Mortgage Modification
Frequently Asked Questions

A Modification is a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.

An alternative to modification would be a Foreclosure Buyout. This is when a new lender completely pays off the original loan, including the balance owed, all missed payments, back taxes, plus bank and attorney fees. There are some additional requirements to this type of program.

Q: In utilizing the Loan Modification option to bring an asset current, can the mortgagee include all fees and corporate advances?

A: Mortgagee Letter 00-05, page 21, paragraph F, "Allowable Provisions" states: "All or a portion of the PITI arrearage (principle, interest, Taxes and Insurance) may be capitalized to the mortgage balance. Foreclosure costs, late fees and other administrative expenses may not be capitalized.

Q: Does the repayment plan have to be completed prior to completing the Loan Modification documents, or can the mortgagee attach the plan once the option has been completed?

A: It is a mortgagee decision as to when to complete the repayment plan for outstanding fees, costs and administrative expenses.

Q: When utilizing a Loan Modification option, can a mortgagee capitalize an escrow advance for Homeowner's Association fees?

A: HUD Handbook 4330.1 REV-5, Paragraph 2-1, Section B, Escrow Obligations states: Mortgagees must also escrow funds for those items which, if not paid, would create liens on the property positioned ahead of the FHA-insured mortgage.

Q: Will HUD subordinate a Partial Claim, should a mortgagor subsequently default and qualify for a Loan Modification?

A: If a mortgagor subsequently defaults and qualifies for a Loan Modification, HUD will subordinate the Partial Claim.

Q: When an asset is modified is the homeowner eligible for the upfront premium refund at payoff of the loan?

A: It depends upon when the closing date occurred. For assets closed:

After July 1, 1991 but before January 1, 2001, the 7-year unearned premium refund schedule shown in Mortgagee Letter 1994-1 remains in effect,

On or after January 1, 2001 that are subsequently refinanced, the 5-year refund schedule shown in the attachment of Mortgagee Letter 2000-46 applies, or

On or after December 8, 2004, refunds of upfront MIP are eliminated except, when the mortgagor refinances to another FHA insured mortgage. The refund schedule attached to Mortgagee Letter 2005-03 has been modified to a 3-year period.

Q: Can a mortgagee qualify an asset for the Loan Modification option when the mortgagor is unemployed, the spouse is employed, but the spouse name is not on the mortgage?

A: The mortgagee should consult with their legal counsel to determine the legality and validity of such a mortgage instrument.

Information provided by hud.gov