Does My Lender Have to Modify My Loan?

by Evette Cecena, the Queen of HUD on September 13, 2010

If you are one of the thousands of Americans trying to avoid foreclosure you may find this piece worth reading.  It’s not easy to avoid foreclosure, but it can be done.  You own your home until the trustee sale and can try for a loan modification or short sale until then.  Lenders are not obligated to make arrangements to workout affordable payments for borrowers. The first lien holder and second lien holder must both approve a short sale and payments are modified separately with both lenders when modifying your mortgage payment. Many borrowers consider the servicer to be the lender, but there is actually an investor(s) involved that make the final decisions. Servicers make requests from the Investor(s) to modify loans or allow short sales. Visit HomeAffordable.gov if you are looking for a loan modification or a workout on your mortgage payment to find a list of lenders participating in HAMP and HAFA (Government programs that offer incentives to lenders for allowing modifications and short sales).

If your loan is FHA insured then you do have options that will drastically reduce your monthly payments for extended periods until you are back on your feet. If you have a conventional loan, like most people today, simply call your lender, ask for loss and mitigation and tell them you would like a loan modification package mailed to you. It’s not something that you have to pay someone to do.
If your servicer is participating in Home Affordable Modification Program they are not obligated to modify your loan. It is ultimately up to the investor that owns your loan not the servicer.

I hope that answers your question, but contact me if you need some help.

{ 2 comments }

Vanessa Alvarez September 22, 2010 at 3:27 am

Evette-
in 2006 I received a loan which they termed 80/20 loan and both are currently held by the same servicer. I have requested a modification on the 20% loan as it is the higher interest rate and causing me the most hardship. When all was said and done they modified the 80% loan and will not look at the 20% loan because it is only a $350.00 payment and appears to be “affordable” with my income. OF COURSE a $350.00 PAYMENT IS AFFORDABLE, but not on top of the 80% loan at $866.00, and taxes and insurance that I have to pay out-of-pocket. I have tried contacting them to work this out without any luck. I have contacted a realtor who says the comparables in the area are only $30,000.00-$40,000.00 (about $90,000 less than I currently own) and a short-sale is not advantageous at this time.

I am trying to salvage what is left of my credit as future job prospects may run credit histories on me. Any suggestions on what other avenues can be tried instead of a “strategic foreclosure”?

Thank you,
Vanessa

Evette Cecena, the Queen of HUD October 6, 2010 at 1:53 am

Vanessa,

My deepest apologies for not getting back to you sooner. My blog has been the culprit of spammers so it is taking me a while to go through comments. I will be adding a subscribe/RSS button to it tomorrow, so go to the site and subscribe so that you can get updates via email.

Anyhow, to answer your question short sale is no better than foreclosure when it comes to salvaging your credit – unless you do not fall 90 days behind before the short sale takes place. In either case, your creditor (the lender) will likely report the debt as “settled for less than amount owed” which is what your FICO score is based on. So unless you short sale and get your creditor to report the debt as “paid in full” your credit will be damaged the same as it will with a foreclosure. I have had some lenders (for short sales) report the short sale as “paid in full” but it is rare.

You can contact makinghomeaffordable for information on loan modification if your loan servicer is unwilling to work with you. If your loan is owned by Fannie Mae then contact Fannie Mae if the servicer is not working with you. Also if your home was FHA insured (which it’s not – since you have the 80/20 mortgage) but if it were you would be able to get a forbearance during the time you are having a hardship. The mortgage insurance you have, however, only protects your lender.

If the foreclosure is the only negative item on your credit report then you will probably be fine as far as jobs running your credit. Every situation is unique and I am glad that you gave me so much details, but do you live in Arizona? The information at my site pertains to Arizona.

In addition, things aren’t like they used to be. You can qualify for an FHA loan just 3 years after going through a foreclosure. You may want to look into speeding up the foreclosure process by requesting a “deed-in-lieu” of foreclosure from your lender. Deed in lieu is voluntary, so your lender will not offer it you have to ask for it.

Loan modifications are ultimately up to the lender and if they don’t want to do it then there isn’t much you can do about it. Working with two lenders makes it that much more difficult.

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Tempe, AZ 85282


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