Trial period for loan modification

But if you bring the loan current after applying for loss mitigation, you may apply again. During the foreclosure crisis and Great Recession, servicers commonly told homeowners that they couldn't get a modification unless they were late in payments. Sometimes—though not very often—servicers still make this statement.

This comment is almost always incorrect. For most modification programs, you may be either behind in payments or merely in danger of falling behind called being in danger of "imminent default" on your mortgage payments. In some cases, servicers ask homeowners to submit and then resubmit information when applying for a loan modification. One common scenario involves income verification documents—like pay stubs and bank statements—which can quickly become outdated in the servicer's eyes.

If the servicer doesn't look at your submitted documents promptly, the paperwork expires. The servicer will then ask you to resubmit your items. Also, servicers sometimes ask borrowers to resubmit documentation after documents get lost. If your paperwork goes missing, you should resubmit the duplicate information that the servicer requests.

But be sure to keep a record of when you sent it, who you sent it to, and send it by some method you can track. Sometimes, a servicer makes an error in a calculation when evaluating a borrower for a loan modification, which leads to an improper denial. When a servicer evaluates a borrower for a loan modification, it looks at financial information about the borrower, the current terms of the loan, and the fair market value of the property. It then sometimes makes a comparison between:.

If the investor would be better off financially after a foreclosure rather than a modification—called "net present value" or "NPV" negative— then the servicer doesn't have to modify the loan. Sometimes, however, servicers make a mistake when calculating the NPV. Under federal law, if a trial or permanent loan modification is denied because of an NPV calculation, the servicer must include the inputs used in the NPV calculation in the denial notice.

Other kinds of miscalculations can lead to a modification error. For example, in , Wells Fargo admitted that due to a computer glitch, it failed to give modifications to almost mortgage-loan borrowers—even though they qualified for one.

The bank eventually carried out foreclosures on around of those homeowners. Many loan modifications start with a three-month trial period plan.

So long as you make three on-time payments during this period, the modification is supposed to become permanent—assuming you still meet the eligibility criteria.

When a servicer promises to modify an eligible loan, homeowners who live up to their end of the bargain expect the servicer to keep their word. But sometimes, homeowners who've made their trial payments can't get the servicer to make the modification permanent. Servicing transfers often happen in the mortgage industry. In some cases, the new servicer fails to review an already submitted loss mitigation application or fails to honor a modification agreement with the previous servicer.

In the course of gathering documents and information from a borrower to complete a loss mitigation application, a servicer may stop collecting documents and information for a particular loss mitigation option after receiving information confirming that, pursuant to any requirements established by the owner or assignee of the borrower's mortgage loan, the borrower is ineligible for that option.

A servicer may not stop collecting documents and information for any loss mitigation option based solely upon the borrower's stated preference but may stop collecting documents and information for any loss mitigation option based on the borrower's stated preference in conjunction with other information, as prescribed by any requirements established by the owner or assignee. A servicer must continue to exercise reasonable diligence to obtain documents and information from the borrower that the servicer requires to evaluate the borrower as to all other loss mitigation options available to the borrower.

For example:. Assume a particular loss mitigation option is only available for borrowers whose mortgage loans were originated before a specific date. Once a servicer receives documents or information confirming that a mortgage loan was originated after that date, the servicer may stop collecting documents or information from the borrower that the servicer would use to evaluate the borrower for that loss mitigation option, but the servicer must continue its efforts to obtain documents and information from the borrower that the servicer requires to evaluate the borrower for all other available loss mitigation options.

Assume applicable requirements established by the owner or assignee of the mortgage loan provide that a borrower is ineligible for home retention loss mitigation options if the borrower states a preference for a short sale and provides evidence of another applicable hardship, such as military Permanent Change of Station orders or an employment transfer more than 50 miles away.

If the borrower indicates a preference for a short sale or, more generally, not to retain the property, the servicer may not stop collecting documents and information from the borrower pertaining to available home retention options solely because the borrower has indicated such a preference, but the servicer may stop collecting such documents and information once the servicer receives information confirming that the borrower has an applicable hardship under requirements established by the owner or assignee, such as military Permanent Change of Station orders or employment transfer.

When an inquiry or prequalification request becomes an application. A servicer is encouraged to provide borrowers with information about loss mitigation programs. If in giving information to the borrower, the borrower expresses an interest in applying for a loss mitigation option and provides information the servicer would evaluate in connection with a loss mitigation application, the borrower's inquiry or prequalification request has become a loss mitigation application.

Examples of inquiries that are not applications. The following examples illustrate situations in which only an inquiry has taken place and no loss mitigation application has been submitted:. A borrower calls to ask about loss mitigation options and servicer personnel explain the loss mitigation options available to the borrower and the criteria for determining the borrower's eligibility for any such loss mitigation option.

The borrower does not, however, provide any information that a servicer would consider for evaluating a loss mitigation application. A borrower calls to ask about the process for applying for a loss mitigation option but the borrower does not provide any information that a servicer would consider for evaluating a loss mitigation application. Although a servicer has flexibility to establish its own requirements regarding the documents and information necessary for a loss mitigation application, the servicer must act with reasonable diligence to collect information needed to complete the application.

A servicer must request information necessary to make a loss mitigation application complete promptly after receiving the loss mitigation application. A servicer requires additional information from the applicant, such as an address or a telephone number to verify employment; the servicer contacts the applicant promptly to obtain such information after receiving a loss mitigation application;.

Servicing for a mortgage loan is transferred to a servicer and the borrower makes an incomplete loss mitigation application to the transferee servicer after the transfer; the transferee servicer reviews documents provided by the transferor servicer to determine if information required to make the loss mitigation application complete is contained within documents transferred by the transferor servicer to the servicer; and. If the borrower remains in compliance with the short-term payment forbearance program or short-term repayment plan, and the borrower does not request further assistance, the servicer may suspend reasonable diligence efforts until near the end of the payment forbearance program or repayment plan.

However, if the borrower fails to comply with the program or plan or requests further assistance, the servicer must immediately resume reasonable diligence efforts. If the borrower is in a short-term payment forbearance program made available to borrowers experiencing a COVIDrelated hardship, including a payment forbearance program made pursuant to the Coronavirus Economic Stability Act, section 15 U. If the borrower requests further assistance, the servicer must exercise reasonable diligence to complete the application before the end of the forbearance period.

Information not in the borrower's control. A loss mitigation application is complete when a borrower provides all information required from the borrower notwithstanding that additional information may be required by a servicer that is not in the control of a borrower. For example, if a servicer requires a consumer report for a loss mitigation evaluation, a loss mitigation application is considered complete if a borrower has submitted all information required from the borrower without regard to whether a servicer has obtained a consumer report that a servicer has requested from a consumer reporting agency.

See interpretation of 41 b 1 Complete loss mitigation application. See interpretation of 41 b 2 Review of loss mitigation application submission. If a servicer receives a loss mitigation application 45 days or more before a foreclosure sale, a servicer shall:. Foreclosure sale not scheduled. See interpretation of 41 b 2 i Requirements. A Promptly upon receipt of a loss mitigation application, review the loss mitigation application to determine if the loss mitigation application is complete; and.

B Notify the borrower in writing within 5 days excluding legal public holidays, Saturdays, and Sundays after receiving the loss mitigation application that the servicer acknowledges receipt of the loss mitigation application and that the servicer has determined that the loss mitigation application is either complete or incomplete. If a loss mitigation application is incomplete, the notice shall state the additional documents and information the borrower must submit to make the loss mitigation application complete and the applicable date pursuant to paragraph b 2 ii of this section.

The notice to the borrower shall include a statement that the borrower should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options. Later discovery of additional information required to evaluate application. See interpretation of Paragraph 41 b 2 i B. The notice required pursuant to paragraph b 2 i B of this section must include a reasonable date by which the borrower should submit the documents and information necessary to make the loss mitigation application complete.

Thirty days is generally reasonable. No later than the next milestone. The date by which any document or information submitted by a borrower will be considered stale or invalid pursuant to any requirements applicable to any loss mitigation option available to the borrower;.

The date that is the th day of the borrower's delinquency;. The date that is 90 days before a foreclosure sale;. The date that is 38 days before a foreclosure sale. Seven-day minimum. See interpretation of 41 b 2 ii Time period disclosure. To the extent a determination of whether protections under this section apply to a borrower is made on the basis of the number of days between when a complete loss mitigation application is received and when a foreclosure sale occurs, such determination shall be made as of the date a complete loss mitigation application is received.

If no foreclosure sale has been scheduled as of the date that a complete loss mitigation application is received, the application is considered to have been received more than 90 days before any foreclosure sale. Foreclosure sale re-scheduled. See interpretation of 41 b 3 Determining Protections. See interpretation of 41 c Evaluation of loss mitigation applications. Except as provided in paragraph c 4 ii of this section, if a servicer receives a complete loss mitigation application more than 37 days before a foreclosure sale, then, within 30 days of receiving the complete loss mitigation application, a servicer shall:.

Loss mitigation options available to a borrower. The loss mitigation options available to a borrower are those options offered by an owner or assignee of the borrower's mortgage loan. Loss mitigation options administered by a servicer for an owner or assignee of a mortgage loan other than the owner or assignee of the borrower's mortgage loan are not available to the borrower solely because such options are administered by the servicer.

A servicer services mortgage loans for two different owners or assignees of mortgage loans. Those entities each have different loss mitigation programs.

The owner or assignee of a borrower's mortgage loan has established pilot programs, temporary programs, or programs that are limited by the number of participating borrowers. Such loss mitigation options are available to a borrower. However, a servicer evaluates whether a borrower is eligible for any such program consistent with criteria established by an owner or assignee of a mortgage loan.

For example, if an owner or assignee has limited a pilot program to a certain geographic area or to a limited number of participants, and the servicer determines that a borrower is not eligible based on any such requirement, the servicer shall inform the borrower that the investor requirement for the program is the basis for the denial. Offer of a non-home retention option. A servicer's offer of a non-home retention option may be conditional upon receipt of further information not in the borrower's possession and necessary to establish the parameters of a servicer's offer.

For example, a servicer complies with the requirement for evaluating the borrower for a short sale option if the servicer offers the borrower the opportunity to enter into a listing or marketing period agreement but indicates that specifics of an acceptable short sale transaction may be subject to further information obtained from an appraisal or title search. Other notices. See interpretation of 41 c 1 Complete loss mitigation application.

The servicer shall include in this notice the amount of time the borrower has to accept or reject an offer of a loss mitigation program as provided for in paragraph e of this section, if applicable, and a notification, if applicable, that the borrower has the right to appeal the denial of any loan modification option as well as the amount of time the borrower has to file such an appeal and any requirements for making an appeal, as provided for in paragraph h of this section.

See interpretation of 41 c 2 Incomplete loss mitigation application evaluation. Except as set forth in paragraphs c 2 ii , iii , v , and vi of this section, a servicer shall not evade the requirement to evaluate a complete loss mitigation application for all loss mitigation options available to the borrower by offering a loss mitigation option based upon an evaluation of any information provided by a borrower in connection with an incomplete loss mitigation application.

Offer of a loss mitigation option without an evaluation of a loss mitigation application. Servicer discretion. See interpretation of 41 c 2 i In general. Notwithstanding paragraph c 2 i of this section, if a servicer has exercised reasonable diligence in obtaining documents and information to complete a loss mitigation application, but a loss mitigation application remains incomplete for a significant period of time under the circumstances without further progress by a borrower to make the loss mitigation application complete, a servicer may, in its discretion, evaluate an incomplete loss mitigation application and offer a borrower a loss mitigation option.

Any such evaluation and offer is not subject to the requirements of this section and shall not constitute an evaluation of a single complete loss mitigation application for purposes of paragraph i of this section.

Significant period of time. A significant period of time under the circumstances may include consideration of the timing of the foreclosure process.

For example, if a borrower is less than 50 days before a foreclosure sale, an application remaining incomplete for 15 days may be a more significant period of time under the circumstances than if the borrower is still less than days delinquent on a mortgage loan obligation. See interpretation of 41 c 2 ii Reasonable time. Notwithstanding paragraph c 2 i of this section, a servicer may offer a short-term payment forbearance program or a short-term repayment plan to a borrower based upon an evaluation of an incomplete loss mitigation application.

Promptly after offering a payment forbearance program or a repayment plan under this paragraph c 2 iii , unless the borrower has rejected the offer, the servicer must provide the borrower a written notice stating the specific payment terms and duration of the program or plan, that the servicer offered the program or plan based on an evaluation of an incomplete application, that other loss mitigation options may be available, and that the borrower has the option to submit a complete loss mitigation application to receive an evaluation for all loss mitigation options available to the borrower regardless of whether the borrower accepts the program or plan.

A servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, and shall not move for foreclosure judgment or order of sale or conduct a foreclosure sale, if a borrower is performing pursuant to the terms of a payment forbearance program or repayment plan offered pursuant to this paragraph c 2 iii. A servicer may offer a short-term payment forbearance program in conjunction with a short-term repayment plan pursuant to this paragraph c 2 iii.

Short-term payment forbearance program. Such a program would be short-term regardless of the amount of time a servicer allows the borrower to make up the missing payments. Short-term loss mitigation options and incomplete applications.

Section Short-term loss mitigation options and complete applications. Short-term repayment plan. Specific payment terms and duration. General requirement. Generally, a servicer complies with these requirements if the written notice states the amount of each payment due during the program or plan, the date by which the borrower must make each payment, and whether the mortgage loan will be current at the end of the program or plan if the borrower complies with the program or plan.

Disclosure of payment amounts that may change. Timing of notice. A servicer may provide the written notice at the same time the servicer offers the borrower the program or plan. See interpretation of 41 c 2 iii Short-term loss mitigation options. A loss mitigation application shall be considered facially complete when a borrower submits all the missing documents and information as stated in the notice required under paragraph b 2 i B of this section, when no additional information is requested in such notice, or once the servicer is required to provide the borrower a written notice pursuant to paragraph c 3 i of this section.

If the servicer later discovers that additional information or corrections to a previously submitted document are required to complete the application, the servicer must promptly request the missing information or corrected documents and treat the application as complete for the purposes of paragraphs f 2 and g of this section until the borrower is given a reasonable opportunity to complete the application.

If the borrower completes the application within this period, the application shall be considered complete as of the date it first became facially complete, for the purposes of paragraphs d , e , f 2 , g , and h of this section, and as of the date the application was actually complete for the purposes of this paragraph c. A servicer that complies with this paragraph c 2 iv will be deemed to have fulfilled its obligation to provide an accurate notice under paragraph b 2 i B of this section.

Reasonable opportunity. A reasonable opportunity requires the servicer to notify the borrower of what additional information or corrected documents are required, and to afford the borrower sufficient time to gather the information and documentation necessary to complete the application and submit it to the servicer. The amount of time that is sufficient for this purpose will depend on the facts and circumstances. Borrower fails to complete the application.

See interpretation of 41 c 2 iv Facially complete application. There are several things homeowners can do when mortgage servicers violate the rules concerning loan modifications. In order to understand the common violations that occur within the mortgage servicing industry, it is important to first understand the various parties who are involved in mortgage loan transactions.

Mortgagor: The homeowner who is borrowing the money, pledging his or her home as security for the loan. Mortgage investor: A party that purchases mortgages from lenders, providing the lenders with money they can use to offer more loans. Mortgage servicers manage loan accounts on behalf of the mortgagee or investor.

The servicer is typically responsible for the following:. Loan modifications are permanent changes to the terms of the loans in order to lower the monthly payments, making the loan more affordable. Lenders may agree to any of the following in a loan modification:. It is common for homeowners to experience long delays while they are waiting for the servicer to decide whether or not a modification should be granted.

Sometimes, servicers fail to tell homeowners that they need missing documents in order to make their decisions. In other cases, servicers simply fail to review the application in a timely fashion. Federal mortgage servicing regulations that went into effect on Jan.

Under these laws, mortgage servicers who receive loan modification applications from homeowners 45 days or longer before foreclosure sales must review the modification application, determine whether the application is incomplete or complete and notify the borrower within 5 days to let them know what other information is required or if the application is complete.

Servicers who receive complete applications more than 37 days prior to scheduled foreclosure sales must review them and determine whether the borrower qualifies within 30 days. Telling homeowners that they must be in default to qualify for a modification. While it used to be true that homeowners had to be late with their payments before qualifying for modifications, that is no longer true.

For example, people may qualify for the Home Affordable Modification Program if they are behind on their payments or in danger of falling behind on them. Servicers sometimes ask homeowners to resend information multiple times, especially with income verification. Servicers also simply lose paperwork and may ask borrowers to send them again.