President Obama’s plan for helping homeowners has not been as effective as hoped — only about 4% of eligible loans have been modified. Since loan modifications are a matter between a borrower and a bank, lawyers can leverage laws to force a creditor to offer a loan modification. However, an attorney can provide valuable advice and guidance, especially if a short sale or bankruptcy becomes necessary after a request for a loan modification has been denied.
Loan Modifications — Understanding Your Options
In general, banks are willing to offer loan modifications if you’re employed, are not substantially behind on your house payments, and have a variable rate loan that can be changed to a 20- or 30-year fixed rate mortgage. While your payments will be extended over a longer period of time, changing your loan to a fixed rate should reduce your monthly mortgage payments. Here, it’s important to know the details of your mortgage and your financial situation.
Since lenders are under no legal obligation to offer a loan modification, a bank may offer only a short-term discount or a small reduction in payments. In the end, this may only delay the eventual foreclosure on your home. Understanding what you can and cannot afford will help you leverage terms you can live with and hopefully avoid foreclosure.
What Do I Need When Asking for a Loan Modification?
While every bank and case is different, you should be prepared to provide some or all of the following when requesting a home loan modification:
• Hardship letter
• Pay stubs
• Bank statements
• An itemization of monthly expenses
• Tax returns
The Hardship Letter
The hardship letter provides you with an opportunity to explain why you need a loan modification. Here, you can provide information about how your family has been affected by job loss, illness, divorce, or drop-off in business revenue. You may be asked to provide additional information to confirm what you claim in your letter or you may be asked to submit additional financial information. In any case, the hardship letters allows you to “personalize” your situation and explain how a loan modification is in the best interests of you and the bank.
Determining If a Loan Modification Is Right for You
A loan modification is intended for people who are struggling to meet their monthly mortgage payment, not for people who are substantially behind in mortgage payments. If your mortgage is in arrears and you are struggling or unable to make payments on credit card, medical, insurance, or utility bills, filing for Chapter 7 or Chapter 13 bankruptcy may be your best option. If you don’t want to lose your home through foreclosure, you can also explore the possibility of a short sale with your bank.
Questions? Contact a Stringfield & Associate Professional