Bankrate has assembled all the information you need to know to obtain a mortgage modification, including definitions of key terms, tips to make the process smoother and information from four institutions that provide details on how to contact each of them.
The institutions are: Chase, WaMu, EMC (J.P. Morgan Chase corporate owner), Countrywide Home Loans (Bank of America corporate owner), CitiMortgage, IndyMac Federal Bank (government agency: FDIC)
Learn more about obtaining mortgage modification help.
Definitions of common terms:
- Repayment plan: The homeowner will make the regular mortgage payments plus a little extra to cover delinquency payments and fees.
- Interest rate reduction: Refinancing your mortgage interest rate to a lower rate, thus lowering your monthly payments.
- Extension of loan term: Extending the term of the loan, say from 30 years to 40 years, to lower the monthly payments.
- Conditional forbearance: The borrower is allowed to make lower payments for a limited time, typically three months.
- Stay on foreclosure: A temporary, set period of time that gives homeowners protection from foreclosure so they can recover and resume payments.
- Principal deferral: The lender defers part or all of the principal payment, thus lowering your monthly payments.
- Short sale: The lender agrees to sell the house for less than the outstanding mortgage amount and accept the loss.
- Deed in lieu of foreclosure: Homeowner gives his home (the deed) to the lender in exchange for the lender canceling the loan. The lender forgives any deficiency in the loan that isn't covered by a future sale.
What is target debt-to-income, or DTI, ratio? This is the ratio between how much you owe each month on personal debt and how much you earn. It calculates the percentage of debt you are carrying in relation to how much money you are making, in order to give the lender an indication of how much additional debt you can take on.
Add up your fixed monthly expenses such as your car payments, minimum credit card payments and any other regular debt obligations such as monthly child support or student loans (you don't have to include bills for things such as groceries or utilities). Add your expected housing payments (your mortgage payments plus, for example, private mortgage insurance, homeowners insurance and property taxes) and divide the total by your gross monthly income. Lenders typically say a DTI ratio should be no higher than 38 percent.
Tips for getting through the process:
- Be patient.
- Stay focused.
- Provide only relevant information.
- Expect to repay as much as you can.
- Lender will not reimburse fees paid to foreclosure rescue companies.
- Call sooner, rather than later. Once you're headed toward foreclosure, you'll have fewer resources and the workout process will be more onerous.
- Use your loan number to access the online application.
- Don't fudge or falsify your current income or expenses.
- Check back: Even if you previously were told no, you now may qualify.
- Not on the table: Principal reduction, interest-only and cash-out refinancing.
- The more payments you miss, the harder it will be for you to qualify.
- Consult a mortgage counselor and tax adviser before you consider a short sale.
- When you call, get the name of the person you spoke to and, if possible, that person’s telephone extension. Ask when you should follow up, and then call back at that time.
- Consult your tax adviser to find out the potential implications of loan modification options.
- If you have two loans with different loan servicers, call the servicer of the second loan first.
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