Are you looking for a mortgage loan modification? Are you curious as to why certain people get approved for a loan modification and others do not? Are you fed up with banks and mortgage servicers that are completely unresponsive?
Call for a free telephone consultation to evaluate your loan and see if our services are right for you
Mortgage loan modifications
The Law Offices of Francisco Cieza, P.A., works diligently to obtain a loan modification that is right for you. Banks offer loan modifications to qualifying borrowers when it is in their best interest to modify the borrower’s loan. To simplify things quite a bit, if a bank or mortgage servicer knows that a borrower is financially able to pay his/her monthly mortgage payment on time, and the borrower is current with his/her monthly mortgage payments, it is very rare that a loan modification will be afforded to the borrower. A bank or mortgage servicer starts to consider loan modification options when it feels that the borrower can no longer continue making the monthly mortgage payment and the borrower has either defaulted or is about to default on the loan. Banks and mortgage servicers then begin to ask for numerous documents reflecting the borrower’s income, debts, and liabilities in order to begin evaluating the borrower for a loan modification. The bank or mortgage servicer also takes numerous other factors into consideration when considering applicants. Some of these factors include real estate property values near the borrower’s home, the fair market value of the home, the current unpaid principal balance on the loan, the purchase value of nearby homes that have been sold at foreclosure auctions, the estimated amount the home will sell for at a foreclosure auction, etc…
At a foreclosure auction, the lender is entitled to the proceeds derived from the sale of the home up to the amount that is owed by the borrower. For example, if the borrower owes the lender $45,000 on a home that is presently worth $150,000, and the home sells at a foreclosure auction for $90,000, the lender would be entitled to the $45,000 that is still owed to it and the borrower would be entitled to the remaining $45,000. However, in todays upside down real estate market, many homeowners owe the banks more money than what their homes are presently worth. For example, if a homeowner owes the lender $200,000 and the home is presently valued at $80,000, then that home is underwater by $120,000.
A lender would be much more inclined to foreclose on a home that is not underwater because it could potentially be paid in full from the proceeds derived at a foreclosure auction sale. On the other hand, if the home is underwater, the proceeds from a foreclosure auction sale may be significantly less than what is owed to the lender. In such a case, the lender is entitled to sue the borrower for the remaining difference and obtain what is called a deficiency judgment. Lenders know however, that most borrowers don’t have that kind of money lying around and a deficiency judgment may be of little use to them, especially when a borrower has the option to file for bankruptcy and potentially eliminate the judgment and the remaining balance owed to the lender.
Although foreclosing on an upside down home may not seem profitable to a lender, if the lender, after gathering all of the borrower’s financial documentation, calculates that the borrower cannot make a monthly mortgage payment sufficient to prove profitable to the lender, then the lender will opt to foreclose on the home and seek a deficiency judgment against the borrower for the remaining balance. Although the lender may receive less than what is owed by the borrower at a foreclosure auction sale, the lender will be entitled to a large, lump sum of money all at once while reserving the right to sue the borrower for the difference. Also, many lenders purchase the very same homes they foreclose on and later try to sell them at a higher value. To sum up, based on numerous calculations and estimations, the lender will negotiate a loan modification only when it proves to be more profitable than selling the home at a foreclosure auction sale.
In February 2009, the Obama Administration announced the Making Home Affordable Program. One of the Making Home Affordable Program components is called the Home Affordable Modification Program, commonly referred to as HAMP. The HAMP program covers loans held or insured by Fannie Mae, Freddie Mac, FHA, VA, and privately securitized mortgages. Many servicers also voluntarily participate in the program. A HAMP modified loan has the objective of formulating a monthly mortgage payment that is equal to or below 31% of the borrower’s monthly gross income.
To be eligible for a HAMP loan the borrower must meet numerous eligibility requirements:
- the borrower must have an unpaid principal balance on his/her first lien mortgage equal to or less than $729,750.
- The borrower’s monthly mortgage payment, before modification, must be greater than 31% of the borrower’s monthly gross income.
- The loan must be a first lien mortgage originated on or before January 1, 2009.
- The loan must be secured by a one-to-four unit property which is the borrower’s principal residence.
- The property securing the loan may not be vacant or condemned.
- The loan must not have been previously modified by HAMP.
The most important factor in determining whether the borrower will qualify for a HAMP modification comes down to the lender’s NPV (Net Present Value) test. The NPV test compares the net present value of the money the bank or servicer would receive if the loan were modified with what would be received if no modification were made and the home sold at a foreclosure auction sale. The factors used to determine the outcome of the NPV test are similar to those described in the previous section above (e.g. Income documentation, bank statements, foreclosure homes sold in the vicinity of the property, estimated foreclosure value, fair market value of the home, unpaid principal balance, etc.)
If the bank or servicer calculates that it will receive a greater return by modifying the mortgage, then the modification is considered to be NPV positive. If on the other hand the bank or servicer calculates that it is more profitable to not modify the loan, then the loan is considered to be NPV negative. Under the HAMP guidelines, if a bank or servicer determines that a loan is NPV positive, then it is required to modify the mortgage.
At the Law Offices of Francisco Cieza, P.A., we fight to make the most compelling argument for the borrower and submit the best possible application in order to increase the possibility of obtaining a permanent loan modification. We understand the complex calculations used to determine borrower eligibility for both HAMP loan modifications and traditional in-house mortgage loan modifications. Although we can offer no guarantee that your loan will be modified, we can make the most compelling argument possible for you and exhaust every last resource in search of approval. Furthermore, we can structure a plan of action that will minimize the risk associated with the possibility of a loan modification rejection. If you are currently in foreclosure, a solid foreclosure defense can persuade the bank or servicer to modify your loan in order to avoid the costs associated with prolonged litigation and many times ends up being the determining factor in helping a borrower obtain a permanent loan modification (see my foreclosure page for more information on this). Call for a free consultation in order to have your case evaluated and to see if our services are right for you.