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Loan Modification KIT : For Homeowners that are considering a loan modification on their loans.
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complete at the date first published, however you should recognize that information contained in this guide may become out of date over time.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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