HAMP stands for Home Affordable Mortgage Program, and is a government backed program. The aim of the program is to help those who have found themselves in financial difficulty and are facing the prospect of losing their home because they cannot afford the repayments. This program is not available to everyone, and applicants must meet a number of basic criteria before they are considered.
- Find a loan modification company. Homeowners who want to apply to the program must have consulted a loan modification company before starting the process. A simple online search can yield numerous companies who are willing to assist with being accepted on the HAMP. It is important to thoroughly research any company that may be able to help before selecting one.
- The home must pass a Net Present Value Test. This is a straightforward test which is used to determine whether the value of the modified loan will be greater than the value of the current mortgage. If the home fails this test then the mortgage lender is not required to modify the loan.
- The homeowner must meet the eligibility criteria. Examples of requirements include: proof of financial hardship, a mortgage payment that equals more than 31% of a homeowners income, a mortgage that was agreed before 2009, the house must be owner occupied with no more than 4 units, and the principle balance must not exceed $729,750.
It is also essential that the homeowner realises that a HAMP modification will have repercussions. Until the application is approved, foreclosure proceedings will not be stopped. If the homeowner is approved, they will enter into a 3 month trial period for the modified mortgage, which means payments must be made on time and in full. The homeowner’s credit score may also be affected.
The media is full of optimism about the economy being on the route to recovery but it is important to look at the fact that despite employment being up and more money going in to the economy, the effects of the downturn are still be felt across the country. Almost everyone has been affected negatively by the struggling economy, and the majority are homeowners. When the economy was strong, people were being allowed to borrow a lot more than they should have been, and now the value of their property has decreased significantly. There are also homeowners who were convinced to accept an adjustable rate mortgage, which has meant their payments have risen as the interest rates rocket. For people in these situations, there are a few things that can be done:
- Get in touch with the lender – the mortgage company would rather not force people out of their homes, so it is essential to get in contact with them at the first sign of trouble. The worst thing to do is to ignore the problem or the lender, as they may in fact be able to provide help, such as a HAMP modification. At this stage it is worth contacting a loan modification company or attorney to assist with this process.
- Be proactive & stay positive – remember that this situation will not improve unless you are motivated and prepared for major changes. Self-help solutions include creating a budget and reducing unnecessary expenses.
- Organisation & preparation is mandatory – find out what documentation will be required and ensure you have it close to hand. Gathering and keeping records of documents and communications with the lender will make things easier when you are asked to produce paperwork to support your application. Proofread everything before submitting.
Although it may seem that only a very small number of homeowners receive approval for a loan modification, it is thought that many applications are rejected because of simple small errors. These mistakes, if noticed early could have been easily corrected. Employing the services of a loan modification attorney or a loan modification company can help to minimise these errors and ensure an application is completed accurately.
Here are 4 tips to increase the chance of approval:
- Be thorough. This may seem obvious, but it is amazing how little errors can be missed. Ensure you familiarise yourself with the process before you proceed. Make sure all required documentation is present and accurate. Proof read forms to catch blank spaces or incorrect answers. Be aware of deadlines and stick to them.
- Perfect the hardship letter. Cover all the required areas as thoroughly as possible. Research what to include and explain the situation in as much detail as possible. Proofread to ensure it is well written and grammatically correct. A well-produced and concise hardship letter could be the difference between approval or rejection, so getting it right is important!
- Know your credit score. Find out about credit scoring and how to improve or maintain it. It is necessary to maintain a good credit score throughout the process, otherwise it may make the lender think you are unreliable and they may be more inclined to reject your application.
- Keep records. Document everything you do towards preparing your loan application. Keep copies of important documents, and make a list of those required for the modification application. Record who you have contacted regarding the process and any information you received from them. Ensure you know who is responsible with what.
Whilst being approved for a loan modification will relieve some of the stress and pressure on the homeowner, it is by no means the end of the road. During the first few months, payments must be made in full and on time, as the arrangement is still considered temporary until the homeowner has proven they will be able to afford the new repayments. However, the struggle and worry of going through the loan modification process may all be for nothing if the homeowner does not make some changes to their habits and lifestyle in order to keep their repayments on track. Here are some suggestions on improving finances so everything stays on track:
- Make a budget – and stick to it! As a loan modification is a second chance to keep a home, then it is the perfect time to make some changes that will avoid this situation arising again. Think carefully about what must be paid each week/month and ensure this will be covered, as well as saving a little to keep towards emergencies. Sticking to a budget will make things easier in the long term.
- Credit scoring counts – In some cases the homeowner’s credit score may be negatively impacted by the loan modification. It is important that the home owner then takes steps to check their credit score and research how they can improve it.
- Cut out non-essentials – Many of the things we are paying for each month are not essential for us to live our lives. Asses any unnecessary spending and try and find ways to cut it out or reduce it.
- Earn more money – Get creative and find new ways to earn more money. This doesn’t have to mean a second job, there are opportunities out there for those that look!
Financial trouble, in particular mortgage trouble, is unfortunately becoming an increasingly prevalent concern for many homeowners in the United States. There are varying states of mortgage trouble, ranging from being current but facing a steep increase in interest rates, being behind with a month or couple of month’s repayments, or being threatened with foreclosure by the lending company and potentially losing the home. By approaching a loan modification attorney or a company that specialises in loan modification, it may be possible for the homeowner to enter into a financial agreement that is more affordable for them. This will give the homeowner the opportunity to work on their financial situation and hopefully lead to them remaining in their home whilst being able to make payments regularly.
A loan modification may alleviate some of the problems a homeowner faces, but it will not solve everything and make the problem disappear. It may be useful for the homeowner to see a loan modification attorney to examine how they found themselves in this situation in the first place.
Questions to consider:
- Am I living in a home which is more than I can afford?
- Am I spending too much on non-essential items?
- Can I live a little more frugally to benefit myself in the future?
- Do I have other financial commitments that are causing issues?
- If so, can I reduce or re-evaluate these commitments and determine if they are necessary?
When considering applying for a loan modification, it is important to take a step back and look at the bigger financial picture. Think about the reasons that have caused you to require a loan modification. Often, lifestyle changes will be needed along with financial ones in order for the homeowner to recover from this situation.
A hardship letter plays a pivotal role in the loan modification process, and there are a number of points which are essential to include. These will be outlined below. It is also important to remember that a loan modification company or attorney will be able to provide massive assistance when preparing a hardship letter that is informative, concise and effective.
- The first step is to include information about whom the letter is directed at. State the name and address of the lender, including the department and person who will be handling the application. It is imperative that all information is spelled correctly and the information is accurate; if the letter is sent to the wrong department or person this may result in the application being delayed.
- Introduce yourself, and go on to explain the reasons you have for writing the letter. This is where it would be useful to state the purpose of the letter is to seek a loan modification.
- Explain, as accurately and in detail as possible why you feel you require a loan modification. This is your chance to include as much information as possible as to why you are having issues paying your mortgage, or why it has become a hardship. Common factors which cause a mortgage to become unaffordable are:
- Death of a spouse/partner
- Being made redundant
- Taking a pay decrease or cut
- Unexpected medical bills that have spiralled out of control
- Change of adjustable rate mortgage to lower interest rate
- Make clear to the lender how a modification will improve your situation and help you to resolve financial issues, like catching up on missed payments.
- Finally include the contact information for all parties involved in the modification application.
Many homeowners may be in a position where the size of their mortgage and repayments are a burden. Granted, it is the most expensive thing most will purchase in their lifetime. The risk of losing their home is a majorly worrying and stressful situation for any homeowner. There are a few steps homeowners considering a loan modification can take to improve their chances of being approved.
- Seek professional legal help. It is a fact that the loan modification application process is difficult, long and often confusing for those who have never experienced it before. Documents may be littered with legal jargon that the homeowner fails to understand, and they may subsequently make a mistake on their application, delaying a decision or even possibly leading to rejection altogether. This is why in the first instance, a modification attorney or company should be contacted. They understand the processes and implications of getting the application right, and will be able to assist with this, as well as answering any questions the homeowner may have. In most cases, the fee charged by the company or attorney can be included in the loan modification.
- Pay close attention to the specifics: For these types of applications, it is essential that homeowners are fastidious in their gathering and preparing of the paperwork to be submitted. They must be fully honest, and prepared for their lives to be scrutinised very closely by the lender. Meeting deadlines and comprehension of the criteria required will also go a long way to submitting a successful application.
- A hardship letter is crucial: A homeowner with a well presented hardship letter will have a better chance of being approved than one who does not take the time to prepare an appropriate one, so they are imperative.
Whilst a loan modification may seem like the ideal solution for many homeowners who are in financial difficulty, or who are in the early stages of foreclosure, there are a number of important points to consider. A loan modification is not something to be taken lightly; there are no guarantees of success, and the process can be long and complex. The more information the homeowner has may lead to them making a different decision than if they accept the first potential solution that arises.
Here are some things to consider:
- Modifications are not given freely; although all paperwork is in order and the person meets the criteria, it does not guarantee they will get the solution they want. It is thought that of those who apply, only around 10% will actually be approved for a loan modification. (Estimated value)
- It will take a lot of effort on the part of the homeowner: for those considering modification, they will have to be prepared to offer up their finances for scrutiny. There are numerous forms and documentation that need to be submitted, and this can be overwhelming and confusing. This is why it is always recommended to employ an attorney or modification company to help oversee the process.
- It can temporarily remove the threat of foreclosure: When the modification process is commenced, foreclosure proceedings can be halted temporarily, at least until a decision is made regarding the homeowners application. This reprieve can alleviate some of the pressure upon the homeowner and allow them to concentrate on improving their situation.
- Once a modification is granted, it is still only temporary for the first 3 months. The homeowner will have to make the payments in full and on time before the loan is considered permanent.
Since the beginning of the financial downturn, many homeowners have been left struggling to repay their mortgages. High levels of job losses, pay cuts and ever rising costs of living have ensured that stories of homeowners fighting foreclosure are now commonplace in the media. For many, financial uncertainty and instability can be a stressful and isolating process. It is important for those considering a loan modification to remember that they are not alone.
Loan modification companies or attorneys should be the first port of call for homeowners who are in financial difficulty. They can provide invaluable help, advice and support. People from all backgrounds and financial positions are currently contacting these companies and attorneys to help with loan modification.
Most will fall into the following categories:
- People who are at immediate risk of losing their home due to foreclosure. These are homeowners who have stopped paying their mortgage for a variety of reasons and their lender has already started the process of foreclosing their home. These people need the urgent help a loan modification company can provide.
- Those who are behind with their repayments. Often, when a homeowner find themselves a month or two behind with their payments, they are penalized with late charges and this makes it more difficult to repay the missed payments. These are the people who could potentially end up in foreclosure so would benefit from taking action now.
- Those who need lower interest rates. Many homeowners are paying a higher interest rate, often as a result of agreeing to an adjustable rate mortgage when the rates were low and are now facing steep rises in interest.
- Those who want reduced monthly repayments. Despite being current with their payments, they may be just scraping by.
For most, being faced with the possibility of losing their home is a scary prospect. Some people may have missed a few monthly payments, or they may have already received notification that their lender wishes to begin foreclosure proceedings. Whilst this is a deeply stressful time, homeowners should remember that they have options, and there is help available for those that take the initiative to find it.
Some examples of help available to homeowners:
- A loan modification: A loan modification is a program whereby the lender and the homeowner come to an agreement to change the terms of the mortgage, or begin a new mortgage altogether with reduced interest rates or lower monthly repayments.
- A loan modification company: There are many companies who specialise in assisting homeowners get approved for a loan modification. They will often work in conjunction with a loan modification attorney to ensure that the application process runs smoothly and this in turn increases the chance of the homeowner being approved. They can help with explaining the process, completing paperwork, and ensuring everything is submitted by required dates.
- The mortgage provider: Many people do not consider the option of contacting their lender for a modification. Depending on circumstances, this may not be the best option for everyone, but it is worth making the lender aware of the situation and they may be able to come up with a solution.
- Government supported programs: There are a number of approved programs to help homeowners, the most common is HAMP. This program provides incentive for lenders to approve modifications as well as supporting the homeowner to ensure they get the best help and the solution will be beneficial in the long term. It is not easy but definitely worth consideration.