Loan modification - requirements
Electronic signatures are now accepted for loan modification program
Electronic signatures, or “eSignatures/eSign,” are now accepted for loan modifications under the Home Affordable Modification Program (HAMP) for all GSE- and non-GSE loans. eSignatures provide an alternative processing method for servicers and their eligible borrowers. Using this process, you can quickly and easily generate electronic documents, provide secure online access to borrowers for the review and signature process, and have access to the executed documents the same day.
eSignatures are a convenient option for borrowers, and a powerful tool in helping you streamline document fulfillment. Servicers can realize significant benefits in the HAMP fulfillment process through the use of electronic document distribution and electronic signatures, including reduced document errors, faster turnaround, higher completion rates, and the elimination of lost documents. Electronic records and automated audit logs also help servicers with their compliance needs.
The government also provides more specific guideline regarding eSignatures. According to the guideline, the eSignature service should alert the servicer (the bank) upon document execution, and provide secure transmission of the completed documents to the servicer, or provide the capability for the servicer to access and export executed documents. If the loan that is being modified was originally executed electronically (electronic Promissory Note, aka eNote) and was registered on the MERS eRegistry, then upon execution of the HAMP modification, the service will need to update the MERS eRegistry to reflect the modification.
So how to improve your chance of getting a loan modification to lower your interest rate and reduce your debt? Do your own research, understand how your bank operates and be prepared before you approach the bank. Debt Zero Programs at http://d0p.org is the most up to date, comprehensive and FREE information source on the internet on government programs for loan modification, affordable refinance and other government help for debt reduction.
For a complete DIY loan modification package, click here.
If you want to start a loan modification business to help others, click here.
More stringent requirements on banks to process loan modification applications
The government today released another directive to banks (servicers) who participate in the HAMP program regarding their reporting requirement. The directive provides a more stringent reporting requirement for bank, wherein a mortgage loan is considered to have been “evaluated” for HAMP when one of the following has occurred:
Once a loan is considered “evaluated”, servicer (bank) is required to provide reporting according to one of the categories:
- A trial is not offered or is not accepted by a borrower and the government monitoring data IS NOT available.
- A trial is not offered or is not accepted by a borrower and the government monitoring data IS available.
- A trial was entered into by the borrower and the loan did not enter an official HAMP modification BEFORE the government monitoring data was obtained.
- A trial was entered into by the borrower and the loan did not enter an official HAMP modification AFTER the government monitoring data was obtained.
- Borrower enters a trial period for a modification
For each of the categories, the government also provides a list of data and accompanied data dictionary that servicer must provide. This will put pressure on banks to process loan modification more quickly.
So how to improve your chance of getting a loan modification to lower your interest rate and reduce your debt? Do your own research, understand how your bank operates and be prepared before you approach the bank. Debt Zero Programs at http://d0p.org is the most up to date, comprehensive and FREE information source on the internet on government programs for loan modification, affordable refinance and other government help for debt reduction.
For a complete DIY loan modification package, click here.
If you want to start a loan modification business to help others, click here.
Banks must notify you within 10 days of HAMP decision
The Treasury has released a new instructions for bank (servicers) with stricter guidelines on how and when to notice homeowners of the outcome of their Home Affordable Modification Program (HAMP) applications. According to this supplimental directive, all Borrower Notices to homeowners must be mailed no later than 10 business days following the date of the servicer’s determination that a Trial Period Plan or official HAMP modification will not be offered. Borrower Notices may be sent electronically only if the borrower has previously agreed to exchange correspondence relating to the modification with the Servicer electronically. This is with the exception of the Notice of Incomplete Information.
The Treastury instructed that the content of the Borrower Notices can vary depending on the information intended to be conveyed or the determination made by the servicer but all Borrower Notices must be written in clear, non-technical language, with acronyms and industry terms such as “NPV” explained in a manner that is easily understandable. The explanation(s) should relate to one or more of the Not Approved/Not Accepted reasons.
This guideline is effective January 1, 2010; however, Treasury encouraged servicers to implement this guidance as soon as possible. Treasury has selected Freddie Mac to serve as its compliance agent (the watch dog) for this directive.
Many homeowners do not realize that they can apply for loan modification themselves without paying thoudsands of dollars to others – many are scams. The process is simple, straight forwards and the government has set it out so that it is fair and easy for homeowners. Debt Zero Programs at http://d0p.org is the most up to date, comprehensive and FREE information source on the internet for homeowners about the government programs.
For a complete DIY loan modification package, click here.
If you want to start a loan modification business to help others, click here.
Hardship affidavit required for permanent loan modification
In the Home Affordable Loan Modification Program (HAMP), in order to convert from a trial modification to permanent loan modification, homeowners are required to put their paperwork in order. One of the form in the mortgage reduction package is the hardship affidavit. It requires homeowners to confirm several of the following items:
- My income has been reduced or lost. For example: unemployment, underemployment, reduced job hours, reduced pay, or a decline in self-employed business earnings. I have provided details below under “Explanation.”
- My household financial circumstances have changed. For example: death in family, serious or chronic illness, permanent or short-term disability, increased family responsibilities (adoption or birth of a child, taking care of elderly relatives or other family members). I have provided details below under “Explanation.”
- My expenses have increased. For example: monthly mortgage payment has increased or will increase, high medical and health-care costs, uninsured losses (such as those due to fires or natural disasters), unexpectedly high utility bills, increased real property taxes. I have provided details below under “Explanation.”
- My cash reserves are insufficient to maintain the payment on my mortgage loan and cover basic living expenses at the same time. Cash reserves include assets such as cash, savings, money market funds, marketable stocks or bonds (excluding retirement accounts). Cash reserves do not include assets that serve as an emergency fund (generally equal to three times my monthly debt payments). I have provided details below under “Explanation.”
- My monthly debt payments are excessive, and I am overextended with my creditors. I may have used credit cards, home equity loans or other credit to make my monthly mortgage payments. I have provided details below under “Explanation.”
- There are other reasons I/we cannot make our mortgage payments. I have provided details below under “Explanation.”
The full official form is as shown here, although some servicer (bank) may modify it a little bit with their own logo and template. The substance should remain the same though.
Many homeowners do not realize that they can apply for loan modification themselves without paying thoudsands of dollars to others – many are scams. The process is simple, straight forwards and the government has set it out so that it is fair and easy for homeowners. Debt Zero Programs at http://d0p.org is the most up to date, comprehensive and FREE information source on the internet for homeowners about the government programs.
For a complete DIY loan modification package, click here.
If you want to start a loan modification business to help others, click here.
How to improve your chance of getting permanent loan modification
While the government is touting a success for the Home Affordable Program, homeowners are far from being relieved. Data showed that out of the half of million homes went into the trial period of the Home Affordable Loan Modification program, only few thousands have been converted into permanent modification. Homeowners are supposed to get all the paperwork in place during the trial period, ready for the conversion. Some argues that many homeowners are not aware of all the paperwork that is required during this stage for conversion. Other argues that servicers are to blame, citing homeowners’ complaints of having to fax in paper work multiple times. The government now has reduced the paperwork requirement and provide 2 month extension to the 3 month trial period to allow homeowners and servicers to get the paperwork in place. The number will be coming out soon to see if this effort from the government is helping in producing more permanent loan modification.
Another piece of missing data is how many homeowners are not even aware of the government helping programs. Many large banks handle the Home Affordable Program applicants through the phone only, leaving their own staff at physical branches entirely inadequately trained to help customers on the topic. So if homeowners were wondering into a branch asking for the information, chances are they will be turned away because they are not qualified for the traditional loan criteria. If by shear luck, the person is given a phone number to call, they will have to be settled with hours on the call, listening to automated options and being transferred 4 or 5 times between one place to another, just to get the basic information about the program.
Are you still wondering why it is so difficult to get loan modification? Clearly the banks, especially the major banks, are not doing enough to help homeowners. There are research that indicated that servicers will make more money in a foreclosure than by helping homeowners through the Loan Modification Program. The $1000 government incentive for Servicer is clearly not enough.
So how can you improve your chance for loan modification? Do your own research, understand how your bank operates and be prepared before you approach the bank. Debt Zero Programs at http://d0p.org is the most up to date, comprehensive and FREE information source on the internet on government programs for loan modification, affordable refinance and other government help for debt reduction. You don’t need to pay thousands of dollars to get help. You don’t have to do it alone either. The help is here and FREE.
For a complete DIY loan modification package, click here.
If you want to start a loan modification business to help others, click here.
How to qualify your income for loan modification under HAMP?
This article explains the government guideline for various documentations that you can use as evidence for your income. The idea is to prove your income to qualify for loan modification under Home Affordable Modification Program (HAMP).
If you are employed:
- A signed copy of the most recently filed federal income tax return, including all schedules and forms, if available,
- A signed IRS Form 4506-T (Request for Transcript of Tax Return), and
- Copies of the two most recent paystubs indicating year-to-date earnings.
- For additional income such as bonuses, commissions, fees, housing allowances, tips and overtime, a bank (the servicer) must obtain a letter from the employer or other reliable third-party documentation indicating that the income will in all probability continue.
If you are self-employed:
- A signed copy of the most recent federal income tax return, including all schedules and forms, if available,
- A signed IRS Form 4506-T (Request for Transcript of Tax Return), and
- The most recent quarterly or year-to-date profit and loss statement for each self-employed you.
- Other reliable third-party documentation you voluntarily provides.
If you are both a salaried and self-employed, if you does not provide a signed copy of the most recently filed federal income tax return, or if the Compliance Agent so requires, the bank (the servicer) must submit the Form 4506-T to the IRS to request a transcript of the return.
If you elect to use alimony or child support income to qualify, acceptable documentation includes:
- Photocopies of the divorce decree, separation agreement, or other type of legal written agreement or court decree that provides for the payment of alimony or child support and states the amount of the award and the period of time over which it will be received. bank (the servicer)s must determine that the income will continue for at least three years.
- Documents supplying reasonably reliable evidence of full, regular and timely payments, such as deposit slips, bank statements or signed federal income tax returns.
If you has other income such as social security, disability or death benefits, or a pension:
- Acceptable documentation includes letters, exhibits, a disability policy or benefits statement from the provider that states the amount, frequency, and duration of the benefit. The bank (the servicer) must determine that the income will continue for at least three years.
- The bank (the servicer) must obtain copies of signed federal income tax returns, IRS W-2 forms, or copies of the two most recent bank statements.
If you receives public assistance or collects unemployment:
- Acceptable documentation includes letters, exhibits or a benefits statement from the provider that states the amount, frequency, and duration of the benefit. The bank (the servicer) must determine that the income will continue for at least nine months.
If you has rental income, acceptable documentation includes:
- Copies of all pages from you’s most recent two years of signed federal income tax returns and Schedule E – Supplemental Income and Loss. The monthly net rental income to be calculated for HAMP purposes equals 75 percent of the gross rent, with the remaining 25 percent considered vacancy loss and maintenance expense.
For a complete DIY loan modification package, click here.
If you want to start a loan modification business to help others, click here.
How to calculate DTI ratio requirement for loan modification under HAMP
One of the criteria for loan modification under HAMP program is a debt to income ratio (DTI) of greater than 31%. Note that there are two separate DTI calculations. One at the beginning of the process to provisionally determine your eligibility for loan modification. This is called the front-end DIT. During the trial period, banks are required to do another verified calculation that is referred to as the back-end DIT.
Generally, the front-end ratio is the ratio of PITIA to monthly gross income. PITIA includes principal, interest, property taxes, all property-related insurance (hazard, flood, earthquake, etc.) and any required homeowners’ association dues or similar assessments which could create a lien on the property, but excludes mortgage insurance premiums.
With respect to adjustable rate loans where there is a rate reset scheduled within 120 days after the date of the evaluation (a “Reset ARM”), the monthly mortgage payment used to determine eligibility will be the greater of (i) the borrower’s current scheduled monthly mortgage payment or (ii) a fully amortizing monthly mortgage payment based on the note reset rate using the index value as of the date of the evaluation (the “Reset Interest Rate”). With respect to adjustable rate loans that reset more than 120 days after the date of the evaluation, the borrower’s current scheduled monthly mortgage payment will be used to determine eligibility.
Monthly gross income is the total of the borrower’s and all co-borrowers’ income before any payroll deductions, including base pay, commissions, fees, tips, bonuses, housing allowances, and any other compensation. Alimony and child support are considered only if the borrower chooses to include such income. In some cases, non-borrower household income can be included, at the borrower’s discretion, if said income can be supported by documentation that it has and will continue to be relied upon to support the mortgage payment. If a borrower is relying on income from an individual that is not a co-borrower, they may request, but are not required, to have that individual added to the note as a co-borrower.
All borrowers will be required to provide a signed Form 4506 T (Request for Transcript of Tax Return) and a signed copy of their most recent tax return if it is available. If the borrower filed his or her taxes electronically, an unsigned copy and evidence of electronic filing will be accepted. Income for wage earners will be verified by the two most-recent pay stubs. For self-employed borrowers, or for those with non-wage income, the borrower’s income must be verified by third party documents providing reasonably reliable evidence. The income documentation may not be more than 90 days old.
A high total DTI (back-end) ratio will not prohibit a borrower from getting a modification. However, as a condition of the modification, borrowers whose back-end ratio equals or exceeds 55 percent must agree to participate in a housing counseling program to help them create a sustainable financial plan. The back-end ratio is described in detail in Supplemental Directive 09-01. Generally, it is the ratio of the borrower’s total monthly debt payments (such as PITIA, mortgage insurance premiums, junior or secondary lien payments, and payments on other debts, i.e. credit cards, auto and student loans) to the borrower’s gross monthly income.
For a complete DIY loan modification package, click here.
If you want to start a loan modification business to help others, click here.
Review your mortgage statements for loan modification
Many homeowners do not understand how to read their mortgage statements. Even through out the loan modification process, they don’t fully understand what they are being offered by the bank. For example, many people do not realize that when they receive an offer of principal forebearance, it means they will still have to pay back this amount as a balloon payment at the end of their mortgage term. They mistakely assumed that principal forebearance is the same as principal forgiveness. This article provides a basic guide for how you can read your mortgage statement:
Mortgage statements come in many different forms. However, most contain similar terms and information. Here are some commonly used terms and their definitions that may help you better understand your mortgage statement:
Adjustable-Rate Mortgage (ARM) — a mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the loan. These types of loans usually start off with a lower interest rate but can subject the borrower to payment uncertainty.
Amortization — the process of paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero.
Balloon Mortgage — a mortgage loan that requires a large payment due upon maturity (for example , at the end of ten years). A principal forebearance from a loan modification offer will lead to a balloon mortgage payment.
Collections — the efforts a lender takes to collect past due payments.
Convertible ARM — is an Adjustable Rate Mortgage loan that can be converted into a fixed-rate mortgage during a certain time period.
Deed — a legal document under which ownership of a property is conveyed.
Deferred Payments —loan payments that are authorized to be postponed as part of a workout process to avoid foreclosure.
Delinquency — failure to make a payment when it is due. A loan is generally considered delinquent when it is 30 or more days past due.
Equity — ownership interest in a property after liabilities are deducted.
Escrow Account —an account where a homeowner’s regular installments to cover taxes and home insurance are held in trust until due.
Escrow Analysis — a periodic review of escrow accounts to make sure that there are sufficient funds to pay the taxes and insurance on a home when they are due.
Fixed-Rate Mortgage — a mortgage loan with a fixed interest rate that remains the same for the life of the loan.
Forbearance — the lender’s postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.
Foreclosure — the legal process by which a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.
Foreclosure Prevention — steps by which the servicer works with the borrower to find a permanent solution to resolve an existing or impending loan delinquency.
Hazard Insurance — insurance that is generally required under mortgage contracts to pay for loss or damage to a person’s home or property.
Home Equity Line of Credit — a way of borrowing money against the equity in one’s home to pay for things such as home repairs, college education, or other personal uses.
Interest-Only Mortgage — a mortgage where the borrower pays only the interest and none of the outstanding principal balance on a loan for a specified amount of time.
Investment Property — a property not considered to be a primary residence that is purchased in order to generate income, profit from appreciation, or take advantage of certain tax benefits.
Lender Placed Insurance — insurance placed on a home or property by a lender to protect their interest in the collateral which secures the loan.
Mortgage Insurance — insurance that protects lenders against losses caused by a borrower’s default on a mortgage loan. Mortgage insurance (or MI) typically is required if the borrower’s down payment is less than 20% of the purchase price.
Mortgage — a legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.
Refinance — the process of replacing an existing mortgage with a new one by paying off the existing debt with a new, loan under different terms.
Repayment Plan — a borrower promises to pay down past due amounts on a mortgage while continuing to make regular monthly payments on a home.
Servicer — a firm that works on behalf of the lender in support of a mortgage, including collecting mortgage payments, ensuring payment of taxes and insurance, managing escrow accounts, managing communications with the borrower, and loss mitigation or foreclosure when necessary.
Title — the documented evidence that a person or organization has ownership of real property.
Work Out — a way to resolve or restructure a loan to prevent someone from going into foreclosure through a loan modification, forbearance or short sale.
For a complete DIY loan modification package, click here.
If you want to start a loan modification business to help others, click here.
$5000 government incentive for homeowner who modified their loan under HAMP
Homeowners who get their mortgage modified under HAMP will benefit from the reduction in interest rate or monthly repayment. In addition, they are also given a $5000 incentive by the government. This incentive guideline is as follows:
Borrowers are eligible to receive a Pay-for-Performance Success Payment that goes straight towards reducing the principal balance on the mortgage loan as long as the borrower is current on his or her monthly payments. Borrowers can receive up to $1,000 of Pay-for-Performance Success Payments each year for up to five years.
What about servicers (banks) who modified the loans? They also get a good share of incentives:
Servicers will receive an up-front Servicer Incentive Payment of $1,000 for each eligible modification meeting guidelines established under this initiative. Servicers will also receive Pay for Success payments –as long as the borrower stays in the program – of up to $1,000 each year for up to three years.
In addition, one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers will be provided for modifications made while a borrower is still current on mortgage payments.
For a complete DIY loan modification package, click here.
If you want to help others by starting a loan modification business, click here.
HAMP waterfall – loan modification steps
You may have heard of the term “waterfall” in the Home Affordable Modification Program (HAMP). It describes the stacking orders that the mortgage servicer take to modify eligible loans to reach the target 31% of debt repayment to income ratio.
Here are the steps, taking in order, until the 31% target is reached:
- Capitalize accrued interest and other eligible expenses to determine the modified loan amount.
- Reduce the interest rate to reach the 31% target housing debt-to-income ratio in increments of 0.125%. There is a minimum interest rate of 2%.
- If the 31% target housing ratio has not been reached, extend the term of the loan up to a maximum of 40 years.
- If the 31% target housing ratio has not been reached, then reduce the principal through an agreement between the borrower and the servicer. This forbearance agreement would require that the amount of principal reduction be set as a balloon payment at the end of the loan term or when the loan is otherwise paid off.
A more detailed description of the waterfall process is provided in our Waterfall modification page.
For a complete DIY loan modification package, click here.
If you want to help others by starting a loan modification business, click here.
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