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Loan Modification KIT by tigreroar

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Loan Modification KIT : For Homeowners that are considering a loan modification on their loans.

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									                                                                                      2009


                                 Loan Modification Guide




The information contained in this guide are intended as a general research and information and are expressly not intended,
and should not be regarded, as financial or legal advice. We attempt to ensure that the material contained in the guide is
accurate and complete at the date first published, however you should recognize that information contained in this guide
may become out of date over time. Readers who have particular questions real estate financing or foreclosure, or who
believe they require legal counsel, should seek the advice of an attorney.
CONTENTS

  The Essentials
   Introduction

  The Loan Modification Process
   What is a Loan Modification?

  Modifying My Loan
   What are Loss Mitigation / Home Retention Departments?


  How to Choose a Service Provider to Help You Modify Your
    Loan

  Income vs. Expense Worksheet
  Finalizing and Submitting Your Modification Proposal
   Putting the Loan Modification Proposal Together and Submitting

  Glossary of Terms
   The Essentials
Introduction

Facing foreclosure can be overwhelming and scary, but by taking the right steps you may be
able to keep your home and save your credit. The following guide breaks down how to get
through the process yourself as well as what you need to look for in a loan modification
specialist if you choose to work with a professional foreclosure prevention firm to renegotiate
your mortgage.

Causes of the Modification Boom and the Foreclosure Crisis

Sub-prime mortgage practices deserve much of the blame for the current crisis. Throughout the
early part of this decade, mortgage lenders earned huge profits lending money to borrowers with
questionable credit histories. The roaring housing market and the availability of easy credit
perpetuated a cycle of refinancing whereby a borrower that could no longer afford their monthly
mortgage payment could simply refinance into a new mortgage; often at a low teaser rate.

Once the housing market stalled, however, sub-prime borrowers found themselves unable to
refinance. This led to record numbers of foreclosures. As reported in a New York Times article
in December 2006, "about 1.1 million homeowners who took out sub-prime loans
In the last two years will lose their houses in the next few years. The article further explains that,
"foreclosure will cost those homeowners an estimated $74.6 billion, primarily in equity.”

Recently, a new wave of problems has arisen from so-called Alternative-A loans. These Alt-A
loans were very popular over the past several years among self-employed borrowers or those
with stated incomes. Many individuals who obtained Alt-A loans have been unable to stay
current on their mortgage payments, especially as those loans have adjusted to higher interest
rates. With housing prices dropping, borrowers are finding themselves upside-down and actually
owing more on their loan than the value of their home.

Loan Modification v. Refinance

In the current credit environment, refinancing is extremely difficult. Typically, homeowners
must prove that they have excellent credit, job security, disposable income, and the capability to
pay a large mortgage. Lenders have eliminated programs for less qualified and sub-prime
borrowers, so homeowners that have fallen behind on their mortgage or owe more than their
house is worth, face an even more difficult time trying to refinance. Quite simply, a loan
modification may be the only option for a great number of homeowners.
    Loan Modification Process

What is a Loan Modification?

A loan modification is one of the best options available for struggling homeowners and
lenders alike.

Loan modification is a long-term solution that will help the borrower make their loan
payments and stay in their home. This can be accomplished by decreasing the interest
rate, or if an adjustable rate, changing it to a fixed rate. A loan modification can also be
a lengthening in the period of time the borrower has to pay the loan back, or switching
to a different type of loan all together.

A loan modification is beneficial to the borrower because it allows the individual or
family to remain in their home and grants them loan terms that work better with their
particular life style or situation. A loan modification in comparison to foreclosure,
bankruptcy, or some of the other options allows the borrower to keep their credit score
intact.

Loan Modifications are also beneficial to banks and lenders, especially with foreclosure
rates sky rocketing in the last few years. Banks lose a lot of money in a foreclosure. Not
only does It cost money to go through with a foreclosure but it often results in an overall
loss for the banks, as the homes often sell for less than they are worth, or less then the
outstanding loan amount itself.

In a CNN report on March 6, 2008 Bob Moulton of America Mortgage said, "It's cheaper
for a bank to renegotiate payments than to chase someone and miss out on monthly
mortgage payments. This is entirely true; banks lose over SO cents to the dollar on
homes that are sold through foreclosure auctions.

Which type of loan modification should you pursue?

Some forms of loan modifications are more easily obtained then others. One of the
easiest ways to modify your loan is to ask to decrease the interest rate. Most lenders
are willing to aggressively decrease interest rates for qualified applicants. A decreased
interest rate can save you anywhere from a few hundred to a thousand dollars every
month; this depends on the amount of your loan.

Lengthening your loan is another way to modify, which is often not too difficult to have a
lender carry out. By increasing the number of years you have to pay off a loan a
homeowner can decrease their monthly payment by a couple hundred dollars.
A principle balance reduction is the most difficult loan modification to obtain. This involves the
lender forgiving a portion of your debt. It is very difficult to get a lender to agree to this type of
modification, because the lender has to report that money as a loss to upper management.

It is worth it to pursue a loan modification as they were designed to help the homeowner and the
lender, particularly in times like these.

What to do step by step

Once a homeowner realizes that they are unable to make payments they should immediately
contact their lender. Do not take out a loan to pay your mortgage; this is one way to sink further
into debt.

The homeowner must then evaluate their finances using an income v. expense worksheet. This
should include all expenses minus the mortgage, this will allow the homeowner to see where
they spend a majority of their money each month, and possibly make adjustments to what they
spend money on and how much money they spend. The homeowner must be sure to be accurate
with the amounts they reports as the bank will most likely ask for proof.

Based on what the homeowner finds through evaluating their finances, they should then
establish a reasonable monthly payment amount, and present this along with the loan
modification proposal.

The lender will have the homeowner contact the loss mitigation department to review their
options. It is important to find out exactly what the loss mitigation officer wants. They will
typically ask for an income v. expenses worksheet, so it is important to have this ready ahead of
time, this will help push the process along. This may also give them the ability to freeze the
loan, therefore the homeowner is not accruing any additional late fees or debt.

Once the homeowner has submitted their worksheet they can begin negotiations. There is a
chance the lender will accept the original request, but often this process requires negotiations. If
the homeowner is denied a loan modification it is important not to give up, and to consult an
attorney or attorney based loan modification company regarding the situation. It is important
that the terms agreed upon are in fact terms the homeowner can meet.

The Foreclosure Process

The foreclosure process differs from state to state. Below is a list of each state's estimated time
for the foreclosure process; this is the amount if time it takes for a foreclosure to be complete
following the Notice of Default. (Typically a Notice of Default is sent 90-120 days after the
account becomes delinquent.).
It is always best to act fast. The moment homeowners feel they're falling behind they should
contact their lender. Typically the sooner you catch the problem the better your chances of
receiving a loan modification. Once a foreclosure sale date is set, a loan modification is difficult
to obtain. If a homeowner is faced with foreclosure it is also important to become familiar with
the laws in their state. As each state has a different way of carrying out a foreclosure.



                                  Process Period                      Process Period
                       States                            States
                                      (Days)                              (Days)
                Alabama                49-74         Montana               150

                Alaska                  105          Nebraska              142

                Arizona                 90+          Nevada                116

                Arkansas                70           New Hampshire          59

                California              117          New Jersey            270

                Colorado                91           New Mexico            180

                Connecticut             62           New York              445

                Delaware              170-210        North Carolina        110

                Washington D.C.         47           North Dakota          150

                Florida                 135          Ohio                  217

                Georgia                 37           Oklahoma               90

                Hawaii                  195          Oregon                150

                Idaho                   150          Pennsylvania          270

                Illinois                300          Rhode Island           62

                Indiana                 261          South Carolina        150

                Iowa                    160          South Dakota          150

                Kansas                  130          Tennessee            40-45

                Kentucky                147          Texas                  27

                Louisiana               180          Utah                  142

                Maine                   240          Vermont                95

                Maryland                46           Virginia               45

                Massachusetts           75          !Washington            135

                Michigan                60           West Virginia         135

                Minnesota              90-100        Wisconsin             290

                Mississippi             90           Wyoming                60
                Missouri                60
     Modifying My Loan

What are Loss Mitigation I Home Retention Departments?



Banks are in the business of lending money. They are not in the business of maintaining
properties or selling houses. What is surprising to many borrowers is that lenders do not in fact
want your property. Lenders do not want you to fall behind on your payments, and
subsequently lose your home. Lenders want you to stay in your home and continue to make
payments.

Most lenders have a loss mitigation department to assist people who have fallen behind on
their payments. The loss mitigation departments are designed to make sure the lender doesn't
lose out on a great amount of money by having to foreclose on a property.

There are certain routes mitigation departments take to ensure the best for both the lender and
the borrower. They will often give you more time to pay your payment or postpone the payment
to the end of the loan payment period. Primarily this is a process that allows the
borrower to negotiate a payment plan that will allow the borrower to not lose their home and
also protect the lender from losing out on money.

If you talk to your lender and explain the situation you are in as well as the desire you have to
keep your home there will be a certain level of leeway available to you. The foreclosure
process can be pricey, especially when you tack on court cost and attorney fees, this is an.
other reason you may be able to get the lender to work with you.

Dealing with the mitigation department is sometimes difficult as they have an increasing
number of people asking for help with the new economic status of our country, and it may also
be difficult to convince them of the severity of the problem you are facing. As a result you must
be on the ball, you need to be educated on your options and have professional proposal
package, which will outline just how much the lender will lose if they go through with the
foreclosure process.


Homeowners hold more power than they often realize. The banks want you to be able
to make your monthly payment on time because this is essentially how they make their
money. If a homeowner has a reasonable plan as to how they can pay the monthly payment
following a loan modification the bank will be willing to listen.
Contact Information
Below are the customer contact telephone numbers of HOPE NOW servicer members. If you
are a homeowner having trouble with your mortgage, please call your servicer's hotline for
assistance (please have your account number ready when calling).

If you would like to talk to a HUD-approved homeownership counsel please call the Ho-
meowner's HOPE Hotline, 888.995-HOPE, operated by the Homeownership Preservation
Foundation. Free counseling is available 24 hours a day, 7 days a week. You can also visit
www.995hope.com for more assistance.




       Aurora Loan Services            Home Loan Services                Nationstar Mortgage, LLC
       800-550-0509                    800-500-5022                      888-480-2432


       Avelo Mortgage, LLC             HomeEq Servicing                  Ocwen Loan Servicing, LLC
       866-992-8356                    888-270-6663                      877-596-8580

       Bank of America                 HSBC Consumer Lending             Option One Mortgage Corp.
       800-846-2222                    800-333-5848                      888-275-2648

       Carrington Mortgage Services    HSBC Mortgage Services            Saxon Mortgage Services
       800-790-9502                    800-365-6730                      888-325-3502

       CitiFinancial/Citi Trust Bank   HSBC Mortgage Corporation         Select Portfolio Servicing
       800-422-1498                    888-648-3124                      888-818-6032

       CitiMortgage/Loss Mitigation    JPMorgan Chase Prime Loans        SunTrust Mortgage, Inc.
       866-272-4749                    800-446-8939                      800-443-1032

       Citiresidential Customer Care   JPMorgan Chase Non-Prime          Washington Mutual, Inc
       800-430-5262                    877-838-1882                      866-926-8937

       Countrywide Home Loans          JPMorgan Chase Home Equity        Wells Fargo Home Mortgage
       800-669-6650                    866-582-5208                      877-216-8448

       EMC Mortgage Inc.               JPMorgan Chase Default HPO Help   Wells Fargo Financial
       877-362-6631                    Line 866-345-4676                 800-275-9254

       First Horizon Home Loans        Litton Loan Servicing             Wilshire Credit Corporation
       800-364-7662                    800-999-8501                      888-817-1050

       GMAClHomecomings/ResCap         National City Mortgage Corp.
       800-799-9250                    800-523-8654
Hardship I Hardship Letter

There are several documents you will need when contacting your lender in order to prevent
foreclosure or trying to obtain a loan modification. The first being a hardship letter, see the
example below. You will also want copies of financial statements, current bank statements,
pay stubs, and your most recent tax return. You will also want copies of:

- Financial statements
- Current bank statements
- Pay stubs
- Your most recent tax return

Name: (Your Name)                                    Lender Name: (Your Lender)
Address: (Your Address)                              Loan #: (Your Loan #)

To Whom It May Concern:
I am writing this letter to explain my unfortunate set of circumstances that have caused us to become
delinquent on our mortgage. We have done everything in our power to make ends meet but
unfortunately we have fallen short and would like you to consider working with us to modify our loan.
Our number one goal is to keep our home and we would really appreciate the opportunity to do that.
The main reason that caused us to be late is (insert reason here and don’t be too lengthy and long
winded) Soon after being late and our income not being nearly enough, we had fallen further and further
behind. Now, it’s to the point where we cannot afford to pay what is owed to (lender). It is our full
intention to pay what we owe. But at this time we have exhausted all of our income and resources so we
are turning to you for help.
(The approximate date of hardship and we believe that our situation is Temporary or will be Permanent.)
Our situation has got better because (reason here) and we feel that a loan modification would benefit us
both. We would appreciate if you can work with us to lower or delinquent amount owed and or payment
so we can keep our home and also afford to make amends with your firm.

We truly hope that you will consider working with us and we are anxious to get this settled so we all can
move on.


Sincerely and Respectfully,




         Borrower’s Signature                                            Co-Borrower’s Signature
Date                                                              Date
What Banks are looking for to Grant a Loan Modification

Banks do not want to take a home through the foreclosure process. What they are looking
for is proof that the homeowner wants to keep the home, and is willing to repay the bank
what they owe in the terms they have agreed to.

When a borrower is no longer able to make their payments the loan becomes what is
called a non-performing asset, as the loan is no longer bringing money to the bank.
Turning the non-performing asset into a performing asset is a matter of income; if a loan
modification is possible a bank wants to be certain that following the modification the
loan will remain a performing asset.

If the bank modifies a loan and the borrower is still unable to make the payment the bank
loses out even more. This is why it is important to report all of your income on the
Income v. expenses worksheet, because if the bank does not believe you can make the
payment they will not modify your loan. It is also important to show that the homeowner
is willing to give up luxury items (extra cars, boats, etc.) in order to keep their home.
  How to Choose a Service Provider to Help You Modify Your Loan


Many homeowners choose to hire loan modification experts to assist them in the loan
modification process. Choosing the right company to work with is very important. Here
are a few questions you should ask a service provider before deciding to work with a
loan modification firm.

Questions to ask a Service Provider

How long has your business been working with homeowners in need of
loan modifications?
When choosing a loan modification company it is always good to choose one that has been in
the business for some time. If they have been working on loan modifications for several years,
they not only have experience, but also probably have a decent reputation.

Does your business belong to the Better Business Bureau?
The Better Business Bureau is a non-profit agency that aims to serve businesses and consumers
by encouraging voluntary ethical business practices. It is always a good sign if the Better
Business Bureau supports the loan modification company.

Are you an attorney based loan modification company?
As described later in this guide, attorney based loan modification companies often have a
more influence and power when it comes to carrying out a loan modification, however they are
also often more expensive.

What success rates do have with modifying loans for other homeowners? A
legitimate company they should be able to offer you some sort of breakdown of how many loan
modifications they have helped carry out.

Are there any references that you have or samples of approved loan
modifications that your company has done?
This can serve as a follow-up to the previous question.

What do you charge for your service?                                     '
The fees of service providers vary slightly. Attorney based loan modification companies often
charge more as you are obtaining legal services. The charges should never be more than two
mortgage payments.

Are there any hidden costs?
It is good to ask this up front. Be sure that you have it in writing that you will not be responsible
for any other cost then what you have agreed upon.
Does your company have a money back guarantee?
A money back guarantee can be a good option, but it can also be a sign of illegal
operations and the chances of getting your money back maybe limited. If a company
offers this guarantee you'll want to weigh your options, and be sure if you decide to work
with the company that you have a signed document stating this guarantee.


Do I pay you before or after the loan modification process is complete?
Paying for the services up front is not a good idea. Be sure to thoroughly research the
company before paying them any money. There are some states that have laws preventing
loan modification firms from taking upfront fees. Recently Florida and Maryland passed
Acts which prevent foreclosure consultant from claiming, demanding, charging, or
receiving any compensation until after the foreclosure process is fully completed. Be sure
to know what your state laws are regarding this matter.


What options are available to someone in my situation?
Get an idea of what they plan to do for you. After giving them a description of your
situation they should be able to give you advice.


Attorney Based and Non-Attorney Based Loan Modification Companies

All Loan Modification Companies have a similar routine in that they analyze the hom-
eowner's finances, contact the lender, and will provide a market survey to determine the
value of the home on the open market as well as in a foreclosure auction. There are
several differences between the two, and that is how much power they have. While they
are able to complete the same tasks an attorney based loan Modification Company has
quite a bit more power, as they are contracting legal services for analysis using the threat
of litigation.

With this said there is also a difference in the cost for each. A normal loan modification
company will typically charge anywhere from $1,200 to $3,000, where attorney based
companies generally charge anywhere from $2,500 to $7,500 depending on how much
work is required.

Before working with either company it is important to do your research. Make sure loan
modifications is indeed what they specialize in. If working with an attorney based com-
pany make sure they specialized in RESPA, TILA, and other predatory lending prior to
the beginning of the housing market crash.
Avoiding Scam Artists

People are always looking for a new way to make money; unfortunately it is not always
done in an honest manner. With foreclosures on the rise many people have seen this as an
opportunity to cash in on. To avoid being scammed there are a few things to look out for.



      Do NOT sign any papers that you don't understand
      Get everything the company promises down in writing
      NEVER sign your deed over to someone. Doing so does not relieve you from your
      loan obligations
      Be sure to have your lawyer get involved before entering any deal involving your
      home
      Never give money up front



Some common scams include:

Equity stripping - When a lender offers an outrageous loan to help you avoid foreclosure,
these loans are based on your equity and not your ability to pay. So once you default on
the loan they will foreclose on you.

Up-front payments with no intentions of performing the service - There are many people
out there offering assistance to homeowners in trouble who are unqualified to do so. Be-
ware of anyone who is looking to collect money up front, and do your research before
agreeing to work with a firm. There are several states that prohibit companies from
collecting any money before the loan modification process is completed.

Signing the deed over - Some companies offer to help you if you sign over the deed for a
year. What they don't tell you is that they're transferring the deed. The person to whom
they're transferring it is taking out a much bigger mortgage on the home and cashing out
equity.
    Income Vs. Expense Worksheet

Financial Statement

Each lender will ask you to fill out a financial statement that you must submit to the
lender. The lender uses this statement to verify that the homeowner is eligible for a loan
modification.

In order to successfully complete the lender's financial statement you'll need access to all
of your monthly bills, bank statements and recurring expenses so that you can accurately
document your assets and liabilities. A typical loan modification financial worksheet will
Request the following information:




Property information
Including estimated value
Current monthly income
Additional income (not wages)
such as social security, child support, welfare, etc.

Dependent care / child care / tuition Cable / cell phone

Contact Information

Other mortgagees) / rent Personalloan(s) / credit cards

Estimated value of all assets Home
Other real estate
Checking accounts
Savings
IRAs
401 (k) accounts
Stocks, Bonds, CDs
Auto 1, Auto 2, Boats, RVs, etc. Other investments
Medical expenses
HOA fees / taxes / insurance

Automobiles

Tax liens

Utilities

Auto expense (gas / maintenance)

Liabilities (monthly payments and balance owed) Alimony - Child support

Additional Information Needed on Your Financial Statement

In addition to providing your lender with your financial numbers you should also explain
to them the reason why you are unable to make the payments. Make sure to be honest and
upfront with your lender about the reason why.
                    Loan Modification Income and Expense Worksheet

       Monthly Expenses           Monthly Payments     Creditor - Bank - Servicer
Property Taxes

Home Insurance

H.O.A. Fees

Other Mortgages or Installments

Auto Insurance

Auto Loans

Credit cards - Unsecured Loans

Child Care

Alimony/Child Support

Medical - Dr. Expenses

Health Insurance

Life Insurance

Cell Phone

Other Phone

Gas - Heating

Electricity

Trash - Sewer

Water

Food

Transportation

Cable - Satellite

Clothing

Other (Specify)

Total Household Expenses (A)
                                        Income Worksheet
Source of Monthly Income              Borrower              Co-Borrower        Sub-Total Income
Gross Monthly Income

Commission

Overtime

Bonus

Tips or Undocumented Income

Earned Interest

Rental

Social Security

Pension - Retirement

Disability

Alimony/Child Support

Unemployment

Other (Specify)

Total Household Income (B)



                              Income Vs. Expenses Worksheet
Total Household Income (B)    -     Total Household Expenses (A)   =       Disposable Income
$                             - $                                  =   $
Finalizing and Submitting Your Modification Proposal


     Putting the Loan Modification Proposal Together and Submitting
     Here is a list of some of the items the homeowner should include in the proposal.

     Cover Sheet                                 Last year's 1040's / w2's
     Proposal Form                               Most recent three months bank statement
     Income V. Expenses Worksheet                Hardship Letter
     Most recent 3 months pay stubs              Mortgage Statement



     Developing a Loan Modification Proposal

      When creating a proposal you should be up front about what you are trying to achieve.
      The proposal should be included in the text of you cover sheet, when doing the
      income calculations of you want to be sure to have some disposable income after the
      modification. About 10-16% percent of your income after taxes should be left over as
      disposable income. Your proposal needs to be reasonable, for both you and the lender;
      if a lender finds a proposal unreasonable they can either deny you, or you will enter
      negotiations.

      If a Principal Balance Reduction is denied

      It is not impossible in this market to have your principal balance reduced. If your
      lender denies your original proposal, be sure to ask why it was denied and come back
      with another offer. If they continue to refuse your offer use the foreclosure threat,
      show them once again how much they will lose if your home falls into foreclosure. It
      is important to keep in mind that loss mitigation officers work off bonuses and quotas,
      so you may have to push back a little harder.

      If you continued to be denied this might be a sign to hire someone, an attorney will
      be able to find RESPA and/or TILA violations in your loan documents, and you will
      have a much easier time having a modification granted to you.
                    Loan Modification Cover Letter (Example)



Name:                                        Loan Number(s):
Property Address:                            Date:

To Whom It May Concern:
(Find out which department will be receiving this)



Attached you will find my proposal and supporting documentation for a loan modification
regarding loan number _______. After analyzing my income the current real estate market
the following proposal seems fair to both parties involved. I am currently unable to afford
the mortgage payments how they are. However, I will be able to maintain the proposed
payments consistently on-time for the foreseeable future. I would prefer to stay in my
home at these payments but if a modification is not possible I will be forced to foreclose.


New Principal Balance: $ _______
New Interest Rate: ____________%
New Amortization Period: _______Years
 New Payment: $_______________


Documents included, in order:
     Proposal Form
     Income vs. Expenses Worksheet
     Most recent 3-month pay stubs
     Most recent three months bank statement Hardship letter
     Value Assessment



 A further analysis will follow.



 Your Name Here
 Signature
                                Loan Modification Proposal (Example)




Loan Modification Proposal
Request to Modify under the following terms:

Current Existing Balance                            $_____________
Current Fair Market/New Principal Balance
                                                    $_____________
Include supporting documentation
Principal Balance Reduction                         $_____________


Current Interest Rate                               _____________%
Requested Fixed Interest Rate                       _____________%


Amortization Remaining                              ___________Years
Requested Amortization                              ___________Years


Previous Payment                                    $_____________
New Payment                                         $_____________

Disposable Income for Housing
                                                    $_____________
(Include income vs. Expenses Worksheet)
Disposable Income Post Modification                 $_____________

Comparable Home Foreclosure Auction Price
(Include supporting Documentation)                  $_____________

State Timeframe to Repossess Property               $_____________

Late Fees/Penalties                                 Forgiven - Waived

Late Balance                                        Incl. In New Principal Balance

Market Rent for Similar House in Neighborhood       $_____________

Requested Next Payment Date/ Forbearance            Request 3 Months
Glossary of Terms


Amortization: the repayment of a 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 after
a specific amount of time.

Annual Percentage Rate (APR): is calculated by using a standard formula. The APR shows the
cost of a loan; expressed s a yearly interest rate, it includes the interest, points, mortgage
insurance, and other fees associated with the loan

Adjustable Rate Mortgage (ARM): a mortgage loan subject to change in interest rates. When
rates change, ARM monthly payments increase or decrease at intervals determined by the
lender.

Bankruptcy: a federal law whereby a person's assets are turned over to a trustee and used to pay
off outstanding debts, this usually happens when someone has 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 list all past and preset debts and the timeliness of their repayment; it
documents an individual’s credit history.

Debt-to-income ratio: a comparison of gross income to housing and no-housing expenses. With
the FHA, the monthly mortgage payment should be no more than 29 percent of the monthly
gross income before taxes and the mortgage payment combined with non-housing debts should
not exceed 41 percent of income.

Deed-in-lieu: a deed given to the lender to fulfill the obligation to repay the debt; this process
does not allow the borrower to remain in the house, but helps avoid the time and costs associated
with the foreclosure process.

Delinquency: the failure of a borrower to make timely mortgage payments under a loan
agreement.

Equity: an owner's financial interest in a property, which is calculated by subtracting the amount
still owed on the mortgage loans from the fair market value of the property.
Fair Market Value: the theoretical 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 a loan because the interest rate and other terms are fixed and do not change.

Foreclosure: a legal process in which a mortgaged property is sold to pay the loan of a
defaulted borrower.

Government Sponsored Enterprises: a group of financial services corporations' created
the United States Congress. Their purpose is to enhance the flow of credit to targeted
sectors of the economy and to make those segments of the capital market more efficient.

Good Faith Estimate: 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 following the
submission of a loan application.

Hard Expenses: monthly expenses that is definite and documented. Examples include
Installment debt such as mortgage payments, car loans, and personal loans.

Interest: is 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 allow the borrower to pay
only the interest on the loan, without paying down any principal with each monthly pay-
ment.

Lender: someone who gives or lends money on the condition that it is returned and that
Interest is paid for its temporary use.

Lien: a legal claim against the property that must be satisfied when the property is sold.

loan to value 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 a down payment.

loan Modification: a process initiated by the homeowner in order to change the terms of
the loan with the lenders approval. This may include a decreased interest rate, a short
amortization, or a decrease in the loan amount.
Loss Mitigation: a process to avoid foreclosure. The lender tries to help the borrower who
has been unable to make loan payment and is in danger of defaulting on his or her loan.

Mortgage: 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 mort-
gage lenders such as Fannie Mae or Freddie Mac.

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 percent of the homes
purchase price.

Non-Performing Asset: is a loan that a borrower is no longer able to make payments on.
It is considered non-performing for it is not making the bank money.

Performing Asset: is a loan a borrower is able to make payments on. It is considered a
performing asset for it is making the bank money.

Principal Balance Reduction: when a bank forgives a portion of your principal balance as
part of a loan modification. The mortgage payment due for this note is based off the new
loan amount.

Refinancing: paying off one loan by taking on a new loan. Refinancing is usually done to
secure better loan terms.

Repayment Plan: adding a portion of the delinquent balance on top of the normal monthly
payment.

RESPA: the Real Estate Settlement Procedures Act

Short Sale: The sale of a home, which falls short of what the owner owes on the mort-
gage. Some lenders will agree to allow a short sale and forgive the rest of what is owed if
the owner is unable to make the mortgage payments. This is one way to avoid a foreclo-
sure.

Soft Expenses: monthly expenses that fluctuate and are difficult to document such as,
food, gas, incidentals, entertainment, and are not reported on one's credit report.

Teaser Rate: A temporary rate reduction at the inset of a loan.

TILA: Truth in Lending Act.

								
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