Real Estate Law
If you owe more on your property than your property is worth, it is considered “upside down” or “underwater” because the home equity is below the size of the current mortgage. In such a situation, loan modification between a borrower and lender may be used to ease financial pressure on the borrower.
Real estate laws vary by state. From buying a home to loan modifications, it is important to understand your legal options and rights. Talk to a real estate attorney to get answers to your legal questions about loan modifications.
While a modification program can have an adverse impact on a borrower’s credit score, it goes a step further than a refinance or cash-out by directly extending the life of the loan, providing for principal reduction or forbearance, reducing the interest rate, or even fixing the interest rate if it was previously subject to change under an adjustable-rate mortgage.
Similar to initial financial pressures many faced at the outset of the recent Coronavirus Pandemic, millions of Americans found themselves underwater on their homes around 2007 to 2010. During the subprime mortgage crisis of that time, mortgages were offered to prospective homeowners who would not have otherwise met eligibility due to their inadequate financial situations.
Furthermore, the housing bubble had inflated the value of property. After the collapse, homeowners were left with homes valued at less than the mortgage, while the interest rates continued to rise. During that time, many borrowers under financial hardship contacted such institutions as Fannie Mae, Freddie Mac, and FHA to reduce their monthly mortgage payments, apply for flex modification, or otherwise engage in mortgage loan modification and loan modification programs in lieu of obtaining new loans.
If you experience losing your job or have a medical emergency, you may find yourself unable to make your mortgage payments. Financial problems can quickly escalate, leading to more real estate debt and less in savings to pay basic bills. There are some steps you can take as soon as you find that you may not be able to make your mortgage payments:
Try contacting your home loan company and asking about shorter terms options like mortgage reinstatement, mortgage forbearance, or a repayment plan. If your mortgage lender is willing to work with you to change the terms of your mortgage, you may be able to avoid a foreclosure or short sale and stay in your home until you can get back on track.
If you are facing more long-term financial difficulties, you may be able to submit a modification application to change the terms of your original loan, including interest rate, loan balance, and loan terms as part of the mortgage modification process.
Your mortgage company will base its decisions on your bank statements, tax returns, income, debt, and reason for the payment hardship. You may need to provide additional documentation to your lender, including financial accounts, pay stubs, and other financial information.
Do not ignore the problem or avoid taking phone calls from your mortgage company. Trying to ignore the problem may make matters worse and the mortgage company may be less willing to make accommodations. Read all notifications you get and respond to any notices. Keep a copy of your documents and a log of anyone you talk to on the phone.
The federal government offers a toll-free hotline for talking to a housing counseling expert. If you need help because you are having problems making mortgage payments, you can call for free advice from housing counselors at 888-995-HOPE (4673).
Similarly, different states offer support programs and information regarding housing problems and loan modification. For example, Florida’s Office of Financial Regulation and California’s Department of Justice offer loan modification resources to educate borrowers. Counselors can let you know about your options and potentially help you resolve mortgage problems.
In some cases, bankruptcy may be your best option if you are seriously in debt. Many people who declare bankruptcy can keep their home through the bankruptcy process, depending on the type of bankruptcy, how much equity you have in your home, and if you can afford to make payments.
It can be tempting to respond to an email, letter, or phone call that offers to lower your payments or quickly solve your mortgage problems. There are foreclosure scammers who may be looking for a “fee” to get the process started, which can be thousands of dollars. Scam letters look convincing and phone calls may be coming from a number that is identified as legitimate when the callers are “spoofing” the number.
Before you agree to any loan modification plans, make sure you see the terms in writing, including the closing costs, annual percentage rate, and additional fees. Talk to an attorney if you are unsure about any refinancing offers.
There were a number of government programs established during the housing crisis of 2007 to 2010 to support urban development and reduce payment amounts on many past due mortgages. The subprime lending crisis left a lot of homeowners with mortgage payments they could not afford for a property that was worth less than the amount of their mortgage. These programs provided ways for homeowners to stay in their homes through loan modification, refinance their mortgage or obtain a new mortgage, and stabilize the housing market.
These Making Home Affordable programs included:
- Home Affordable Modification Program (HAMP)
- Homeowner Affordability and Stability Plan (HASP)
- Home Affordable Refinance Program (HARP)
The Home Affordable Modification Program (HAMP) was started in 2009 for homeowners to help them avoid foreclosure. HAMP allowed homeowners to modify their mortgage terms to reduce their interest rates, reduce the principal balance, and get temporary payment relief. To qualify, homeowners had to make payments of more than 31% of their income towards their mortgage. The HAMP program ended in December 2016 but contributed significantly to the number of loan modifications in the last decade.
In 2009, Congress passed the Homeowner Affordability and Stability Plan (HASP) to provide options to financially struggling homeowners. The program gave incentives to mortgage loan servicers and homeowners to modify loan terms, so a homeowner was better able to afford the payments and avoid the risk of foreclosure. HASP expired in 2012, but many types of loans that exist today are guided by the same incentives that existed under HASP.
The Home Affordable Refinance Program (HARP) was introduced in 2009 to allow certain homeowners to refinance their mortgage loans. Under the HARP program, homeowners who were not otherwise able to get refinancing could be approved for fixed-rate mortgage loans that took advantage of the low-interest rates. The HARP program ended in December 2018.
For help getting a loan modification after your lender refuses, you can talk to an attorney about your options. A qualified mortgage lawyer can address your particular legal needs, explain the law, and represent you in court. Take the first step now and contact a local mortgage attorney to discuss your specific legal situation.
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