Facts about Loan Modification for Borrowers with Two Loans
Do you want to know if you can modify two home mortgages
? There is good news for you because modifying two loans is possible. Here are the basic facts about loan modification for borrowers with two home loans.
FAQ on Loan Modification for Borrowers with Two Loans
1. Are your loans covered by the federal loan modification plan? The federal plan has provisions that cover both your first mortgage and second home loan. The HAMP has guidelines that were expanded to include second liens. The second mortgage can be modified after the first loan has been modified. The modification process follows the standard guidelines and formulas.
2. Is it possible to combine the first and second mortgage? Unfortunately, this is not possible. The two loans remain as separate instruments. You have to submit separate applications for each so that the loan modification review can proceed. As a general rule, the first loan can be modified to have an interest rate as low as 2% while the second loan rates could be lowered to one percent.
3. Can you have your second lien negotiated to lower the current balance? Yes, this can be worked out. Actually, banks understand that most second loans are underwater. It means the holder of the lien does not have equity anymore. So in most cases, banks tend to approve giving a lump sum settlement in order to pay off the loan.
4. Which of the two loans should be modified first? The first mortgage should be worked out first. After the first loan modification, you can now apply for a second round of modification. The new or modified terms of the first mortgage will be considered when you apply for second modification on your second home loan.
5. Is it possible to use the same application package for both loans? This is possible because the lender will ask for the same basic information from you. However, you need to change the loan numbers and they should correspond to the loan that you are applying for. In most cases though, all the basic statements and financial records will be used for the two loan modification applications.
6. Is it required to be delinquent on both loans in order to qualify for modification? This is not always necessary. But you have a lot of explaining to do if the first lender sees that you are paying the second mortgage but not the first. You have to make a good reason to convince the first lender that you can not afford its mortgage anymore and you need a loan modification.
7. Are the modification formulas similar for both first and second loans? The formulas are different. The first mortgage will be modified so that it will be equal to 31% of your monthly income. The second mortgage will be evaluated to determine if it can be lowered to 1%.
If you are having a hard time paying the two home mortgages, then you should pursue loan modification. You must submit your first application correctly because this will be used also for your second application. If you are able to modify the first loan, then you can also modify the second loan quite easily.
Facts about Loan Modification for Borrowers with Two Loans
By: Rob Blake
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