How to Refinance With a Loan Modification

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The housing bubble caused many homeowners to be stuck with homes worth less than the mortgage obligation and monthly payments that were far more than they could afford. The government's Home Affordable Modification Program, or HAMP, incentivizes lenders to modify mortgages to make them more affordable. Lenders may have their own programs to assist borrowers who don't qualify for HAMP as well. However, you have to meet specific qualification standards to take advantage of the program, and include sufficient evidence that proves your need for a modification is acute.

HAMP Qualification

To qualify for a mortgage under HAMP, you and your loan need to meet several qualification standards:

  • You need to have closed on your mortgage prior to January 2, 2009.
  • You must be employed and have sufficient documented income to afford the new monthly payment.
  • You must have a documented financial hardship. This may include late mortgage payments, a salary decrease at your job, medical bills and missed credit card payments
  • If the modification is for your primary residence, the balance must be less than or equal to $729,750.
  • The property can't be condemned.
  • Your loan is owned by Fannie Mae or Freddie Mac, or is serviced by a mortgage company that participates in the program.  A list of mortgage servicers that participate in HAMP can be found here.

Tip

  • Generally, you have to spend more than 31 percent of your pre-tax income on your mortgage for HAMP to be an option. If your mortgage is a smaller percentage, it's hard to qualify for this program even if the bills are too much for your budget.

The Application Process

Applying for a loan modification under HAMP isn't quick -- or easy. You'll have to complete the "Initial Package" and provide it to your loan servicer. This package consists of three documents: the Request for Mortgage Assistance Form, the Tax Authorization Form and Proof of Income.

Request for Mortgage Assistance Form

The RMA form documents information about your home and financial status. This seven-page form requires you to provide your contact information, disclose the reasons you're having difficulty making your monthly payments. You'll also need to certify that you haven't been convicted of mortgage fraud -- or any crime associated with a home loan or real estate transaction -- within the last 10 years.

You'll need to provide information about your monthly household income and assets, as well as your expenses.

  • Income: Include monthly gross wages and self-employment income, overtime, commissions and bonuses, unemployment income, Social Security, food stamps and welfare benefits, and any gross rents received. You can include child support and alimony, but you are not obligated to do so.
  • Expenses and Debt: Document all expenses associated with the property, including the primary mortgage, any additional mortgages or lines of credit, homeowner's insurance, property taxes and HOA or condo fees. Also include your monthly obligations for credit card debt, car payments, personal loans and child support and alimony obligations. If you have payments associated with other properties, such as a vacation home, there's a separate line for those here as well.
  • Household Assets: Include the balances in your checking, savings and money market accounts, as well as any CDs, stocks, bonds and other cash on hand. Also include the value of any real estate you own other than the property you're seeking the loan modification for.

Tax Authorization Form

If you file your taxes using a Form 1040, complete Form 4506T-EZ. All other borrowers fill out Form4506T. These give the mortgage loan servicer the authority to request your most recent tax return from the IRS. In the case of those who were not required to file taxes because their income fell below the required threshold or was non-taxable, Form4506T allows your lender to verify that information.

Proof of Income

An overview of the documentation required to prove your income appears in the HMA form, but following a checklist of common requests can help you provide what's needed in your initial submission and save processing delays later.

You'll be required to document your income with at least 30 days worth of pay stubs if you're a salaried employee or paid by the hour, or your most recent signed and dated quarterly profit and loss statement if you're self-employed. All other income and benefits likewise require documentation specified in the HMA form, but contact your loan servicer to make sure you have everything you need.

Expert Advice

Make it Easy on the Loan Servicer

Include all the required documentation in your initial submission, so you won't have to be contacted for additional paperwork. Label each document with your name and loan number in case your papers get co-mingled with other files. Don't submit materials with data crossed out and scribbled-in -- redo the offending document so it's pristine.

Be Tenacious

If you're working directly with your lender, the California Department of Consumer Affairs' Bureau of Real Estate notes that you'll need to be tenacious and devote the time and energy needed to complete the process.

  • Plan on being on the phone for an hour or so when you call to apply. 
  • Ask for the lender's loan modification, foreclosure prevention or asset division. 
  • If dialing the lender's main customer service number, ask for the name and number of the department that handles loan modifications, and write that name and number down so that you can call directly if needed. 
  • Record the name and extension of whoever you talk to regarding a modification -- it will help when you need to call back later to request a status update.

Tip

  • If your bank rejects your attempt at loan modification and you think it has done so in error, file a complaint with the Office of the Comptroller of the Currency. That's the federal agency that oversees the federally-chartered national banks, and they may be able to assist you.

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