spread those payment into may years;
2. You
can change shorter mortgage term to a longer term to lower down the monthly
payment and make you payment affordable even your income is less then before;
3. You
can ask your lender to waive the legal fee and later fee.
For
more information on LOAN MODIFICATION, please fill out the form below for a FREE consultation. All informations will be kept confidential.