Factors Affecting Outcome
There are many factors which affect the modification outcome. Some factors outweigh others. Some factors have more weight when they are pared with others. I will list the factors and make some generalizations, but I emphasize that no specific outcome can be guaranteed.
The following factors tend to make a successful modification more likely:
- If your loan is against a property that is owner occupied.
- If you have a loan owned by Fannie Mae or Freddie Mac. To find out if your loan is owned by Fannie Mae, click here. To find out if your loan is owned by Freddie Mac, click here.
- If your lender has taken TARP money from the FED and is therefore obligated to cooperate with the Obama plan. You can look up your lender and find out if it has signed up with the Feds and is cooperating with the Making Home Affordable program.
- If you have a financial hardship.
- If you owe more on your mortgage than your home is worth, often referred to as “having negative equity” or being “underwater.”
- If you do not have a lot of wealth.
- If your house has defects and will be costly to repair.
- If you can only sell your home by working out a short sale.
- If you are behind on your mortgage payments because of a hardship.
- Generally, if you can convince the lender that if you get a modification you can keep up with the payments.
If you are obviously wealthy, the bank knows you will not file for bankruptcy and that they can sue you if necessary and collect in full. If you are obviously wealthy, you do not have a hardship. Hardship is one of the necessary preconditions to a Making Home Affordable loan. However, a wealthy person might obtain an in-house or traditional modification; when the wealthy person refuses to pay, the lender might decide it is less trouble to modify than to file suit.
If you are current on your mortgage and you call your servicer about modification, you will talk with customer service. Customer service will not take you seriously: You are obviously able to pay because you are paying. Customer service will do everything it can to keep you paying. Customer service will not tell you that you have to be two months behind to qualify for a Making Home Affordable modification.
On the other hand, you can qualify for a Making Home Affordable modification if you are “in eminent default”, meaning that although your hardship has not set in yet, it is sure to set in soon, for example, that your retirement benefits are going to drop $1,500 per month six months from now.
It is possible to get modifications on a property which is not owner-occupied or on a home where the loan is not owned by Fannie Mae or Freddie Mac, or where the lender has not agreed to cooperate with Making Home Affordable. If you lender will lose less money by modifying than by foreclosing, you will always have a chance at getting a modification.
The same logic applies to commercial loans. Lenders are always interested in cutting their losses.
However, if your lender can foreclose and recover all its money, then your lender is not obligated to cooperate with modification – even if your home is owner occupied and even if your lender has signed up with Making Home Affordable. If you lender will make more money by foreclosing than by modifying, your lender can foreclose. It will not give you a Making Home Affordable modification in such a situation. It might give you an in-house or traditional modification, but not a Making Home Affordable modification. The loan is NPV negative and the federal government will not approve such a modification, nor will it pay the lender for doing such a modification.