When you’re behind on mortgage payments or trying to transition off of your COVID-19 Forbearance plan, one loss mitigation option that you can apply for in order to keep the home is a loan modification.
Traditionally, when you apply for a loan modification, you submit a document package.
The document package consists of the lender’s loss mitigation application, supporting financial documents (like pay stubs and bank statements), and a hardship letter.
The submission of this package indicates to the bank that you’d like to apply for a loan modification.
In some instances, banks have decided to offer a loan modification WITHOUT requiring a document package.
When you get offered a loan modification without submitting financial documents or an application, this is referred to as a streamlined loan modification offer.
How is a streamlined loan modification different from a regular loan modification?
- You don’t have to show the bank your financial documents in order to be approved
- The bank doesn’t use your income to qualify you for a loan modification (meaning – they are not looking at your financials to determine if you can afford a modified payment or not)
- The decision from the bank usually comes faster because there are no documents to review
- It is common for a streamlined loan modification offer to skip over the Trial Payment Plan period of time (not always, but often)
Streamlined loan modifications are considered “good” by many homeowners because you don’t have to prove to the bank that you can afford a modification payment in order to receive modification approval.
How do I know if I’m eligible for a streamlined loan modification?
Whether you are eligible for a streamlined modification depends on your investor’s guidelines.
Many of the top 5 government backed investors (FHA, VA, Fannie Mae, Freddie Mac and USDA) have options for streamlined modification review.
The most common type of streamlined modification in place right now is for people who are transitioning off of their COVID-19 Forbearance plan.
Can I get a streamlined modification following my COVID-19 Forbearance?
In order to be reviewed for a streamlined modification following a COVID-19 Forbearance, you must meet the following criteria:
- You were current on your mortgage prior to March 1, 2020
- You have Fannie Mae, Freddie Mac, or FHA as the investor on your loan
- You entered in a COVID-19 Forbearance plan with your lender as a result of pandemic-related financial hardship
- Your financial hardship has recovered enough for you to resume making mortgage payments
If you have the VA or USDA as the investor on your mortgage, there is a chance that you will still have to submit documents to be reviewed for a loan modification as these investors have retained their right to review affordability as part of the loan modification process.
How do I apply for a streamlined loan modification following a COVID-19 Forbearance?
Once you are ready to transition off of your forbearance plan, call your bank’s loss mitigation department and tell them you would like to be reviewed for a loan modification.
The lender will ask you a series of questions that will sound something like this (the questions vary slightly depending on the servicer):
- Has your hardship been resolved? (Say “yes” if it has)
- Is this your primary residence?
- Are you able to resume your regular monthly payment at the same amount you were before COVID? (If you want to be reviewed for a loan modification, you should answer “no” to this question. If you answer this “yes,” the lender will likely try to offer you a payment deferral option, not a modification. If you want the payment deferral option, answer “yes”).
- Are you able to resume payments but would like to see if there are any options for a lowered payment? (Answer “yes” to be reviewed for a loan modification).
- Are you able to sign documents related to your home?
After you answer these questions, the lender will tell you the expected timeframe to get a decision back on the modification request.
Some banks are quoting very short timeframes (like 10-15 days) but very rarely will you get a decision back in this short of an amount of time.
More commonly, it will take about 30-days for the review to be completed.
If you get approved, you will receive a document package with loan modification documents for you to review, sign and notarize.
Can I apply for a loan modification even if I may not be eligible for a streamlined plan?
Yes! You can always apply for loss mitigation with your lender and ask for a loan modification.
To apply for a loan modification, submit loan modification documents. Once the lender deems your file complete, they review you for all available options and issue a decision.
If you did not take a COVID-19 Forbearance plan, that doesn’t mean that you aren’t eligible for a loan modification.
And, there are ways to even be eligible for streamlined options even if you did not take a COVID-19 Forbearance plan depending on who your mortgage servicer and/or investor is.
Some mortgage servicers have their own streamlined programs for borrowers who have never defaulted before which may be an option for you.
If you are struggling to pay back your mortgage and have questions about whether a streamlined loan modification would be available to you, feel free to reach out at (425) 654-1674.
I have an FHA loan with 3.1% rate and I needed the Covid forbearance. Requested a loan modification to reduce payments and put amount owed at the end of the loan I asked if they needed docs showing we are on Medicaid or whatever they might need and I was told they needed nothing. I just received the paperwork they are raising rate to 5.1% ? The paperwork shows my payment went up $10/mo and a balloon payment of $68k in 2052? I thought they’d offer 40yrs same rate or lower and that my re payment would be put at the end of the loan and that my payments would go down. I’m horrified! How can create 2 loans lowering one to $217k and the other with a balloon of $68k? Doesn’t that mean I have to give them $68k when I sell? I’ll make nothing from my investment? They’ll take it all? My payments going up?
Hi Rebecca – with something like this, I would recommend you take it to an attorney in your state to review. FHA is allowed to create a partial claim (which is a subordinate lien that holds some of the balance you missed during your forbearance) but it sounds like something may not be adding up with the numbers. You should probably have it looked at further. The rate going up is standard. Investors are allowed to set the interest rate at the market rate and unfortunately, over the last two months rates have gone up from around 3.125% to 5.125% so they are allowed to do this with a modification.
I am in bankruptcy and trying to get a loan modification. Freedom mortgage keeps saying they want this document, this document, this document after they have received the documents. They go stale, then they want new information. It is a VA loan so why don’t they just cooperate and modify the loan? I understand they want their money, but I need the money in arrears on the loan’s back end.
I’m sorry you’re having such a frustrating experience – this is very common for Freedom! They need to have a package deemed complete before they can have the underwriters (and the VA) look at the package to decide whether you qualify for a modification. Freedom does a bad job of completing the file. You should try to find someone in your state to help you but if that’s not an option, start calling them every other day and asking “is my file complete?” until they tell you it’s complete and has been forwarded to underwriting. Send them what they need and then keep calling to make sure things don’t expire so you catch all document requests as they pop up.