Kenneth Carroll: Can You Get A Loan Modification More Than Once?

“In general, a mortgage loan modification is any change to the original terms of a loan,” says Joe Zeibert, senior director of Ally Home from Ally Bank in Charlotte, North Carolina. A loan modification is different from refinancing. Refinancing entails replacing your loan with a new mortgage, whereas a loan modification changes the terms of your existing loan.
This could mean extending the length of your term, lowering your interest rate or changing from a variable interest rate to a fixed-rate loan. The terms of your modification are up to the lender and will depend on what’s best for the borrower, says Steve Hall, vice president of operations and analytics for Genworth, a private mortgage insurer, in Raleigh, North Carolina.

Zeibert says a modification ultimately results in lower monthly payments for the homeowner. “If you’re struggling to make ends meet or facing foreclosure, those savings can literally be life-changing,” he says.
Hall adds that “from a lender’s perspective it’s a positive outcome, too, because the foreclosure process is a very costly process, so it’s a win-win for both.”

Who qualifies for a loan modification?

Not everyone struggling to make a mortgage payment can qualify for a loan modification. Hall says homeowners typically either must be delinquent for about 60 days, or they must be in imminent default, meaning they’re not delinquent yet, but there’s a high probability they will be.
Homeowners usually must also demonstrate they’ve incurred a hardship, Hall says. This could be the loss of a job, loss of a spouse, a disability or an illness that has affected your ability to repay your mortgage on your original loan terms.

Types of loan modification programs

Some lenders and servicers offer their own loan modification programs, and the changes they make to your terms may be either temporary or permanent.
“Most servicing companies have programs designed to help borrowers who may be struggling to make their payments, driven by some of the hard lessons the industry learned during the housing collapse a few years back,” Zeibert says. He adds that Ally, in addition to modifications, offers some at-risk borrowers the ability to refinance to a lower rate at no cost, even if they haven’t endured a hardship.

If your lender or servicer doesn’t have a program of its own, ask if you are eligible for any of the assistance programs that can help you modify or even refinance your mortgage.

The federal government previously offered the Home Affordable Modification Program, but it expired at the end of 2016. Fannie Mae and Freddie Mac have a foreclosure-prevention program, called the Flex Modification program, which went into effect Oct. 1, 2017. If your mortgage is owned or guaranteed by either Fannie or Freddie, you may be eligible for this new program.

The federal Home Affordable Refinance Program, or HARP, helped underwater homeowners refinance into a more affordable mortgage. This program is no longer available as of Dec. 31, 2018. Fannie Mae’s High Loan-to-Value Refinance Option and Freddie Mac’s Enhanced Relief Refinance replaced HARP.

How to get a loan modification

Step One is to call Ascent Law LLC. If you are struggling to make your mortgage payments, contact your lender or servicer immediately and ask about your options. The loan modification application process varies from lender to lender; some require proof of hardship, and others require a hardship letter explaining why you need the modification.

It’s possible your lender will reach out to you about getting a loan modification. Hall’s team at Genworth uses predictive analytics to determine homeowners who are likely to default, and the loan servicers reach out to those borrowers to offer modified terms.
Hall says that Genworth has discovered that some delinquent homeowners avoid answering phone calls, fearing the worst. If you’re avoiding calls, consider answering — one of them may actually be your lender trying to put you into a modification that could help, he says.

If you’re denied a modification, you’ll have to file an appeal with your servicer. Consider working with a HUD-approved housing counselor, who can assist you for free in challenging the decision and help you understand your options.

Know before you modify

One potential downside to a loan modification: “If the loan is being modified due to financial hardship, you may see a note about this added to your credit report, negatively impacting your credit score,” Zeibert says. The result won’t be nearly as negative as a foreclosure, he says, but could affect other loans you apply for in the future.
Another thing to be aware of, he adds, is that depending on how your loan is modified, your mortgage term could be extended, meaning it will take longer to pay off your loan and will cost you more in interest.
But for homeowners on the brink of losing their homes, the benefits of a loan modification can far outweigh the risks.

How soon can I get another loan modification after my last one?

To a degree, it depends on the kind of modification plan you are in. Is it a private modification negotiated between you and your servicer or an old Home Affordable Modification Program (HAMP) or FHA modification?
If you are in a private modification, you should contact your servicer when you suspect that you will be having trouble making payments — the sooner the better. Negotiating a new modification may or may not be possible; please know that the servicer’s role is to try to negotiate the most favorable outcome for the owner of the loan, and is not under any legal obligation to offer you knew terms and conditions. However, they do need to review your situation and provide clear information about your rights and any appropriate timelines.

If you’re in an old FHA-HAMP, that program is still active and you may be able to get a new modification after a trial payment plan period has been successfully completed. The old HAMP program (discontinued 12/31/2016) has been replaced by a new Flex Modification program. According to it is noted that:

Borrowers who previously modified their loan through HAMP (or any of the predecessor programs) are eligible for a Flex Modification IF:

a. The mortgage loan meets all of the eligibility requirements for the Flex Modification Program (including but not limited to the following):
• The mortgage loan must be delinquent or in imminent default
• The mortgage loan must not have been modified three or more times, regardless of the loan modification program
• The mortgage loan must not have received a Flex Modification and become 60 days or more delinquent within 12 months of the modification effective date without being reinstated.
• The borrower must not have failed a Flex Modification Trial Period Plan within 12 months of being evaluated for eligibility for another Flex Modification.
To get started, you’ll want to contact the servicer of your loan. Look on your mortgage statement for contact phone numbers or website locations; some may have special numbers or site locations for borrowers having trouble with their loans. Talk to them as soon as you can and see what relief they might be able to offer you.

Is it possible or will it be more difficult to get another modification?
Yes, it is possible to get a second loan modification though statistically it’s obvious that you are less likely to get a second modification if you’ve had a first, and a third if you were lucky enough to get a second. It is possible though. In fact, the majority of homeowners currently applying for modifications have already had some kind of work out option and a decent number of them do get approved. As long as you want to keep the home and have the stability and income to afford reasonable payments, there is no reason to not apply if you are falling behind on modified payments and cannot catch up through conventional methods.

Also, though secondary options may not be as automatic as the first time around – the actual process of getting a decision may be drastically less difficult, especially if you had originally worked with your lender in the first few years of the mortgage crisis. Whereas in years past, service centers were correctly characterized by disorganization, modern loss mitigation departments now have the benefit of applicable experience to help aid a more standardized and accountable process. In addition, homeowners now benefit by generally getting more individual attention as there is less competition as national foreclosure numbers have declined in recent months.

Will a new modification better my situation?

This is where things can vary greatly depending on your situation and where the need to meet with a free HUD certified foreclosure prevention counselor magnify. In some cases, re-modifications can provide payment and interest benefits, an actual goal of most servicers since lower payments and reduced interest naturally lead to a higher level of retention. With that said, in other cases it is very predictable that a reworking of mortgage terms would lead to an actual increase in rate and or payments.

For instance, if you were initially approved through the federal HAMP modification program and were provided “special” terms like below market interest rates, elongated maturity term (40 year amortization) and any level of principle deferment, then there is almost a certainty that a conversion to a “traditional mod” would come with elevated rate and payment when reconfigured using standard terms recast at market rate void of partial deferment all while beefing up the balance by adding in freshly missed payments. In addition, even with modifications that did not initially use special terms, market rates today are almost a full point higher than where they were just one year ago.

On the other hand, if you had qualified for a traditional modification previously and have a mortgage eligible for the HAMP program with also having a qualifying hardship and level of income, the terms may improve as a result as it would be considered a necessity to affordability. Regardless, it is important prior to missing payments on any mortgage, much more so a previously modified one, to have a HUD counselor look over your current terms to see what may result far before you are to depend on re-modification. Ideally, this would inspire you to look at other budgetary solutions and prevent being forced to accept less advantageous terms if losing the home is just not something you are willing to let happen.

Is the approval process different the second time around?

Yes, the application process can be more in depth than the first time. In many instances, lenders approved mods on first time delinquency based upon the observation of an uncontrollable hardship and with the evidence that income is currently sufficient to make payments if the mortgage was prioritized first and foremost by the homeowner. The HAMP program is a perfect example in that if a homeowner’s payment consumed more than 31% of gross income, it could be approved regardless of whether or not the modified payment fit with other listed expenses or additional debt.
In secondary or traditional modifications or those requiring the permission of an insurer (FHA, etc.), much more scrutiny can apply to the submitted budget outlining the projected expenses and the bank statements required to cross verify holistic affordability. Less automatic is the assumption that just because you are applying you are ready, motivated and able to make payments. More care in underwriting goes into whether or not it is realistic based on objective data to predict future improvements. In short, with second opportunities you may need to do more than just want it, you may actually need to document that you can be successful prior to becoming approved.

So how do you document that?

Easy, make sure you have at least as much in savings as what a first payment might be when you apply to show you have the ability to start. Next progressively save money monthly to show you can stay caught up if the past due payments were added to principle. Lastly, ask yourself “what would the lender think” before you make every transaction as a rule of thumb underwriters often use is “what if it were my own money?”
Believe it or not, lenders are rewarded for offering modifications and further profit by preserving residual servicing fee streams from the investors – however, they are also penalized by those same investors if loss mitigation success rates are less than standard and only serve to drag out inevitable defaults while slowly eroding what’s left to recover upon liquidation. Some files are issued automatic computerized decisions – however, many don’t perfectly match the investor matrices and need a manager or senior underwriter’s consent before approval. It doesn’t take a Ph. D to grasp that it’s easier to gain the support of decision makers if you are saving money and using discretion with consumer purchases vs. spending money on non-essentials in the wake of a possible foreclosure.
Overspending on meals out, entertainment, tobacco and liquor store purchases while applying for modification can cost you an approval if it leads to a lack of savings. Why shouldn’t it? Banks exist to quantifying risks for profitability and to wager on someone who orders take-out, pay-per-view and catalog clothes while saying they are doing everything, they can to avoid foreclosure after missing payments carries abysmal odds. I know what you are thinking and no, withdrawing cash from your account and using it buy the things you don’t want the lender to know about doesn’t actually cloak your activities – worse, it may lead others to suspect there is a drug or gambling problem at hand or just plain old boring instability when the end result is a lack of both savings and payments.
Other things to consider:

Sometimes you need patience to apply

Many investors have rules regarding how long after the first modification you can apply. In some cases, it doesn’t matter, in others at least 1 year must have elapsed since conversion to the permanent loan and some investors don’t allow second modifications period. By contacting the servicer or else working with a HUD counselor, you should learn how it applies in your situation.

Hardship needs to be fresh

Many investors require there to be a separate hardship involving an involuntary drop or hiatus of income to qualify. In short, your layoff from 2018 doesn’t work anymore if you were already modified in 2019. Hardships should be involuntary and affect income.