Real estate agents cannot offer loan modification services. A licensed mortgage broker or to the client’s attorney can provide loan modification meaning a change in one or more of the loan’s conditions. Note that short sales are not considered to be a loan modification under current law.
Loan modification includes:
- Forbearances: A forbearance agreement is one way to prevent foreclosure. A forebearance agreement is an arrangement to postpone a borrower’s monthly payment for a limited and specified time period. The loan continues to accrue interest during a forbearance. A forbearance request must be approved by your lender. Most lenders are willing to enter into such an agreement if the borrower can pay at least 50% of the mortgage arrearage or 1 full months payment and is willing to pay the remainder in 24 months;
- Altered repayment plans;
- A change in interest rates, loan terms, or loan types.
Currently there are two federal programs assisting with loan modification options:
- Home Affordable Modification Program (HAMP)
- Home Affordable Foreclosure Alternatives Program (HAFA).
On March 4, 2009, the U.S. Department of the Treasury announced details of the Home Affordable Modification program (HAMP) as part of the federal Making Home Affordable Program. HAMP is a loan modification program designed to reduce delinquent and at-risk borrowers’ monthly mortgage payments.
HAMP is effective for mortgages originated on or prior to January 1, 2009, and will expire on December 31, 2012. For a modification under HAMP eligible borrowers must be who are 31 or more days delinquent on their loans.
The Home Affordable Foreclosure Alternatives (HAFA) Program was designed to complement the Home Affordable Modification Program (HAMP) by helping current homeowners with mortgage debt who are eligible for HAMP but still cannot keep their home.
When a borrower applies for help from HAMP, not everyone succeeds with the program. Sometimes their lender is unable to approve a loan modification or the borrower declines the terms of the loan modification. Some borrowers are approved and accept the terms of the modification, but fail to complete the program for various reasons. Before HAFA, these borrowers were usually headed for foreclosure.
HAFA offers incentives with regard to a short sale or a deed-in-lieu of foreclosure when utilized to avoid foreclosure on a loan qualified for modification with the HAMP program.
HAFA gives borrowers a viable alternative to foreclosure. If they have, or want to find, a buyer for their home, they may request approval for a short sale with pre-approval short sale terms and minimum acceptable net proceeds. If not, they may request approval for a deed-in-lieu .
When a borrower applies for help with HAFA, the program already has their financial and hardship information from their HAMP application thereby simplifying the process for the borrower.