Debt Free, LLC. Rev v 1.4 DIY

Transcription

1 Debt Free, LLC 1 Rev v 1.4 DIY

2 Quick Start This Guidebook was written to educate you about Mortgage Modifications, give you instructions on what to do next, and to show you how to use the software to get your Modification Package printed and submitted to your lender, as quickly as possible. Follow these steps to get started: 1. It is VERY IMPORTANT that you read through this Guidebook up to the Glossary initially, so that you have a clear understanding of what you need to do next. It will only take about 10 minutes to read the Guidebook. After doing so, you will have a clear idea of what you need to do next, and why. You can go back later and read the Glossary, as well as the other sections. 2. After you have read this Guidebook, go to and click the Login button. On the next page enter the Username and Password that you were ed. 3. Once logged in, keep this Guidebook open, and follow the instructions under Let's Get Started. 2

3 What is the Process? A Mortgage Loan Modification is when your existing lender makes a change in the terms of your existing mortgage. That can include a lowering of your interest rate, extending the number of years remaining, a principal reduction, principal forbearance, or any combination of these. The purpose of a modification is to ultimately and significantly lower your monthly payments, for either a temporary or permanent period of time. In today s housing conditions lenders are willing to work with borrowers that are having trouble paying their mortgage. Homeowners currently in an adjustable rate mortgage, have a high interest rate, are upside down on their home, and/or experiencing any kind of financial hardship are prime candidates for a modification. Most lenders have enhanced and expanded their Loan Modification Programs to include a wide array of hardship situations. There are seven (7) mortgage loan modification programs that can be used to address temporary hardships like layoffs, job loss or short-term income reductions, and permanent hardships like death of a spouse, disability, divorce, or severe medical situations. These newly expanded and enhanced programs allow your lender to modify or change the term of the loan, the interest rate, and in some cases, principal balance, to reduce the monthly payment to an amount you can comfortably afford. Homeowners with past due real estate taxes can apply as well, to get caught up and to escrow taxes going forward. In today s strained economic environment, the threat of foreclosure seems to lurk around every corner. Be assured: your lender does not want to foreclose on your property. Foreclosure is a no-win situation for the homeowner and the lender. A Loan Modification Program is the solution to ensure everyone comes out a winner. A key factor that is required in every loan modification submission is the existence of a hardship. The hardship can be temporary in nature or permanent, but the borrower must be able to prove the hardship. The following are a sample of hardships that can get a loan modification request approved: 1. Adjustable Rate Mortgage Reset (Payment Increase) 2. Illness 3. Loss of Income 4. Loss of Job 5. Damaged Property 6. Inability to Sell the Property 7. Failed Business 8. Job Relocation 9. Death of Spouse or family member 10. Incarceration 3

4 11. Divorce/Separation Other than a verifiable hardship, lenders look at the household's ability to make timely mortgage payments. To understand what the lender or servicer considers qualified, you have to know how lenders calculate your income. The income you can use to qualify for a modification is different from traditional income calculations used to qualify for traditional loans. For a modification, you can qualify based on your total household income. As such, you can count income from almost any source: Grandma s SSI, income from child day care services, from a second job paid under the table, etc. so long as it can be proven. Proof must be in the form of bank statements, 1099 s or in some other form as outlined in the submission paperwork you will provide the lender. In addition, if only one of two spouses was on the original loan, the other spouse s income can count so long as it is verifiable. When you submit your Modification Package, including the required supporting documents (proof of income, tax returns, bank statements, etc) you'll send them to the lender via a method that provides you with a tracking number so you have proof of delivery. For example - Priority Mail, Next Day Mail, UPS, etc. The lender is required to send you a confirmation letter within 5 days. You will generally need to allow 1-2 weeks, including mail time, to receive the confirmation letter from your lender. This letter will explain that your lender has received your Modification Package. It will also provide you a list of any missing documents. Usually there is a deadline date by which you need to get these documents to the lender. You will need to make sure you get any documents requested to the lender by the deadline. If you don't, they can, and usually do close your file and you will have to start the process over, from the beginning! The reason they do this... they are handling thousands of modification packages, and need to streamline the process so that they keep your file moving through the modification process. If it isn't moving (you don't get the documents to them by the deadline) they will close it to "get it out of the way". Understand that the lender can not place your Modification into the Underwriting Department until all documents have been received. This is why it is important you include everything needed in the initial Modification Package. Triple check it! Once the file is placed in the Loss Mitigation Department, a Loss Mitigation Specialist will send you a letter introducing themselves, and then they will review your case. About once a month, you will be contacted by phone/mail and asked to provide updated bank statements and proof of income. Once your modification is reviewed, and finalized, the lender will send you a package with your modified loan terms. Typically they will reduce your interest rate, adjust the length of your mortgage and in cases where eligible, reduce the principal. 4

5 The lender will notify you, by mail, of the modified terms. If, for some reason, those terms are not acceptable to you, you can appeal their decision. They will include instructions on how to appeal. NOTE: 1. Per HUD Guidelines all Late Fees and associated Administrative costs should be waived. 2. All payments past due at the time the modification is approved will be capitalized into the modified principal balance (rolled into the backend of the loan). 3. The first payment will be due on the following full month from the date of the modification approval. IMPORTANT: Understand that your lender is processing thousands of modification requests at any given time. With most lenders it takes 3-6 months for your modification to be approved. Be patient, and make sure you meet any deadlines given. If given a deadline to get a document back to the lender, make sure you send the document a method by which you can track it's delivery. Wait a few days, then follow up with a quick phone call to your Loss Mitigation Specialist to verify they received it. 5

6 Let's Get Started It is important that you read through this Guidebook up to the Glossary initially, so that you have a clear understanding of what you need to do next. You can go back later and read the Glossary, as well as the other sections. After you have read this Guidebook, go to and click the Login button. On the next page enter the Username and Password that you were ed. Once logged in, keep this Guidebook open, and follow the instructions here. Once you log into your loan modification software account: Clicking this icon opens the Notes section so that you can make detailed notes regarding your modification. Keep notes of correspondence received from your lender, documents sent to the lender, conversations you have with them, etc. Clicking this icon opens your File. Once your file is open, you will see the information you entered previously. This is the information that will appear in your Mortgage Loan Modification Package when it is printed. Tab 1. Client Info This page of your file includes your contact information, as well as some details about your home. Tab 2. Income/Expense Info This page of your file includes information relating to your HOUSEHOLD income and expenses, regardless of whether all individuals in the household are listed on the loan or the title of property. Lenders will look at all income sources in qualifying you for a loan modification. NOTE: The system will automatically calculate the disposable income. This number should be within a relevant range. Too much disposable income will indicate your household makes too much money and represents no need for a loan modification. A large negative amount shown for disposable income will indicate that you have too much debt and your mortgage payment is too large. If this is the case, the lender will quickly see no matter how much they modify your loan, you will still be in a bad financial situation. Tab 3. Hardship Letter This page of your file includes your hardship explanation. A key factor that is required in every loan modification submission is the existence of a hardship. The hardship can be temporary in nature or permanent, but the borrower must be able to prove the hardship. The Loss Mitigation Department for your lender will review this explanation and want 6

7 verifiable proof of your explanation. So be prepared to back up what you say. The hardship "letters" you see in your file are templates. You will need to write your own personal hardship letter. We will provide instructions on how to do this in a later step. Tab 4. Q+A These detailed questions are important for the lender to review so they are able to determine eligibility for a loan modification. Tab 5. Contacts These are your lender's Loss Mitigation Department phone and fax numbers. Tab 6. Admin This is where you can make notes about your Modification as it is being processed. Simply click the blue bubble to the right of "Notes History" to add your own notes. IMPORTANT: Be sure to note any conversation you have with your lender, including the date/time and a detailed summary of the conversation so that you have it for future reference should you need it. As you start the process and engage in conversations with your lender, you will want to document every discussion. The more notes you keep: date/time, whom you spoke with, and details about it, the better. Tab 7. Docs This is where you select and print your Mortgage Loan Modification Documents. It's as easy as ! To print a particular document place your mouse over the name of the document, and then click it. The form will be populated with your information and then loaded into your browser. You'll print it from there! Now that you are familiar with each section of the software, let's get started. IMPORTANT: Our goal is for you to get your Modification Package to your lender within 1 week. You are required to sign your Modification Package yourself. In order to make sure you can get your Package to your lender within 1 week, we have set up our software so that you can print your Modification Package right on your computer, and then mail it directly to the lender the same day. So instead of us printing and then mailing you the Package, so that you can sign it, this gets your Package to the lender 2-3 weeks sooner! STEP 1: The first thing we need to do is to make sure your information is correct and typo free. So start by going through each page of your file and make sure the information is correct and typo free. If there are changes or corrections needed, please put them all into a single 7

8 and send all corrections at once to with the Subject: CORRECTIONS. When you us between the hours of 9 am - 5 pm ET we always try to get any corrections made within 4 hours. If you us corrections after 5 pm ET they will made the following morning. Once the corrections are made, we will or text you and let you know they are done. STEP 2: A key factor that is required in every loan modification submission is the existence of a hardship. The hardship can be temporary in nature or permanent, but the borrower must be able to prove the hardship. Since you know your situation better than anyone, you will need to write and provide us with the hardship letter. We have some tips on how to write an effective hardship letter at our website at Be sure to take the time to read the tips above before writing your letter. Please write your hardship letter in the body of an and send it to us at support@mortgagehelper.us with a Subject: Hardship Letter. This allows us to copy/paste it into the software for you quickly. We will add your personal Hardship Letter to the system so that it becomes a part of the Modification Package when you print it. Again, during business hours, we will add the hardship letter within 4 hours, and /text you to let you know it is done. Once you have heard back from us that the hardship letter has been added to the system, you need to print the Modification Package from the software. NOTE: When you print your Modification Package, all of the forms in the package will already be pre-filled out with your information. It is gathered from the software and added to the forms so that you only have to sign the documents where indicated. STEP 3: On the Docs page, on the left you will see a list of Loan Modification Packages to be used. (Do not use the lender specific packages to the right as they do not include the very important Summary Document that tells the lender the terms you are requesting.) 8

9 If you are including income of a person who is NOT on the mortgage, you need this form in addition to the Loan Mod Package. Use this form for your first mortgage. Use this form for your second mortgage, if you have one. You click the name of the form with your mouse, and then wait a few seconds. All of your information, from your file, will be merged into the Modification Package and your custom, ready to print, Modification Package will be displayed in your browser, along with instructions. See example below. 9

10 Scroll through and review the Modification Package for accuracy. You will see a printer icon at the top right hand corner of your browser window. You will need to print a copy of the Modification Package to sign, and then mail to your lender. You should also use the save button to save an unsigned copy of the Package to your computer for your records. Once you print the Package, the Cover Page includes instructions on where to sign. Be sure to sign each place indicated. Included in your Modification Package, that prints, are the following: - Cover Sheet - Loan Modification Request Letter (Please sign) - Income & Expense worksheets (Please sign) - Loan Modification Proposal 3 pages - Letter of Hardship (Please sign) - Qualifications Summary - Real Estate Cash Flow Worksheet (Complete if you own investment property) T (Please complete and sign page 1) - Home Affordable Modification Program Hardship Affidavit (Please complete) The following items are required as well. We ed this list to you, so you should already have them ready. If not, gather these items as they MUST be included in your Package: - Copy of your most recent Mortgage Statement - Copy of any delinquency notices, notice of default, etc from your lender - Past 2 years tax returns (signed) - Past 2 months pay stubs - Past 2 months bank statements (all pages) - Last 6 months profit and loss statement (only if self-employed) - Copy of drivers license - Most recent real estate tax bill (only if your taxes are not currently escrowed) 10

11 - Proof of Insurance (only if your insurance is not currently escrowed) Once you have gathered these supporting documents from this list, you'll need to write your loan number on the bottom of each page. IMPORTANT: Then put the package and supporting documents in the order listed on the Cover Sheet that printed as a part of your Modification Package. Once the Modification Package is signed, put your supporting documents (paystubs, bank statements, etc), with the Modification Package, in order, paper clip everything together, and put it into an Express Mail or Priority Mail envelope provided by the Post Office, and send it to your lender by Express Mail or Priority Mail. Get proof of delivery so that you know the exact date your lender receives the Package. MAIL your Package to your lender using the mailing address provided on the Cover Sheet. When you mail your package, if using Priority Mail, you should use a Flat Rate Priority Mail envelope to protect your documents, as well as expedite the deliver to your lender. Be sure to request return receipt delivery notification to ensure proof of its' delivery. IMPORTANT: You can fax your Modification Package to your lender. However, if you fax your Modification Package to your lender, they may not get it, and you have no proof of delivery. So if you are going to fax your Modification Package in, you MUST also mail it with proof of delivery. 11

12 What Happens Next? The lender is required to send you a confirmation letter within 5 days. You will generally need to allow 1-2 weeks, including mail time, to receive the confirmation letter from your lender. This letter will explain that your lender has received your Modification Package. It will also provide you a list of any missing documents. Usually there is a deadline date by which you need to get these documents to the lender. You will need to make sure you get any documents requested to the lender by the deadline. If you don't, they can, and usually do close your file and you will have to start the process over, from the beginning! The reason they do this... they are handling thousands of modification packages, and need to streamline the process so that they keep your file moving through the modification process. If it isn't moving (you don't get the documents to them by the deadline) they will close it to "get it out of the way". Understand that the lender can not place your Modification into the Underwriting Department until all documents have been received. This is why it is important you include everything needed in the initial Modification Package. Triple check it! Once the file is placed in the Loss Mitigation Department, a Loss Mitigation Specialist will send you a letter introducing themselves, and then they will review your case. About once a month, you will be contacted by phone/mail and asked to provide updated bank statements and proof of income. Once your modification is reviewed, and finalized, the lender will send you a package with your modified loan terms. Typically they will reduce your interest rate, adjust the length of your mortgage and in cases where eligible, reduce the principal. The lender will notify you, by mail, of the modified terms. If, for some reason, those terms are not acceptable to you, you can appeal their decision. They will include instructions on how to appeal. NOTE: 4. Per HUD Guidelines all Late Fees and associated Administrative costs should be waived. 5. All payments past due at the time the modification is approved will be capitalized into the modified principal balance (rolled into the backend of the loan). 6. The first payment will be due on the following full month from the date of the modification approval. IMPORTANT: Understand that your lender is processing thousands of modification requests at any given time. 12

13 With most lenders it takes 3-6 months for your modification to be approved. Be patient, and make sure you meet any deadlines given. If given a deadline to get a document back to the lender, make sure you send the document a method by which you can track it's delivery. Wait a few days, then follow up with a quick phone call to your Loss Mitigation Specialist to verify they received it. Useful Tips 1. Be patient and persistent when dealing with your lender or servicer. You can and should utilize our software to make notes of your conversations with your lender and to create a task or reminder that will send you an to remind you to follow up or perform the task you set. Your lender may request additional documentation and may even require you to complete some information on their forms. If they do, simply log into the software and duplicate the numbers there onto the forms that they have asked you to complete. 2. If you have two mortgages, you will need two separate packages - one for the 1st Mortgage and one for the 2nd Mortgage. The software will automatically prepare these documents. If the Loss Mitigation Department's information is missing or incorrect when you print the Modification Package out, be pro-active and call your lender or servicer. Ask for the Loss Mitigation Department or the Loan Modification or Work Out Department. 3. When your modification is approved, make sure it is sent to you in writing and carefully review the details. NOTE: The bank is always looking out for their own financial interest first! 4. Understand that your lender is processing thousands of modification requests at any given time. With most lenders it takes 3-6 months for your modification to be approved. Be patient, and make sure you meet any deadlines given. If given a deadline to get a document back to the lender, make sure you send the document a method by which you can track it's delivery. Then, make sure you follow up with a quick phone call to your Loss Mitigation Specialist a few days later to verify they received it. 13

14 Frequently Asked Questions 1. What Is a Mortgage Loan Modification? A Mortgage Loan Modification is when the bank allows a change in the terms of your existing mortgage. The purpose of a modification is to ultimately and significantly lower your monthly payments, for either a temporary or permanent period of time. 2. Who Can Get a Mortgage Modification? Anyone that is having trouble paying their existing mortgage payments. In today s housing conditions banks are willing to work with borrowers that are having trouble paying their mortgage. However, high probability characteristics are homeowners currently in an adjustable rate mortgage, have a high interest rate, are upside down on their home, and/or experiencing any kind of financial hardship. Most lenders have enhanced and expanded their Loan Modification Programs to include a wide array of hardship situations. There are seven (7) mortgage loan modification programs that can be used to address temporary hardships like layoffs, job loss or short-term income reductions, and permanent hardships like death of a spouse, disability, divorce, or severe medical situations. These newly expanded and enhanced programs allow your bank to modify or change the term of the loan, the interest rate, and in some cases, principal balance, to reduce the monthly payment to an amount you can comfortably afford. Homeowners with past due real estate taxes can apply as well, to get caught up and to escrow taxes going forward. In today s strained economic environment, the threat of foreclosure seems to lurk around every corner. Be assured: your lender does not want to foreclose on your property. Foreclosure is a no-win situation for the homeowner and the bank. A Loan Modification Program is the solution to ensure everyone comes out a winner. 3. Why Will My Lender Approve Me For a Mortgage Modification? The government has asked for all lenders to help in the foreclosure epidemic and modify mortgages for all troubled homeowners. A mortgage loan modification occurs where the parties to a problem loan mutually agree to workout the problem by creating new and better loan terms. The hope is that the new loan terms will enable the borrower to meet their obligations and pay the lender. 4. What If I Have Bad Credit? A Mortgage Loan Modification is not based on credit. Your lender is trying to make a good loan out of a troubled loan, so almost everyone that gets a Mortgage Loan Modification was past due before they got it. 5. What If I Have No Equity or I Am Upside Down On My Home? It does not matter! Some lenders are doing principal reductions, which means the bank will reduce the total loan amount to the current value of your home. This is called a principal reduction and is becoming popular for lenders. It does them no good to require you to pay them more than your home is worth. Their alternative is to foreclose and then sell the home at an auction, where they will only get the current market value anyway. 6. What If My Income Is Too Low? You will need to show the lender you can afford the new payment. If your income is too low, and there are people in the household who earn income, we can use their income to get you qualified for a mortgage modification. These people do NOT become responsible for your mortgage payment. However, if you have too much income, it can cause you to be denied or your mortgage payment to go up! This is where the expertise of our Mortgage Modification Specialists is most important. We will pre-qualify you to make sure that you have enough income to qualify, but not too much income. 14

15 7. What Should I Expect The Terms of My Loan To Be? One of the Mortgage Modification Programs has an interest rate of 2%. A lender will typically modify your loan into a loan you can afford and continue to pay. This may include a lower interest rate, payment reschedule, principal reduction, longer terms or any other function that will make and keep the loan performing. Lenders have rapidly changing guidelines for Loan Modifications. Our Mortgage Modification Specialists will be able to inform you of the current guidelines, when they provide you a free Mortgage Modification Analysis. 8. How Much Can I Really Save By Doing a Mortgage Modification? We see savings of as much as 35% - 50% off monthly mortgage payments! This can amount to hundreds of dollars a month. And remember, a mortgage loan is typically for 30 years. So the Mortgage Modification that saves you $ a month, really equals $150, over the life of the loan. 9. What Happens to My Past Due Payments? Do I Have to Pay Them? When your Mortgage Loan Modification is approved all of the past due payments, penalty fees, and interest are added into the principal amount of your mortgage. This allows you to become current in one simple step, without having to pay a penny of the past due amount!! 10. Does Every Lender Do Mortgage Modifications? Almost all lenders do. The government has asked for all lenders to help in the foreclosure epidemic and modify mortgages for all troubled homeowners. We are in a housing crisis and lenders are willing to work with clients to help save their homes. The hope is that the new loan terms will enable the borrower to meet their obligations and pay the lender. 11. How Long Does It Take To Get a Mortgage Modification? Each lender is different but it generally takes 3-4 months for a decision. 12. Are There Other/Hidden Costs Involved? There are no more costs assigned with a Mortgage Loan Modification. There are no costs for appraisals, credit reports, title searches, closing costs, broker fees, etc... The banks are modifying loans for no charge. 13. What Is The Difference Between Doing a Mortgage Loan Modification Myself or Hiring An Attorney? A law firm that specializes in mortgage modifications will charge you a very high fee ($3,500 - $5,000) to submit the same docs that you can submit yourself. In almost every case, the attorney assigns your file to someone in their processing department, and that person, not the attorney, does 95% of the work on your file. Lenders are willing to work with you on a Mortgage Modification without you having an attorney. So why pay an attorney's high fees to have their processing department handle it, when you can do it yourself for thousands of dollars less? What is important, is you have the correct, government and lender approved documents ready for submission, so the lender can efficiently and more effectively review your case. That is exactly what we will provide you! Your Lender Approved Mortgage Loan Modification Package has everything you will need including: 1. Fax Cover Sheet with your Lenders Fax number 2. Phone numbers and address to the Loss Mitigation Office handling your loan modification request. 3. Mortgage Loan Modification Request Letter 4. Mortgage Loan Modification Proposal 5. Detailed Monthly Expense Worksheet 6. Detailed Monthly Income Worksheet 7. Your Personalized Hardship Letter 15

16 Glossary Amortization: Repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15, 30, 40, or even 50 years) Annual Percentage Rate (APR): Calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan. ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap. Bankruptcy: A federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay. Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms. Credit history: History of an individual's debt payment; lenders use this information to gauge a potential borrower's ability to repay a loan. Credit report: A record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history. Debt-to-income ratio (DTI): A comparison of gross income to housing and non-housing expenses; With the FHA, the monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income. Deed-in-lieu: To avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn't allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure. Delinquency: Failure of a borrower to make timely mortgage payments under a loan agreement. Equity: An owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property. Fair market value: The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation. Fixed-rate mortgage: A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change. Foreclosure: A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Forbearance: A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments. Government Sponsored Enterprises (GSE): The government sponsored enterprises (GSEs) are a group of financial services corporations created by the United States Congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital 16

17 market more efficient and transparent. The desired effect of the GSEs is to enhance the availability and reduce the cost of credit to the targeted borrowing sectors: agriculture, home finance and education. Good faith estimate (GFE): An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application. Hard expenses: Hard expenses are monthly expenses that are definite and documented. Examples include installment debt such as mortgage payments, car loans, and personal loans. Most hard expenses will be included on one s credit report. Interest: A fee charged for the use of money. Interest rate: The amount of interest charged on a monthly loan payment expressed as a percentage. Interest Only: A feature of some MLCC loan programs that allows the borrower to pay only the interest on a loan, without paying down any principal with each monthly payment. Lender: To give/lend money on condition that it is returned and that interest is paid for its temporary use. Banks are commonly known as lenders. Your mortgage broker is not a lender, but rather sold your loan to a lender. Lien: A legal claim against property that must be satisfied when the property is sold. Loan-to-value (LTV) ratio: A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment. Loss mitigation: A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan. Mortgage (Mortgage Backed Security): A lien on the property that secures the promise to repay a loan. Mortgage banker: A company that originates loans and resells them to secondary mortgage lenders, for instance Fannie Mae or Freddie Mac. Mortgage broker: A firm that originates and processes loans for a number of lenders. Mortgage insurance: A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. Principal Balance Reduction: Instance where the bank forgives a portion of your principal balance as part of a loan modification. The mortgage payment due for this note is based on the revised loan amount. Only applicable in heavily depreciated areas. Refinancing: Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (such as a lower interest rate). Repayment Plan: Adding a portion of the delinquent mortgage balance on top of the normal monthly payments until caught up. RESPA: Real Estate Settlement Procedures Act Short Sale: A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. Soft expenses: Monthly expenses that fluctuate and are difficult to document. These include food, gas, incidentals, entertainment and are not reported on one s credit report. Teaser Rate: A temporary rate reduction at the beginning of a loan s term. TILA: Truth in Lending Act. 17

18 Home Affordable Modification Program The Home Affordable Modification Program (HAMP), a component of the Making Home Affordable Program, is a uniform loan modification process that provides eligible borrowers with sustainable monthly mortgage payments equal to a target 31 percent of their gross monthly income. Borrower and Loan Eligibility Eligibility criteria highlights include: Mortgage loan is secured by a one- to four-unit property, one of which is the owner s principal residence (condos, coops and manufactured homes that are permanently affixed to real property also eligible) Jumbo-conforming loans eligible Documented financial hardship (e.g., job loss, divorce or separation, reduced income use Home Affordable Modification Program Hardship Affidavit, Form 1021) Borrower in default, at risk of imminent default, or in foreclosure loan may be in active litigation or, at servicer s discretion, in bankruptcy Loans originated on or prior to January 1, 2009 Escrow account required for taxes and insurance Excludes mortgage loans insured or guaranteed by a federal government agency and loans subject to full lender recourse Servicer Requirements Required participation for all eligible Fannie Mae portfolio mortgages and MBS pool mortgages. Servicers are prohibited from soliciting borrowers who are less than two payments past due, including borrowers in imminent default. However, if a borrower in this situation contacts a servicer, the servicer may consider the HAMP as a loss mitigation option. Must use a two-step workout process that first provides a three-month trial period (four months for 18

19 loans facing imminent default). If the trial period is successfully completed, the loan will be modified. Separate agreements are required a Trial Period Plan for the trial period and a Modification Agreement for the permanent loan modification. Servicers are strongly encouraged to use HAMP borrower solicitation materials and documents found on efanniemae.com. Servicers may revise materials and documents within specified parameters. Other changes must have prior written approval of Fannie Mae. Incentive Fees $1,000 servicing incentive fee paid to servicer for each borrower who successfully completes the trial period and executes a Modification Agreement. Additional $500 servicing incentive fee if borrower was current but facing imminent default at the time of the modification. Up to $1,000 annual pay for success servicer incentive fee for up to three years for each borrower who remains in the program for that year. Under certain conditions, borrowers can receive an annual principal reduction of up to $1,000 for up to five years. Costs No cost to the borrower from the lender. All late charges that accrued prior to modification must be waived if the borrower successfully completes the trial period. Accrued interest and out-of-pocket escrow and other advances to third parties made by servicer in the ordinary course of business (and not retained by the servicer) before or during the trial period can be capitalized. Servicer must advance any actual out-of-pocket expenses such as notary fees, recordation fees, property valuation fees, borrower counseling fees, or other allowable and documented expenses and be reimbursed later for allowable out-of-pocket expenses. Resources Visit the Home Affordable Modification page on efanniemae.com ( and HMPadmin.com, the Treasury s administrative site for servicers, for more information and resources. Information about the Home Affordable Modification Program for non-gse loans is also available at HMPadmin.com Fannie Mae. FM This summary is intended for reference only. All criteria are subject to the formal terms and conditions of the Fannie Mae Servicing Guide as amended by Announcement 09-05R. In the event of any conflict with this document, the Servicing Guide will govern. The Making Home Affordable logo is a trademark of the United States Department of the Treasury and is used under license. 19

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