Why Loan Modifications are More Complicated Than You Think
Unfortunately, obtaining a loan modification is far from a straightforward process. Putting aside the frustration of actually applying for a loan modification with banks that don't seem to care about you, the question of whether you can get a loan modification and what kind of modification you can get seems to be a mystery. It certainly doesn't help that when you call that 1-800 number for your bank, you never seem to speak to the same person twice and every person you speak with tells you a different story. Whether or not you can get a loan modification shouldn't be a mystery but because of all the variables in the process, it may as well be.
So, how do you know if you can get a loan modification? What kind of loan modification will it be? Will it be as good as the modification your neighbor got?
First things first, don't send a lot of money to a "loan modification company" and then sit back and wait and see what happens. Educate yourself about what kind of mortgage you have, pay attention to the notices and letters you are getting from your mortgage company, keep in mind that every case is different and highly fact specific and then consult with a professional like a bankruptcy attorney.
The next most important pieces of information, in my view, are 1) what are the sources of income available to you and what is the total monthly pre-tax income that is available to you, 2) what are your annual property and school taxes, insurance costs and any HOA/Condo/Co-op Fees and 3) how much other debt do you have.
Generally and very broadly speaking, there are six kinds or categories of loan modifications.
First, there are the loan modifications for pre January 1, 2009 loans that are owned by government-sponsored enterprises (GSE) like Fannie Mae and Freddie Mac. I would also put FHA Loan Modifications into this category to keep things simple. These loans almost always tend to be primary mortgages as opposed to lines of credit or second mortgages. GSE loans are eligible to be considered for Home Affordable or "Making Home Affordable" (HAMP) loan modifications if the borrower and the loan meet certain criteria. GSE loans may also qualify for special internal modifications offered by each the GSEs. Each of these programs have their own rules which can be varied and complex.
Second, there are HAMP loan modifications (including Tier 1 and Tier 2 modifications) for non GSE enterprises like Chase, Bank of America, Wells Fargo, Citibank, Select Portfolio Servicing, Ocwen, etc. But this gets tricky because these companies do not always own the loans they send statements for every month and although they have agreed to participate in HAMP, the real owner of your loan may have restrictions in place that prevent you from getting a HAMP modification. Again, the "rules" for these modifications are complex because they are often driven by documents referred to as "Pooling and Servicing Agreements" (PSAs) and there are many different PSAs as each investor has their own, tailored to different specifications.
Third, there are private investor modifications or internal modification options offered by private owners of mortgage loans that may have restrictions that prevent you from getting a HAMP modification (or where HAMP is not an option because of the origination date, loan size or some other factor) but are willing to offer you another option that meets their own rules or restrictions.
Fourth, there are loan modifications for loans that were originated after January 1, 2009. Unfortunately, in many cases, especially GSE loans, these options are far less affordable than HAMP modifications and in my experience, this is primarily due to two reasons: 1) the interest rate offered is usually higher and based on current rates and 2) since these loans are fairly new, extending your mortgage that has 25 years left to go, to a new 30 year mortgage (for example), doesn't make that much of a difference.
Fifth, there are modifications of your second mortgage or line of credit. These are worthy of a blog post of their own but generally speaking, they either mimic your first mortgage modification or are modified pursuant to a special investor/owner modification program. Second mortgages and lines of credit tend to be non-GSE owned- it is unusual for a GSE to be the owner of these loans.
Sixth, there are loan modifications that are available as the result of litigation- e.g. the National Mortgage Settlement or other lawsuits filed by various state Attorney Generals, for example.
This is just the beginning of the loan modification discussion. There are quite a few more factors that influence what type of a loan modification you will ultimately be eligible for such as your income, the costs of your property taxes and insurance (escrow) and how delinquent you are.
So, there are no "one-fit-all" approaches to loan modifications. Just because your neighbor, friend, family member or co-worker got a certain type of loan modification and you have a similar situation does not mean you will get the same kind of modification.
This does not mean you should be discouraged. This just means that you should get as pro-active as possible and educate yourself on what kind of mortgage you have, the costs of living in your town/city, get familiar with your own pre-tax income and then seek the counsel of an experienced attorney to see what options are available to you.
Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at firstname.lastname@example.org or call me at (914) 517-7565. The first consultation is always free.
Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.