Loan Work-Out Plan/Loan Modification
What do I Need to Apply for a Work-Out Plan/Loan Modification?
Disclaimer: This list is not exhaustive, but contains the necessary documents required by most lenders for borrowers seeking a loan modification or homeowners counseling.
Note: If you currently are in bankruptcy, you need to work with an attorney; a housing counselor cannot work with you.
• A hardship letter that explains your situation (Your Attorney will prepare one for you or many lender websites have a form letter.)
• A copy of your mortgage statement or coupon book
• A copy of documents showing all household income (last 2-3 pay stubs, SSI award letter)
• A copy of your settlement paperwork (HUD-1, Truth In Lending Statements, Deed)
• A copy of your last two years’ tax returns (2007, 2008)
• A copy of any letters, notices or invoices from your lender, mortgage company, or its attorney
• Copies of any documentation from the court or the sheriff regarding foreclosure
• A copy of your last two months’ bank statements
Workout Plans Offered by Lenders
Lenders generally offer five workout plans that would let you keep your house:
Repayment Plan
A plan for monthly payments that include your regular monthly payment plus some catch-up (for example, a payment and a quarter every month) until you are paid up.
Example: Tonya is three months past due after she was laid off from her job. She is now back to work. Her original monthly payment was $1000. Total past due now is $3000. Under a 10-month repayment plan, she pays $300/month extra on top of her $1000 monthly payment for a total of $1300 per month. (Note: This plan may include late fees from your lender.)
Forebearance Plan
Your monthly payments are temporarily reduced or suspended. There is usually a higher payment when the payments are reinstated.
Example: Bill is temporarily laid off for three months and currently has no reserve funds. His lender sets up a grace period with no payments for three months. At the end of the three-month forbearance, Bill develops another workout plan to bring his loan current. (Note: During the grace period, Bill should be considering viable long-term workout plans.)
Loan Modification Plan
The lender agrees to change your terms in some way. Lenders usually offer different workout plans that would let you keep your house. He/she might:
1) Reduce your interest rate, especially if it is above market rate. (Most lender websites have the current market rates.)
2) Extend the loan payment period.
Example: Alan’s old monthly payment is $1,045. He has 22 years left on 30-year ARM. His new monthly payment is $940 with a new term of 30 years.
3) Change a floating rate to a fixed rate.
4) Negotiate the prepayment penalty.
Six mortgage-servicing companies have agreed with the State of Maryland to create a streamlined and transparent process for distressed Maryland homeowners. The servicers, HSBC, Ocwen, GMAC, ResCap, Litton Loan Servicing, AmeriNational Community Services and Citi have pledged to abide by a predeter-mined timeline that will ensure Maryland homeowners have an answer within 75 days from the time they submit a loss-mitigation package.
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