What does it take to qualify for a loan modification with the mortgage Co.?

The harsh reality is that many mortgage companies (mortgage lenders) don’t offer loan modifications. So, it’s not a matter of qualifying for one. You can’t because they’re not available. But they really don’t want to tell you that because it makes them look bad and it goes against the grain of consumer opinion in the country right now, which is very much in favor of helping people who find themselves in danger of being foreclosed on. So, they’ll let you think they’re considering it, if you ask, but in reality they will never get serious about it for several reasons. One is that if it’s a federally insured loan they can collect on the insurance to reimburse any loss they might experience upon foreclosure. The insurance won’t reimburse 100% of the loss normally, but enough to make that the option of choice for them in many cases. However, that’s only if it’s an insured loan, such as an FHA loan. Many loans are not insured.

 In the case of an uninsured loan, they may be more motivated to consider a loan modification, but in the long run, modifications represent a sustained loss (such as deferred payments, or an interest rate reduction, or an extension of the loan term, or some combination of those), which is a loss that is taken in small increments over a long period of time. Banks don’t like to do that. A time-honored banking practice is to identify your losses and take them now, then move on. So, a sustained loss is a very unattractive prospect to a bank. They would rather identify their loss now, foreclose and take it, write it off, and move on.

However, there is a glimmer of hope for those facing foreclosure. The Federal Government, as part of the Troubled Asset Relief Program (TARP) has identified states “Hardest Hit” by the recession and housing crisis (I’m not sure what Obama plan you’re referring to above but the “Hardest Hit” program is new). Those states have been recipients of federal funds to help homeowners facing foreclosure. For a list of those states go to Financialstability.gov then click on Road To Stability then click on Hardest Hit Fund. You will find the names of 18 states plus Washington DC that have been identified as “Hardest Hit” and the amount allocated to each state to help homeowners. Individual state programs are being developed to use this money in different ways. One possible use of this money would be to motivate lenders to modify the terms of mortgages for people facing foreclosure. So, now, a qualified applicant (if you live in a “Hardest Hit” state you would have to apply for assistance) could have their state government contact their lender and negotiate a loan modification. Mortgage lenders would be much more likely to respond positively to a state intervention than to an individual consumer mortgagor. The qualifications would be that you are unemployed, or that you are several months behind on your mortgage payments, or that you have received a notice of foreclosure or demand from your lender, or some combination of those or similar qualifications (each state will decide what the qualifications will be). This is a relatively new program (late 2010 early 2011) so there is still time to apply for relief, but you need to move fast because the competition for these funds will be fierce.

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