Temporary government loan modification for unemployed

For homeowners, an unexpected job loss can be a unpleasant obstacle in the way of obtaining a home loan modification due to the fact that lenders require homeowners to possess an income sufficient enough to comfortably repay a modified mortgage loan. Through the Making Home Affordable program, the federal government offers temporary loan modification to unemployed individuals to help them avoid foreclosure while seeking new employment.

Temporary government loan modification for unemployed

Home Loan Modification for the Unemployed

Unemployed homeowners can apply for a forbearance plan through Making Home Affordable. The goal of the forbearance plan is to give the homeowner manageable mortgage payments until he can find employment. Restructured mortgage payments can continue for a minimum of three months and maximum of six months.

A homeowner who becomes unemployed and is interested in applying for a temporary mortgage loan modification while seeking new employment can check with his mortgage lender to determine whether the lender currently participates in the Making Home Affordable program. All participating lenders are required to provide unemployed homeowners who qualify with a temporary government loan modification for the maximum amount of time specified or until the individual finds new employment.

Qualifications for Temporary Home Loan Modification

Unfortunately, an individual losing his job isn’t enough to automatically qualify him for a temporary home loan modification under Making Home Affordable–even if his mortgage lender participates in the program. The following criteria must be met before unemployment can result in a modified mortgage loan:

The homeowner must occupy the house he seeks a modification for
The mortgage loan balance must be below $729,750
The mortgage loan must have been granted before January 1, 2009
The homeowner can provide proof of unemployment payments
The mortgage loan is no more than 90 days delinquent

Lack of Employment at the End of the Six Month Loan Modification

Should the borrower be unable to find suitable employment by the time the temporary loan modification ends, he may continue to seek government help, but not in the form of restructured mortgage payments.

The Home Affordable Modification Program (HAMP) is a feature of Making Home Affordable. This program includes more than just loan restructuring. It also assists borrowers who cannot meet loan modification requirements to obtain a short sale or deed in lieu of foreclosure from their lenders. Through a short sale, the borrower works with his lender to sell his home for less than the outstanding loan balance. A deed in lieu of foreclosure is similar, but allows the homeowner to turn over his mortgage deed to the lender and walk away from his loan obligation.

Temporary government loan modification

Although both options can leave a former homeowner with significant credit damage, most individuals prefer these options to the trauma of losing their homes to foreclosure. In addition, should the unemployed homeowner find employment during negotiations, he may opt to reapply for a government loan modification rather than turning over the property to the lender.

Basic Requirements to Qualify for Modification

A loan modification is not the same as a loan refinance, and while refinance programs are in place for homeowners in arrears, the new Fannie Mae and Freddie Mac loan modification program is geared toward borrowers who are current with their mortgage payments. For the purpose of these loan modifications, current is described as not having more than one payment 30 days past due in the last 12 months.

Other requirements:

The loan must be Fannie Mae or Freddie Mac secured.
The home must be the borrower’s primary residence.
The amount owed on the first mortgage must not exceed $729,750.
The mortgage debt must not be more than 50 percent more than current home value.
There must be a verifiable hardship such as loss of wages or catastrophic medical bills.
The first mortgage must have been obtained before January 1, 2009.

Information Needed to Initiate Loan Modification

If a borrower meets the basic requirements, he or she may apply for a loan modification. Required information to begin the process includes:

Gross monthly household income verified by recent pay stubs and documentation of other income
The most recent tax return
Information regarding assets
Details of a second mortgage if one exists
All account balances on credit card debt including minimum monthly payments
Account balances on car loans, student loans and unsecured debt including minimum monthly payments
A hardship letter that details what caused an income reduction or other financial burden

Who to Contact to Apply for a Loan Modification

loan modification for unemployed

Though a loan may be held by Fannie Mae or Freddie Mac, a request for a loan modification must be made through the first mortgage loan servicer. The loan servicer is the company who receives the monthly mortgage payments. Contacting the company by phone and asking to be considered for a Home Affordable Modification is the fastest way to initiate an application. The servicer will forward a package with instructions and forms to be completed.

Resources for Assistance

The opportunity for fraud is greater when economic conditions are poorer. The government has warned that some companies are attempting to defraud homeowners by offering assistance in the refinance or modification process. Dealing only with resources approved by the government may prevent costly mistakes.

The following organizations offer free information:

Homeowner’s HOPE Hotline (888) 995-HOPE offers Hud-approved housing counselors to help homeowners understand their options.
The government’s Financial Stability website provides up-to-date information on the Fannie Mae and Freddie Mac loan refinance and loan modification programs.

Cross-verifying any information learned from a mortgage servicer, housing counselor or information website will assure that the loan modification process is conducted properly.

After the Application

Once the borrower’s information has been supplied and the application initiated, a waiting period will ensue. Calling to check on an application’s progress is acceptable but frequency should be limited.

Should the modification be approved, credit counseling may be required. Any modification will begin with a three-month probationary period, and loan modification documents will be executed following the probation if payments are timely.

Fannie Mae and Freddie Mac loan modifications will have a lifespan of five years at which time interest rate increases can be expected.

Due diligence is warranted. Even if basic qualifications are not met, it is prudent to ask the mortgage loan servicer if there are any changes the borrower can make to facilitate qualification.

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