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Mortgage modifying moratorium eases pressure on homeowners

If your trial mortgage modification was set to expire this month, sending you back to the limbo of a less affordable mortgage, you just got a reprieve.

The U.S. Treasury late last year banned mortgage lenders from canceling trial modifications that are due to expire before Jan. 31, 2010, giving homeowners more time to convert.

As part of the ban, federal regulators will keep tabs on lenders' efforts to make trial modifications permanent during an open-ended review period that could last until the Obama Administration's Home Affordable Modification Program (HAMP) expires later this year.

The ban on axing trial modifications is part of the "Mortgage Modification Conversion Drive," which offers other provisions designed to take some of the sludge out of the slow-moving HAMP program and give homeowners a better shot at a permanent mortgage modification.

A mortgage modification occurs when the lender reworks the terms of your existing home loan, typically to lower payments and make the home more affordable. Lenders lower the interest rate, extend the loan term, reduce the principle or use any combination of those approaches to get the payment down.

Under HAMP, you may qualify for a mortgage modification if your home is your primary residence; your first mortgage's balance is no more than $729,750; you can prove you face financial hardship that is affecting or will affect your ability to make mortgage payments; you signed for your current mortgage on or before January 1, 2009 and your payment on your first mortgage (including principal, interest, taxes, insurance and homeowner's association dues, if applicable) is more than 31 percent of your current gross income.

HAMP borrowers who sign up for mortgage modifications begin with a trial modification period of up to five months. During the trial, borrowers must provide required documentation to make their case for a permanent modification and determine if the trial modified monthly mortgage payment is affordable.

Borrowers who meet the documentation requirements during the trial period, including making all the modified payments on time, get a permanent modification. Borrowers who fail are rejected for a permanent modification and must resume paying the original mortgage.

Before federal intervention, many borrowers were coming up short on the required documentation. Approximately 60 percent of the 375,000 borrowers with trial modifications that were scheduled to go permanent by the end of 2009 had not completed the paperwork in November, according a federal audit.

HAMP's conversion drive first streamlined the application process and ordered lenders to reach out to borrowers who may be late and give them more time to catch up and file paperwork.

Feds also beefed up the web site with updated, detailed information about the mortgage modification application process and added user-friendly videos, checklists and FAQs about all of the required documents, the initial trial period and homeowner responsibilities to convert to a permanent modification.

Later, along with banning lenders from ending trial modifications, the Feds initiated a review period, during which time lenders must confirm the payment status of trial modification borrowers and confirm which, if any, documents borrowers are missing.

The review period also calls for servicers to correspond with borrowers as necessary and inform them that they are at risk of losing eligibility for a permanent HAMP modification if the borrower has

• Failed to make all required trial period payments.

• Failed to submit all required documentation.

• Failed or both to make all required trial period payments and to submit all required documentation.

The notice has to give the borrower 30-days to correct errors and submit any missing documents or payments.

If the borrower complies or provides evidence of lender error, the lender must consider the new information and determine if the borrower is can continue onto a permanent modification.

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