Banks and mortgage lenders made many loans in recent years that were based on inflated appraisals, artificially high market values and their own greed and corruption. Sometimes, loans were made without making it clear that interest rates could rapidly increase, often to the point where making the payments would be impossible. Many homeowners who were innocent victims of predatory lending practices and inflated real estate values are now unable to pay their loans or are “underwater” on their loans, which means that they owe more than their home is worth.
In a stated “effort” to resolve the tide of foreclosures and to help homeowners keep their homes, various loan modification programs have been put into place by the government and by individual mortgage servicers. While we’ve come to believe, based on extensive experience, that these programs seem to be mostly political gamesmanship and hidden backdoor bailouts, some of these loan programs may allow you to make changes to reduce mortgage payments and keep your house. In some rare cases, loan modifications may also be made to reduce mortgage principal, which means to reduce the balance due on your mortgage.
Typically the best way to effectuate a loan modification is by exposing evidence of fraud, false documents, “robo-signing,” servicing errors, misapplication of payments, evidentiary violations, discovery violations, illegal collection practices and more. In order to effectively increase your chances of obtaining a meaningful loan modification, you need an aggressive advocate on your side. The Florida foreclosure defense lawyers at the Law Offices of Evan M. Rosen are here to help you. We are dedicated to serving our clients and we will diligently represent your interests to help you to achieve the best possible modification.
You are welcome to read more about loan modifications below or you can contact us now for a FREE CONSULTATION by calling 754-201-3826 or by filling out our online form.
What is Loan Modification?
Loan modification is a change made to the terms of the existing mortgage on your home. It is different from refinancing, where you obtain a new loan to pay off your old loan. Modification is possible when refinancing is not available because of poor credit or because you are underwater and owe more than the home is worth.
In most cases, loan modification involves a change to the repayment terms on your loan, but not actually a change in the balance owed. For instance, your interest rate could be reduced in order to lower your monthly payments. Your repayment term may be adjusted, allowing you to repay your loan over a longer period of time so that your monthly payments are lower. You may have some portion of the balance owed on your loan deferred. In rare cases, we may even be able to help you reduce your principal balance or amount owed.
Loan Modification through the Home Affordable Modification Program
Some borrowers who obtain a loan modification do so through a program called the Home Affordable Modification Program (HAMP). Mortgage servicers offering loans guaranteed by Fannie Mae or Freddie Mac or who received bailout funds through the program known as TARP are required to participate in HAMP, while other lenders may participate voluntarily. Lenders that participate must determine whether homeowners are eligible for HAMP before finalizing a foreclosure and, if homeowners are found to be eligible, lenders are required to make a trial modification offer.
The goal of loan modification through HAMP is to reduce a borrower’s monthly payments to an affordable level, defined at 31 percent of your gross income. Several steps are taken to reduce your payment to this level. These steps are called the HAMP “waterfall,” and you must follow the steps exactly and cannot move on to the next step unless you have exhausted the option before. These steps include:
• Calculating the capitalization of escrow advances, out-of-pocket servicing expenses and interest outstanding. Late fees are not factored in.
• Calculating the monthly payments owed at interest rates that are reduced by 1/8 percent increments until your interest rate reaches 2 percent or until your payments are reduced to 31 percent of your gross monthly income. If your payment reaches 31 percent of your income, your interest rate will be modified. If this modification results in a rate below market rates, the reduced rate will be fixed for 60 months. If your payment still exceeds 31 percent of your income after your interest rate is reduced to 2 percent, move on to the next step.
• Incrementally increasing the period of time you have to repay until your payment hits 31 percent of your income or until your repayment period has reached 40 years. If you have reached a 40-year repayment period and your payment still exceeds 31 percent of your income, move on to the next step.
• Deferring a portion of your principal until you pay off the loan or the loan is refinanced. For instance, the lender may determine that your principal would need to be reduced by $10,000 for your monthly payments to become affordable. The lender is not required to forgive this $10,000, but can defer it interest free. A balloon payment equal to the deferred amount — in this case $10,000 — would then be due when you refinance, repay your loan or sell your home.
Understanding and applying these steps can be complicated. The foreclosure defense attorneys at the Law Offices of Evan M. Rosen can assist you in better understanding how the HAMP waterfall could impact your mortgage payments.
Qualifying for Loan Modification
You technically do not have to be behind on your mortgage payments in order to be eligible for a loan modification through HAMP. However, the mortgage must be for a primary residence that you are occupying or for a home that you intend to rent out for at least five years, on a year-round basis, following the modification.
You will be required to provide proof of income and of financial hardship in order to qualify for HAMP modification. On the other hand, modifications obtained as a result of uncovering evidence of fraud, false documents, “robo-signing,” servicing errors, misapplication of payments, evidentiary violations, discovery violations, illegal collection practices and more, do not require you to submit documentation. The Law Offices of Evan M. Rosen can assist you in either approach.
Contact Our Florida Foreclosure Defense Attorneys Today
Although HAMP and other loan modification programs were created with the stated “goal” of helping struggling homeowners, the program has been horrifically unsuccessful overall. Representing yourself and trying to obtain a HAMP modification on your own is not the most effective way to try to resolve your mortgage problems. Not to mention, there is ample evidence to suggest that the HAMP program was never seriously intended to make a meaningful difference for homeowners but was instead designed primarily as a backdoor bailout for the benefit of loan servicers and not the American people.
One of the overriding concerns for us is that the servicers under the guise of HAMP are just fishing for information to see if they could be successful in obtaining a deficiency judgment against you. Without a judgment being entered, your financial information is completely irrelevant; just as is the millions of dollars the servicers and banks got from their bailouts. If you have something worth going after, by opening up your books at this stage, you have just divulged damaging and sensitive financial information, hurting your bargaining strength and your case.
Also, even if they approve a modification, absent leverage and education, servicers typically start with a “temporary” modification. The problems with these are that they often turn out not to be temporary and while you are making those payments, you are still technically in default. So there is another concern that servicers encourage you to make reduced temporary payments, so they can collect their servicing fees in full, while the real lender gets nothing. Once this charade has gone on long enough, the servicer forecloses, gets more servicing fees leaving the lender getting even less and you in the same or worse position you were in before the temporary modification.
As you can see, we have grown very skeptical of the banks’ efforts to modify without first creating some good leverage, while simultaneously educating them on the property’s fair market value and their costs associated with foreclosure. However, while the percentage of successful permanent modifications nationwide has been extremely low, we have helped some clients achieve a successful permanent modification. Ultimately, this is your decision and we hope to help you make one that is very informed.
At the Law Offices of Evan M. Rosen, we will fight vigorously for you to help you obtain a loan modification. Our goal for modification always includes principal reduction, and while every case is different, we have been successful in the past at achieving this goal. We will also work with you to explore all of your options for a loan resolution program to achieve the most advantageous outcome. In every case, we listen to you, put customer service first and take the time to do a thorough evaluation of your finances to find the solution that works best. Contact us today at 754-400-5150 or through our online form to schedule a FREE CONSULTATION to learn more.
Don’t give up on your American Dream because mortgage lenders acted recklessly, causing the housing market to overinflate and then bust. Let us help you increase the odds of working out a meaningful modification so you can keep the house you worked so hard to buy.