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Joe Metzler, MLO. NMLS #274132

Modified Mortgages Ineligible for Refinancing

Wednesday, May 9, 2012 - Article by: Joe Metzler, MLO. NMLS #274132 - Cambria Mortgage - Message

Previously Modified Mortgages Under Attack and maybe Ineligible for Refinancing

St Paul, MN: For many reasons, a lot of home owners have attempted and succeeded in getting their current home mortgage loan modified. Modifications come in many forms, including reduced interest rates, both short and long-term, principal forgiveness, etc.

Modifications, and short-sales, terms never heard of just four years ago, are now commonplace. Lenders have struggled on how to deal with this phenomena in terms of underwriting guidelines for future credit. Short-sales for example, are generally treated by lenders as a foreclosure. While there are some exceptions, those doing short-sales generally have no benefit credit-wise over a true foreclosure.

With mortgage interest rates at historic lows, many people with modified home mortgage loans are now trying to refinance with HARP 2, an FHA Streamline refinance, or even an VA Streamline IRRRL loan. Now lenders are starting to deal with modified mortgages, and the determination isn't good for the consumer. While it is still the beginning of a new credit requirement, lenders are starting to refuse to refinance any customer who currently has a modified loan. Research with lenders shows significantly more restrictive guidelines for refinancing mortgages that were previously modified for the purposes of assisting the borrower (defined as "restructured loans" by Fannie Mae and other investors).

Simply put, if you have a "modified" mortgage loan, expect that you may not be eligible to get refinanced in the future!

(Definition: A restructured loan is one in which the terms of the original transaction have been changed, resulting in absolute forgiveness of debt or a restructure of debt through either a modification of the original loan or origination of a new loan that results in one or all of the below:

  • Forgiveness of a portion of principal and/or interest on either the first or the second mortgage.
    Application of a principal curtailment by or on behalf of the investor to simulate principal forgiveness.
  • Conversion of any portion of the original mortgage debt to a "soft" subordinate mortgage.
  • Conversion of any portion of the original mortgage debt from secured to unsecured.
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