How Many Loan Modifications Are You Allowed?

If you have received a loan modification in the past, and you find yourself in financial trouble again, you may be wondering how many loan modifications you are allowed.

The short answer is: the number of loan modifications you can receive depends on who your investor is and what their guidelines allow.

As a reminder, your investor is the party who owns the debt – it is not your mortgage servicer or the party you deal with on a regular basis. Your servicer is acting on behalf of your investor, so your first step is to figure out who your investor is and then go from there.

You can ask your mortgage servicer to tell you who the investor is on your loan.

90% of mortgages are owned by a government-backed investor. The top government-backed investors are Fannie Mae, Freddie Mac, FHA, USDA and the VA.

These investors have guidelines that dictate whether you can receive multiple modifications.

VA Loan Modification Restrictions

If you have the VA as your investor:

• You cannot receive more than 3 loan modifications over the life of your loan

• You cannot receive another modification if you received your last one within the last 3 years

• A minimum of 12 payments must have been made toward your mortgage before you can  receive a modification

So, with the VA, you can receive more than one modification but there must be more than three years between the modifications and you cannot have more than three modifications total.

You will also be denied a modification if you haven’t made payments on your original loan for a  minimum of one year. If you default on your mortgage within a year of taking out the loan, the VA may deny your modification application.

Fannie Mae and Freddie Mac Loan Modification Restrictions

If the investor on your loan is Fannie Mae or Freddie Mac, the general rule is that you cannot have more than three modifications over the life of your loan.

The other way these investors limit the number of modifications is through their Flex Modification program:

• If you applied for and received a Flex Modification offer from your lender and then became 60-days (or more) delinquent within 12 months of starting the FlexMod, your investor does not have to offer you another modification.

• As part of the Flex Modification process, you were likely asked to make three trial payments before the modification became final. If you “failed out” or missed any of your trial payments (which likely caused the modification agreement to not get finalized) – they won’t review you for another FlexMod within 12 months of the failed trial payments.

Applying for a loan modification to slow down a foreclosure

While you may not be approved for a loan modification, you may still want to consider applying as a way to slow down foreclosure activity.

You can apply for a loan modification as many times as you want. While you may not get approved (depending on your investor’s guidelines), nothing worse than what is already going on will happen to you if you apply.

In fact, sometimes applying can be a form of foreclosure defense in and of itself. If you complete a loan modification package, the lender must complete a review and issue a formal answer to your application.

This review period often places a 30-day “loss mitigation hold” on the foreclosure activity attached to your account to allow the lender time to review. So, even if you know you are going to be denied the loan modification, you may still want to consider applying as a way to slow down or stop the foreclosure process for a 30-day period.

(Note: the above strategy is nuanced (and there are times when it won’t work) so if applying to delay foreclosure is something you’re considering, make sure you talk to an attorney about it as soon as possible before taking action).

Is it more difficult to apply for a loan mod the 2nd time?

There is nothing inherently more difficult about applying for a loan modification a 2nd time.

The process to apply for a modification is always the same regardless if it’s your first time, second time or third time applying.

While the loan modification process can be difficult (and you should consider getting some help), there isn’t anything more difficult about applying a second or third time. The bank will ask for the same financial package and application form they did the first time around and the review process will be the same.

Will going on Covid forbearance cause me to exceed the limitations?

If you are a homeowner who meets the below criteria, you should NOT be barred from receiving one of the COVID transition modifications, even if you have already maxed out the amount of loan modifications you can have.

A COVID-19 Forbearance homeowner means that you:

• Were current on your mortgage prior to March 1st, 2020

• Took a COVID Forbearance Plan because you experienced financial hardship due to the pandemic

• Have one of the 5 government-backed investors (Fannie Mae, Freddie Mac, VA, FHA, and USDA)

How many loan modifications do private investors allow?

Private investors can restrict the number of modifications you can have, however they want.

If you have a private investor backing your loan (not Fannie Mae, Freddie Mac, USDA, VA or FHA), they have their own guidelines and can restrict the number of modifications in whatever way they see fit.

Some private investors have generous modification guidelines and try to model their guidelines after the government investors, limiting modifications to 3 modifications over the life of the loan.

Others have more aggressive guidelines – offering no modifications or 1 modification over the life of the loan.

If you have a private investor and you need additional modifications beyond what their guidelines allow, you may want to consult with an attorney to find out what other options you have.

A recent client example

My homeowner had a loan backed by Freddie Mac. They had already had three loan modifications prior to the pandemic but they were NOT in default on March 1st, 2020.

They experienced financial hardship directly related to the pandemic (job loss) and they took a COVID Forbearance to make it through the pandemic.

Even though they had three modifications prior to the forbearance, Mr. Cooper denied them their COVID transition FlexMod. We had to escalate the matter, push back and eventually received the modification approval they deserved.

Mortgage lenders (like Mr. Cooper) are issuing these types of denials right now and many people are in the process of trying to overcome this problem.

If you are a Washington state homeowner and have questions about whether you qualify for another modification, feel free to give me a call at 425-654-1674.