Loan Type Determines Modification Options

Chicago Tribune
August 10, 2008
By Susan Chandler

How can you find out if you qualify for a loan modification?

Call your lender, although it's very likely they are just a middleman who forwards your payments to investors. If that's the case, what they tell you will be governed by policies and agreements made elsewhere and that can make getting an answer on a modification request difficult and time-consuming.

If you think you're getting the runaround, try to move past the front-line employee, recommends Jeremy Brandt, CEO of 1-800-CashOffer. Ask to speak to the representative's manager and the manager's manager. "You can say, 'Nobody wants to help me until I'm behind, but I have to have my loan modified or I can't make any more payments.' "

Even if your lender is sympathetic, your loan servicer may not have the authority to modify your loan.

If your loan is FHA-guaranteed, the Federal Housing Administration calls the shots. Under its policies, only borrowers who are behind in payments "for at least 90 days" are eligible for modifications.

Fannie Mae, the government-sponsored mortgage investor, specifies that borrowers be delinquent on three consecutive payments. Freddie Mac allows modifications on loans that are current but insists lenders seek its approval in each case.

Rules are harder to find in the private mortgage market, where investment banks have purchased loans to feed investors' demand for mortgage-backed securities. For each batch of securities, an agreement lays out the conditions under which a mortgage servicer can cut a deal with a distressed borrower.

In some cases, those agreements may prohibit loan modifications unless a loan is delinquent. Typical language calls for a loan to be "in default or imminent risk of default" before a lender can take action, said Vicki Vidal of the Mortgage Bankers Association, an industry trade group.