Homeowners behind or at risk of falling behind on their mortgage payments can avoid foreclosure with a loan modification. The federal government's Making Home Affordable program lowers your monthly payment if your lender participates. Non-participant lenders can also offer their own modification programs with separate qualifying guidelines. All Making Home Affordable modifications, and some non-government modifications, require a trial period. This test run helps ensure that you can afford the reduced monthly payment before the modification is permanently approved.
The Making Home Affordable trial modification period lasts three months. It provides you immediate relief from your normal payment and stops foreclosure proceedings. Your original loan terms remain intact during the trial period until you make all trial payments as scheduled and your lender offers you a permanent modification plan. Your trial period might exceed three months, depending on your situation, according to Making Home Affordable. In that case, you must follow up with your lender and keep up the trial payments until it escalates your case and decides how to proceed.
The loan portion of your housing payment is lower during the trial period, but the total payment can still fluctuate. The lender sets a lower interest rate, which remains fixed throughout the trial period, but other aspects of your loan payment can change. For example, property taxes, your homeowners insurance premium and homeowners association dues can change, and your lender has no control over those portions of your monthly payment. Your lender is unlikely to change your modification terms during the trial period, but it might change them afterward if it finds that your financial situation differs from what you initially stated.
Your lender keeps reporting the status of your loan payments during the trial period, and that can impact your credit. Lenders report the various modification programs differently. A program's effect on your score during and after the trial period depends on how your lender chooses to represent it on your report, according to Bankrate. It will report your loan as current and "modified under federal government plan" if you have a Making Home Affordable modification with no missing payments before your trial period starts. It will report your loan as modified and in delinquency status if you entered the trial period with a payment 30 days or more past due.
Fannie Mae and Freddie Mac modification time frames and reporting practices differ from those of Making Home Affordable. Fannie Mae's trial period may last four months if you started the modification without any missed payments but were considered at risk of default. A Fannie Mae or Freddie Mac lender may report your loan as current if you make your trial payments on time, according to Bankrate.com. If you fail to complete your trial period successfully, your lender can deny you a permanent modification but redirect you to another foreclosure prevention program.
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