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Step 1
REPAYMENT OR FORBEARANCE PLAN
A repayment plan (or forbearance) is when you and your lender agree to pay the regular monthly payment plus an additional amount over and above the payment each month in order to reduce the arrearage (past due payments) on the account. Your lender will delay any foreclosure or other legal action, but you must abide by the terms of this agreement.
How the process works
You will be pre-qualified for a special repayment/forbearance plan by your lender, and once you are approved, your plan will be monitored by the lender during the repayment period (usually one year), until the loan is brought current. In the event that your loan is transferred to another servicer, they will monitor your plan. Your repayment request typically takes 15 to 20 days to complete, but may take longer, depending on the volume of requests.
In order for your lender to consider this option, you will need to provide the following documentation for review:
• Hardship letter/explanation – this details the circumstances of why you got behind on your payments (temporary loss of income, death in the family, divorce, illness)
• Updated financial information for all parties on the loan – current income and debt analysis (to determine how much extra you can afford to pay)
• Verification of income – current pay stubs, etc
• Completed repayment agreement (once approved by lender) -
Step 2
LOAN MODIFICATION
Loan modification is the process of the lender actually changing the terms of you loan because your current situation does not allow you to meet the obligation of your current mortgage. Typically, this requires you to be delinquent at least 60-days and have a legitimate financial hardship. The new terms may include adding delinquent payments to the balance of your loan (repaid over the remaining term). Loan modifications are not available with all loan products.
The Loan Modification Process
This process is a request for the lender to change your existing loan into more manageable terms that fit into your current financial situation. The changes to your loan may include lengthening the term of the loan (i.e., 30 years to 40 years) to reduce your monthly payment, changing a high adjustable rate mortgage to a lower fixed rate loan, reducing the interest rate, or a combination of rate and term. You will first need to be pre-qualified for a loan modification program. Most lenders will not discuss a loan modification unless you are delinquent (usually 60 days) on your mortgage. Once approved, a modification agreement will be written for your signature. Your new monthly statement will reflect your new due date and modified payment amount.
To get a better example of how a loan modification works, examine the following scenario. Let’s say you took out a mortgage last year for $350,000 on an adjustable rate loan that has now gone from the start rate of 6% to your new interest rate of 8%. Your monthly payment has gone from $2,098 to $2,568. An adjustable rate increase may not be sufficient to request a loan modification, but let’s say your co-borrower (who was also on the loan) lost their job and no longer had income to help make the payment. Rather than losing your
home to foreclosure, you could request a loan modification – based on your current income and expenses– to help you.
You would contact your lender (if you are behind on your payments, they are probably calling you) tell them of your financial hardship, and what documents they want you to forward to them for help. The documents your lender needs to determine your eligibility for loan modification are:
• Updated financial information for all parties on the loan (monthly income, monthly expenses, etc.)
• Verification of income (pay stubs, tax returns)
• Bank Statements (usually 2 months)
• Detailed hardship letter explaining your situation -
Step 3
SHORT SALE
You may be able to sell your home at fair market value even if the proceeds from the sale are less than what you owe on your home. This option provides you with an opportunity to sell your home quickly, while attempting to preserve your credit rating. At the close of escrow, if the short sale is approved, your lender receives the proceeds.
The items needed for your lender to consider a short sale are:
• Full Appraisal of the home – the lender may order this, or have an approved appraiser list for you to order through
• Updated financial information for all parties on the loan
• Hardship letter of explanation
• Completed short sale documents (i.e., purchase agreement, HUD documents, etc.)
• Verification of income
The short sale process can be a lengthy one, 60 days or longer in most cases. The primary stages of the process are:
• Determination of value (appraisal)
• Negotiation and approval of short sale (lender may come back with a counter offer)
Comments
shelbyshu said
on 9/3/2009 EXCELLENT article! Very informative!