- Default on the mortgage either has already happened or is "reasonably foreseeable".
- The homeowner is living in the property as his or her primary residence.
- The lender is likely to recover more through the loan modification or workout than by forcing the homeowner into foreclosure.
Gibran Nicholas, Chairman of CMPS Institute, an organization that certifies mortgage bankers and brokers, explains "the fact that this law is effective immediately, and most distressed homeowners are simply not aware that they have this option. Borrowers make their monthly payments to mortgage lenders, and lenders keep a portion of the payment as their profit while sending the rest to the Wall Street investors who actually own the mortgage."
In the 694 page document of the "Housing and Economic Recovery Act of 2008", Title IV "Hope for Homeowners", Section 1403 (of HR 3221) requires lenders to act in the best interest of their investors and obligates them (the lender) to modify the borrower's loan if borrower can afford the modified loan terms and if they are likely to recover more for their investors by working with the borrower than by going all the way through the foreclosure process.
A four step process has been outlined for you when negotiating a loan modification with your mortgage lender:
- Make sure you are dealing with your lender's loss mitigation and/or work out department.
- Write a hardship letter demonstrating job loss, serious medical condition, balloon payment coming due, adjustable rate reset or any other financial calamity that will make it impossible to continue making scheduled mortgage payments. Unless you are in imminent danger of default as required by this new law, lenders are not likely to work with you.
- Send the lender financial statements, employment records, tax returns and bank statements demonstrating your ability to afford the modified loan terms under your present financial circumstances.
- Send the lender a current appraisal of your home or some documentation of recent comparable sales in your neighborhood demonstrating the current value of your home (we can prepare these for you). The key is to demonstrate to the lender that they are likely to recover less money through foreclosure, than they would by working with you in your proposed loan modification plan.
We also advise you to consult with an attorney - especially if you qualify for a loan modification under the law and your lender refuses to work with you.
Source: RISMEDIA, October 1, 2008
Patrick Meehan, Equity Title Company