The Home Affordable Modification Program

Short sale situations make sense because they allow borrowers to avoid foreclosure, and also help the lender avoid having to deal with the costs of a foreclosure. The borrower also avoids earning a negative credit report at the same time. Of course, there are no guarantees a short sale offer will be accepted by a lender, and this fact has led many homeowners to attempt last ditch loan modification programs in one last effort to save their house before resorting to a short sale or foreclosure.

Unfortunately, the loan modification programs have been less than successful in helping struggling homeowners and many lost their homes through foreclosure even after they had gone through the process of attempting a loan modification. It became common practice for banks to allow a trial modification period that offered lower payments and then determine later that the borrowers were not eligible for a permanent loan modification. When the homeowners could not meet the original payment amounts, their properties were foreclosed on.

The much touted Home Affordable Modification Program (HAMP) that was supposed to help millions of struggling homeowners to pay their mortgages by modifying home loans to reflect the current value of their properties and lower their payments, has not helped the situation much yet either. Although the original goal of HAMP was to modify up to 4 million mortgages by the end of 2012, as of March 2011, less than 500,000 mortgages had been modified through the program.

Now, attorney generals in several states are proposing that the banking industry adopt changes to the loan modification process that will better protect homeowners and guarantee the quality of the modification process. The proposals on the table would create new powers for the Consumer Financial Protection Bureau to approve training programs for banks and deliver more enforcement to discourage future violations. The attorneys general’s proposal plan has received support from several federal agencies including the Department of Justice, the Department of Housing and Urban Development, the Treasury Department and the Federal Trade Commission.

The proposal specifically asks that banks be prevented from starting any foreclosure while a modification is still in process. The rule change would better protect homeowners during a trial modification, and it would also promote strict guidelines on the time limits to process all modification applications. In the past, homeowners who successfully made continuous trial payments for a full year could still be denied a permanent modification at the end of the trial. The new proposal sets forth that any homeowner who makes three successful trial payments in a row should be granted a permanent loan modification. The changes would bring uniform standards to the loan modification process and serve to reward the homeowners who kept their part of the bargain in the trial agreements. As an added bit of insurance, the proposal also called for mandatory reviews of all denied loan modifications in order to ascertain whether or not any errors led to the denial.

For those homeowners who might be on the verge of foreclosure right now, a Federal loan modification program might be able to make the terms of your mortgage loan more affordable. The money saved will be more than any fees a loan modification service might charges and you have a good chance of keeping your home too. However, it is important to remember that there are several important personal factors that all lenders will want look at before they qualify a borrower for a loan modification process.

Federal Loan Modification Qualification Factors:

Your equity in the property.

Your future financial situation.

The exact nature of the hardship(s) causing your mortgage payment problems.

Your ability to pay now and in the future.

The total amount owed.

What outcome will benefit the lender the most?