Many lenders are participating in the Home Affordable Modification Program. This government-sponsored loan modification program offers incentives for lenders to help troubled homeowners with their mortgages through a loan modification.
Successful modifications rewarded
Currently, many lenders are extending temporary loan modification terms to borrowers. If the borrower proves they can make their payments during trial loan modification period, the lender may deem the borrower eligible for permanent mortgage modification.
With the HAMP initiative, lenders receive $1,000 from the government per home modification. The Federal Government will also award a lender if their borrowers regularly make mortgage payments on time.
Lenders can recoup cash from underwater homes
Many lenders or loan servicers have been refusing loan modifications because of the precipitous decline of home value across the country. A lender stands to lose big if a borrower’s home is underwater. This is the single greatest impediment to getting a mortgage modification. Government incentives are often not enough to offset the huge financial deficit that a lender incurs with an underwater home modification.
Importantly, the Federal Government has put together an insurance trust that loan servicers can draw if a borrower’s home loses value. This means a lender can recoup a loss of equity, even though a borrower cannot.
Incentives to act early and save borrowers
A borrower must fall behind on his or her loan payments to qualify for a loan modification. This is perhaps the most damaging reality of loan mod programs because the borrowers’ credit takes a debilitating hit before he or she can qualify.
Under the HAMP program, lenders are encouraged to act often and early when borrowers fall behind on one of more payments. They receive generous incentives to assist borrowers and streamline the loan modification process. For the borrower, this reduces the blow to their credit. Check the Department of Housing and Urban Development website for details on the HAMP program.