Pre-COVID: Mortgage Modifications Agreements in General
If you’re struggling to keep up with mortgage payments and are seeking ways to avoid foreclosure, there are a couple of ways that could offer the help you need. First, being a mortgage modification, which is a change to the repayment terms on your existing home loan that lowers your monthly payment so you can stay in your home and avoid foreclosure.
A mortgage modification will reduce payments through any of several methods, including, reducing the interest rate, extending the repayment period, converting from an adjustable to a fixed interest rate, or refinancing. Strictly speaking, a mortgage refinance is not a modification because it creates a new loan agreement, rather than adjusting the existing one. However, lenders may sometimes suggest refinancing for borrowers who have significant assets they can use in a pinch to cover the loan.
Who Can Get a Mortgage Modification?
Eligibility requirements for mortgage modifications typically vary from lender to lender, but as long as the homeowner is at least one mortgage payment behind and can verify a legitimate financial hardship that impacts their ability to make loan payments, they may qualify for a mortgage modification. Significant financial hardship reasons may include, long-term illness or disability, death of a family member (and loss of their income), declared disaster, uninsured loss of property, or divorce. When applying for a loan modification, the lender will likely require proof of income and expenses before and after the onset of the hardship. Such proof may include tax returns, pay stubs, monthly bills, and information on savings and investment accounts.
If your mortgage is backed by any number of federal agencies or programs, you may qualify for a government mortgage modification plan. Fannie Mae and Freddie Mac share a program called Flex Modification, which allows adjustment of mortgage terms in response to a wide range of financial hardships. First-time homeowners with mortgages backed by the Federal Housing Administration (FHA) may be eligible for loan modifications as well as mortgage forbearance — an agreement that allows homeowners a temporary reduction or suspension of mortgage payments during the plan’s term so that homeowners can get their financial footing. Mortgage forbearance does not mean your payments are erased. At the completion of the forbearance plan, the mortgagee does have to repay the missed payments, but it does not have to be repaid all at once. The mortgagee will have options when it comes to repaying the missed amount and late fees will be waived during the forbearance plan as long as the mortgagee complies with the terms of the plan. https://capmrkt.fanniemae.com/heretohelp/kyo/index.html
COVID Caused Changes: Changes/Additions/Strengthening to Above Modification Options
The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law by President Donald J. Trump on March 27, 2020, in response to the COVID-19 pandemic, offers a wide range of additional relief options for borrowers with federally backed mortgages, including mortgage forbearance and mortgage modifications. An option under the CARES Act is that you
can access a retirement plan without a penalty thereby allowing easier access to funds to partially pay down arrears.
Under the CARES Act and guidance from Government-Sponsored Enterprise (GSE), there are two protections for homeowners with federally or GSE-backed (Fannie Mae or Freddie Mac) mortgages. First, according to the CARES Act and the guidance from the GSEs, the FHA, the VA, and the USDA, beginning on March 18, 2020, lenders and servicers are prohibited from beginning a foreclosure against you until at least December 31, 2020. Second, if you have experienced financial hardship due to the coronavirus pandemic, you have a right to request and obtain a mortgage forbearance for up to 180 days from your loan servicer. https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/mortgage-relief/.
Does a Mortgage Modification Affect Your Credit?
Lenders have the right to report delinquency on payments and mortgage modifications to the national credit bureaus, which could adversely affect your credit score. The flip side to this is that the long-term impact of a mortgage modification typically will be less severe and long-lasting than having a foreclosure on your credit report for seven years.
However, currently, there is an exception to a mortgage modification affecting your credit – and that is COVID-19. Credit reporting agencies (Experian, TransUnion, and Equifax) have set a crisis response plan that allows lenders to report accounts in forbearance to indicate the account has been affected by a declared disaster. As a result, account information that is reported by lenders to credit bureaus as required by the CARES Act will not negatively impact credit scores. https://www.experian.com/blogs/ask-experian/will-a-mortgage-deferment-hurt-my-credit/#:~:text=When%20your%20account%20is%20reported,credit%20scores%20to%20go%20down
Options When the Mortgage Forbearance Ends
When your mortgage forbearance plan is scheduled to end, your mortgage servicer will contact you to discuss your situation and provide information on options that may be available to you. You may be eligible for:
Hire a Mortgage Modification Attorney to Help
If you are experiencing hardship due to the Coronavirus and need a loan modification, it’s important that you contact a mortgage modification attorney to help with the process. The Law Office of Ronald D. Weiss, P.C. provides services for mortgage modifications by using their persistence, knowledge, and negotiation strategies with lenders. The firm’s negotiation lawyers will structure mortgage modifications to lower interest rates and give mortgagees more time on
payments. The negotiation process can be time consuming and often has many challenges, therefore, you should maximize your advantage by having our negotiation attorneys seek a modification on your behalf.