Your Questions About Home Loan Modification

Donna asks…

Loan modification or refinancing?

I purchased my first home oct 2009 via FHA loan. I locked in at 5.25%. The interest rates are dropping. I would like to refi or request a loan modification. This is my concern. I did some minor work inside of the home. I did not get a “permit” since this was minor. I pretty much put up a wall using dry wall to create some storage in the basement. I know a loan modification and refi both require an inspection. Would my “wall” create an issue? Any advice or comments would be great! Thank you!

John answers:

FHA appraisers look for obvious safety issues. As long as you built the wall properly it will not be a problem.

Rates would have to drop much lower before refinancing would make sense for you. The cost of monthly PMI for 30 year FHA loans has increased from .55% to 90% since you purchased your home and that would offset much of the savings from the lower rate. With a $150K loan your total payment is reduced by less than $25 which would probably take 8-10 years to just to break even on closing costs.

John asks…

Home Modification Loan?

I am currently in a loan modification process, but I need to buy a car very badly. Should I buy the car? Please give me advice.
I’m in the final steps of my HAMP. I am currently signing the final agreement.

John answers:

There are two potential problems. First, if you are modifying your mortgage, this will have a negative impact on your credit score and you could be required to pay higher rates or put more money down. Second, depending on where you are in the HAMP process, your debt ratio will have to be able to handle the added expense. If you are within the 6 month trial period, you could still jeopardize your mod. They will re-run your credit prior to issuing the final agreement.

Betty asks…

Question about home loan modification?

Here is my situation,
Was layed off in November, the company went belly up. I am in a area where unemployment is 10% plus, it is difficult to get a job. I also own a home that is 40k upsidedown with a 9.5% apr. been in our home for 6 year, reason being for the high apr loan was a 55 dollar utility payment went to collections in college that was a missight nice. Now have excellent credit.
right now we have 1 car loan with 4k left on it, about 10k in credit card debt “had none a year ago” those all have good fixed apr. We also have 20k in CDs that don’t mature in 3 years, 3k in savings, 10k mutual 22k! Money is getting tight and the savings account is dwling at a huge pase was at 12k a year ago. My wife got cut to PT at the bank she works at to make matters worse. I called the bank ‘countrywide now BOA’ to talk to them about refinance will not work ‘upside down’ I asked about this modification, they looked at my account and said looks like you are not late and never was. This will be hard to do a modification if you are not late or in foreclosure. There are going to have another department call next week go over more of my situation, lady was doubtful but is going to try. I am not about getting had outs but i am preparing for the worse. We both work very hard, live in our means I do hear of these people who have everything they are getting modification. Anyone have any luck getting a modification?

John answers:

Can ask for forbearance. . . .paying only interest or nothing or partial payment for 3 months, without penalty. Nothing forgiven.
Bank is unlikely to do loan modification without one of you being gainfully employed, and that’s not the case. They would go to time and expense without assurance of a return.
However, persevere, call them, talk to many people at lender, to supervisors. Loan modification would ONLY reduce your interest, and do nothing about the negative equity.
Also check out the government programs out there, they keep talking of one to forgive part of equity for those upside down.

Steven asks…

Loan Modification Help..?

I am interested in finding out more info on the home modification program. I am currently 5 months pregnant and at my job my pay was just cut almost in half. My husband is working but his job( been there 5 years) gave him 2 months to get his GED and if he didn’t pass they are gonna fire him by Dec 31st. His results came in the mail Wed and unfortunately, he didn’t pass. There aren’t any more test offered this month so that is pretty much a done deal. I am pretty sure that my husband will lose his job and my hrs were already cut. Can I go ahead and do the modification now? I only have four more months before I have this baby and I don’t want to wait until I am not working because I know that this is a long process..

John answers:

It’s going to be difficult without an income. You might want to stop trying to go it alone and talk to some professionals. Talk to lots of loan mod companies and attorneys. Don’t stop with just one. Ask lots of questions and you’ll get lots of free, useful information. Some will try to pressure you to go with them but just ignore it. Start now! Don’t think that the bank has your best interests in mind. They’re trying to squeeze every last dollar out of you.

Consider calling HUD at (800) 569-4287 and take advantage of their free financial counseling services. Another good place to start is the website the Federal Government set up to educate homeowners about the loan modification process. See

Your goal is to learn as much as you can about the process before you contact your lender so you will be prepared and able to meet their guidelines. Take the time to do your homework and your time and effort will be well spent. Thousands of homeowners have gotten the mortgage loan modification help they needed, you can too!

Homeowners don’t need to pay a company to obtain a loan modification. However, sometimes it can be better to have someone, such as a lawyer or credit counselor, negotiate on your behalf. A good strategy is to talk to as many experts as you can prior to contacting your bank. Many of these services will give you a free consultation.

A good site I used to begin the education process can be found at where I entered some details about my current mortgage and the company got back to me multiple loan modification proposals.

Mark asks…

I need Loan Modification Help and Advice?

Hello – My husband and I applied for a Loan Modification in May. Supplying paperwork, bills, pay stubs all along the way. We recently (6 months later) found out that we were denied for the HEMP Program. So,they are looking into other options, in house modifications. After kicking and screaming, they are reconsidering us for HEMP (or Hamp?) but most likely will be denied again. Here is my situation, I make $56,000 a year, we owe $198,000 on our mortgage. My husband is a union carpenter, he made out really well when we first moved here and even when work is steady. However, within the last year work for him has been completely dead (due to the economy) and he is getting by on unemployment which isn’t much. We aren’t compulsive spenders, our mortgage and utilities are priority. But we are just about making it now. We were denied because we are told we aren’t terminly ill, divorced or dead. But I always get a different story when I call. Now I’m being told my husband’s unemployment doesn’t count as income and they are just going off of mine. Well, dugh, wouldn’t we be approved then? Even with his unemployment! They keep telling me to send them paystubs and bank statements (not much in the bank either). I guess what I’m getting at is what exactly do you need to be considered for this? If two people are steadily working and making good money, they are the ones that get a modification? I would assume they do modifications to avoid forclosure (in which they loose out also). So what am I doing wrong here, am I missing something? Can someone who has been through this shed some light? Thanks in advance!
Thank you for your response! We are not late on our mortgage (and this only because we are using everything we have to pay it). Putting other bills on hold or paying them late. I’m afraid if we default, our credit will be ruined or we will go into foreclousure. And how do you catch up when you are behind on a payment. Also, my husband works a week here and there. Would they still consider us based on his portion of the income? With or without unemployment? Thanks.
Our mortgage is through PHH.

John answers:

The HAMP(Home Affordable Modification Program) was put in place by the Federal Government to try to help keep some people in their homes. Here is how it works:

If you qualify for the Making Home Affordable plan it will lower your mortgage payment to 31% of your gross income. You must show a financial hardship to qualify. If you are current on your mortgage it is harder to qualify. With your husband being unemployed, you do show a hardship, but it is considered temporary. This can cause a denial if you are current.

To lower the payment the bank has several options. First, they will lower the interest rate, it can be taken down to 2% but it is a step rate. After five years it will start increasing by 1% per year each year until it gets to the current market rate.

Depending on the investor that owns your loan, they may consider extending your term out to a maximum of 40 years. Some investors do not allow term extensions, so they will amortize the loan out to 40 years but keep the same maturity date. This results in a balloon payment due on the maturity date.

The last step considered is a principal deferment. Part of the principal is deferred, with no interest being charged. Again, this results in a balloon payment being due upon maturity.

If you sell or refinance at any time, the entire amount, including any deferments, are due in full.

With this program, you can earn $1000 per year for the first five years as a principal reduction, if you stay current.

This is a good program if you qualify. You will have to complete a 3 month trial at the new payment amount before the modification becomes permanent.

The Treasury Department sets the rules for this program. They did allow unemployment to be used as income at the beginning of the program but the rules changed and it is no longer considered.

As with any modification program, you must be able to afford the new payment. If after the mod, using all the steps available in the waterfall, e.g. Lower interest rate, extended terms, the payment is still too high, then the mod will be denied.

With more information such as are you current or behind, who is your investor, and who is your servicer, I might be able to help more.

PHH is your servicer, but they may not actually own your loan. Do you have a conventional loan? You should find out who is the investor.

If your husband is working, even sporadically, that can be used as income. They will probably use his year to date and average it as a monthly amount.

You are correct to worry about getting behind, if you do not qualify for a mod you will be responsible for catching up on your own. The only problem with that is it is harder to qualify for a mod if you are current. The reasoning is if you are making the payment you can continue to make them. Also, as I stated in my first response, unemployment is considered a temporary hardship.

Maybe your husband could find full-time employment, even if it is out of his field and at a lower rate of pay, just to help you get qualified.

There are several non-profit counseling services that might be able to help. Do not pay for this service, the companies that charge are out to take your money, not help you.

Are you underwater in your home? Do you owe more than it is now worth? If not, you may be able to qualify for a refinance, interest rates are so low this can save you hundreds monthly. Freddie Mac, one of the biggest investors, has a refinance program to help even if you are underwater. This is why you need to know who your investor is.

Good luck and I hope I have helped a bit!

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