Understanding The Loan Modification Trial Payment Plan

If you have applied for a loan modification and received a Trial Payment Plan offer, you should feel good!

You have made it past the first hurdle in getting approved for a loan modification and have demonstrated to the bank that your period of financial hardship is resolved.

What is a Trial Payment Plan?

• A trial payment plan (TPP) is the first step in the loan modification approval process. A TPP signifies the end of the loan modification review process and is considered an “approval decision” on your loan modification request.
• A TPP requires you to make a trial mortgage payment for a fixed number of months prior to fully modifying the loan
• A typical TPP usually starts on the 1st of the month and usually lasts for three months (lenders are allowed to put you on a TPP for more than 3 months)
• The amount required for each TPP payment is the same for all three months and the amount is close (if not identical) to what the modified mortgage payment will be at the end of the TPP period
• If your loan is backed by Fannie Mae, Freddie Mac or FHA you can expect to be offered a TPP period of 3 months. Private investors may extend the TPP period longer than 3 months.

Why do lenders require a Trial Payment Plan before permanently modifying the loan?

Lenders force you to go through a TPP as a way to test the household income to make sure that resuming regular mortgage payments is affordable for you.

Lenders do not want to go through the process of permanently modifying your loan if you are at risk of defaulting again shortly after the loan is modified.

So, think of the TPP as a test – the lender wants to make sure that you can consistently make your mortgage payments with no issues.

What you can expect to be included within your TPP:

• The duration of the TPP (this is usually 3 months)
• The exact amount due for each TPP payment
• Payment instructions for where to send / how to make the TPP payment
• Instructions on what form of payment is acceptable to them (check, certified check, wire, moneygram etc.)

What you cannot expect to be included within your TPP:

• The terms of your final modification

While some TPPs tell you preliminary information about the terms of your final modification, your lender does not have to fully disclose information about your final modification prior to the end of the TPP period.

You should expect to make your TPP payments and receive the final documents with all terms at the end of the TPP period.

It is common that the final mortgage payments are very close (if not identical) to the TPP payments.

Follow your TPP’s instructions exactly and avoid making common mistakes

It is your job to be vigilant during the TPP period to make sure you avoid issues and successfully make it through the TPP.

1. Don’t make all three TPP payments at once

Some people think it’s better to make all three TPP payments at once.

Borrowers do this with good intentions –  to show the lender how motivated they are to make it through the process and to speed up the timeframe.

However, paying all three payments at once can actually backfire, as the lender often struggles to apply the payments correctly when it comes as a lump sum. It also doesn’t help the lender see that you can consistently afford a monthly payment (which is what they’re testing).

2. Don’t overpay or underpay or split the TPP payment

The TPP payment should be paid in the exact amount each month (down to the cent).

3. Don’t pay the TPP payment online

Some lenders will offer a “pay online” option for TPP payments in addition to “pay over the phone” and “pay by mail” options. Paying online for a TPP is not a good idea (even if the lender tells you that you can!).

Paying online can confuse the lender’s automatic system. Since you likely have an outstanding balance, paying online will sometimes cause the payment to get applied to the outstanding balance instead of your TPP.

4. Mail your TPP payment with TRACKING information

Most lenders offer a “mail-in option” for TPP payments. Mailing a TPP payment is fine but you should mail it with tracking information attached, even if it costs extra.

Attaching tracking information allows you to follow the payment and ensure it gets delivered correctly. If the payment gets lost in the lender’s system or lost in the mail (which does happen), the tracking information will help the lender locate the lost payment.

Without tracking information, you could end up in a situation where it’s your word against the lenders that payment was made.

How to attach tracking information to the TPP Payment: You can attach tracking information to any USPS, FedEx or UPS mailings. Take your payment to either the post office, FedEx or UPS store and tell them you want to mail it tracked. Make sure you walk away with a receipt that allows you to follow the payment to ensure successful delivery. Use the links below to track the payment:

1. https://www.usps.com/nationalpremieraccounts/trackmailing.htm
2. https://www.ups.com/track?loc=en_US&requester=ST/
3. https://www.fedex.com/en-us/tracking.html

(Find the address for the TPP payment in the copy of the TPP document. If there is no address listed, call the lender and ask them where they want the TPP payment sent)

5. Pay the TPP payment in certified funds if required

Some banks are particular about accepting only certified funds for a TPP payment. It is important for borrowers to read their TPP document carefully to see whether the bank is requesting payment be made in “certified funds.”

“Certified funds” is a form of payment that is guaranteed to process – personal checks are typically not certified funds. To get certified funds, borrowers usually have to get a certified check from their bank or a cashier’s check.

6. Don’t wait until the last minute to make the TPP payment

Many lenders will tell you that you have the entire month to make your TPP payment. It is not advisable to rely on this and make a TPP payment last minute.

If you make a TPP payment shortly before the expiration of the TPP month, and something goes wrong (either on your end or on the lender’s end) and the payment doesn’t get applied to the TPP quickly in the month it’s due, the lender can close the TPP and refuse to move forward with the loan modification.

7. Call to confirm the receipt and application of the TPP payment

After you make your TPP payment, call the bank to ensure the bank received and applied the TPP payment correctly.

Make this call no later than 7 business days after payment is made.

Use the below questions when asking the bank to confirm the payment:

1. Question 1: Has there been a recent payment made to the account?
2. Question 2 (assuming they said “yes”): What was the amount and what was the payment for?

Avoid saying: “I made a TPP payment on November 1st for $1,600. Can you confirm this was received?” If you ask it like this, you may get a representative on the other end who doesn’t check the file and just says “yes” to you. Make the bank confirm everything first to be 100% sure the TPP payment was received.

8. Sign your TPP correctly (if required) and send it to the correct address

To accept a TPP, some lenders will require a signature on the TPP agreement itself. Other lenders will not require a signature. Instead, they will view the TPP as “accepted” when you make your first payment.

Once you get the TPP, pay attention to whether you need to actually sign and return the agreement. If the TPP requires a signature, pay attention to where the lender wants you to mail the document – the address for signed TPPs is often different from where you sent your other documents for the modification review.

Is there anything I can do to skip over the TPP period and go straight to the final modification?

There is nothing you can do to get around the TPP period. It is a structured part of the loan modification approval process.

Failures to comply with the TPP can put your final modification in jeopardy.

Can I get a Trial Payment Plan while I’m in bankruptcy?

If you have an active bankruptcy, always consult with your bankruptcy attorney about any plans to apply for a loan modification but generally – you can apply for a loan modification and go through a TPP while you’re in a bankruptcy.

What happens if I default on a TPP payment?

If you fail to make your TPP payment on time, the lender can close your TPP agreement. Most commonly, the lender will keep the TPP open for payment during the month your TPP payment is due. If they do not receive and apply the TPP payment during the month it is due, you will likely be considered to have defaulted on your TPP agreement.

Failure to make a TPP payment on time will cause the TPP process to be fully closed.

Unless there was an egregious error on the lender’s side that caused your TPP to be closed, there is no such thing as “re-opening a TPP” and lenders enforce the closures pretty aggressively.

So, it is always best to make your TPP payments right on their due date to avoid any issues.

If your TPP is closed for lack of payment and you still want a loan modification, you will be forced to re-apply again and start the process over.

If you have questions about a TPP agreement, the loan modification process or would like to chat about your individual situation, feel free to give me a call at (425) 654-1674.