Trial Payment Plans and Loan Modifications: Things You Should Know
A trial payment plan is like the first step toward obtaining a permanent loan modification. A trial payment plan is legally required for HAMP modifications and for most FHA partial claims as well. Lenders will also utilize them for their in-house modifications as well. If you have been sent a trial payment plan by a lender, they have reviewed the documents that they have requested.
Their review has found that you show a capability of being able to make the modified payments. This trial payment plan is like a trial run and the lender wants to test your ability to make these payments. They will do this before they create and send out a permanent loan modification offer for you.
What information is included in the trial payment plan?
The paperwork that you will be sent about your trial payment plan will, likely, not be any more than 3 pages long. It is not going to include all of the necessary information that is going to be in the permanent loan modification. It is not going to outline all of the information and terms that the lender is going to offer you in the final modification. It will be clearly stated in the trial payment plan that it is not to be taken as the final agreement and that the lender is going to reserve the right to make changes to the term of the final permanent modification. Basically, it is going to outline the process of the trial payment plan. It will communicate that you are going to be required to make 3 monthly payments for 3 consecutive months. They will include the amount that they are asking you to make for those 3 months and the due dates in which those payments are due. Many times, the payments made during a trial payment period are applied to the interest and principal of the loan.
Some lenders will include the type of modification that you are going to be receiving, such as a HAMP Tier 1, HAMP Tier 2, or an FHA Partial Claim. Lastly, it should state that upon successful and timely payment of these trial payments, the lender will offer you a permanent modification.
What information will not be included in the trial payment plan?
There is a lot of different information that will not be a part of the trial payment plan because it is just a test of your ability to pay. This is a step in the process of the lender figuring out whether or not you are able to get yourself out of default before they take the time to create the final loan modification. Some of the information that will not be included in the trial payment plan includes:
- It will not disclose or discuss the terms that the lender will offer in the permanent loan modification.
- It will not lay out the terms that will be offered in the final modification.
- The trial payment plan will not tell you if there are any due or past due escrow payments, pre-payment penalties, insurance payments, or taxes.
- It will not let you know what the interest rate is going to be on the final modification.
- The trial payment plan will not reveal if there are going to be any balloon or lump sum payments due over the life of the loan.
Common Misconceptions About Trial Payment Plans
You Don't Need To Track Your Payments.
This is not the case at all. Many people believe that once the payments have been sent, it is done and taken care of. Lenders do not do anything unless they are pushed to do so. They need to know what you have done on your end and what you expect of them on their end. You should call them daily after you send out your payment to see when it has been received and that they are staying on top of your account.
A Trial Payment Plan Is A Permanent Loan Modification.
As discussed above, this is not true. It is simply a test of your ability to make the payments. Once you have completed this trial period successfully, they will create and offer you a permanent loan modification.
Once The Trial Payment Plan Payments Are Made, The Lender Will Send You A Permanent Loan Modification On Their Own Accord.
This is not true. You should take on the full responsibility of making sure that your account remains current and active and this includes throughout the trial payment plan period and after. You should track all of your trial payments, make sure they are all received and applied on time and do not assume that they are going to make sure that these things happen. Once the trial period is over, inquire about your permanent loan modification and when it will be coming. Ask about who is drafting it and make sure that they are actually working on it. Check and double check everything and make sure that they are working on it.
A Received Payment Is The Same As An Applied Payment.
This is false as well. Once your payment has been received by the lender, your representative (AKA single point of contact) has to apply that payment to your account. They have to go into the lender's system and check off that the payment has been received. It can usually take around 72 hours after they receive it because the check that you sent has to be cashed. Once you are sure that they have received it, call and make sure that it has been applied. If the answer is no, continue to call until you know that it is done. One way to double check if the payment was applied is to ask the date of the next payment. If the date that they give you is the current month, then it hasn't been applied, if the date is for the following month, then it has been applied.
Lenders Care About You And About Your Successfully Completing The Trial Process.
As bad as this sounds, it is not the case at all. Your lender offered you this trial payment period because they are legally obligated to, not because they want to. If it was up to them, they would much rather take control and ownership of your property through foreclosure and move on. They want you to fail and their reps are even trained to say they are on your side. They will try to find any mistake that you make during the trial period and, therefore, it is your job to stay one step ahead of them in this process.
The Payment Amount You Made During The Trial Payment Period Are Going To Be The Same As The Payments You Will Make Under A Permanent Modification.
It is likely that the payments that you will be offered through the permanent loan modification will remain quite steady if you are receiving a HAMP modification or an FHA Partial Claim. It can be very different if you are receiving an in-house or lender-specific modification program offer. The permanent loan modification that the lender will offer you through their program can have a lot of varying terms. Their offer can include extended terms, tiered interest rates, of balloon payments. You need to make sure that you fully understand the terms of any offer before you decide to accept it. If at all possible, have it reviewed by a lawyer.
Common Mistakes Made During A Trial Payment Period
1. Sending The Payment To The Wrong Address. There are only (usually) 1 or 2 addresses in which the payments can be sent to and processed although the lender may list multiple addresses. The address in which to send the payment to should be listed on your trial payment plan and it is likely different from where you have sent your payments in the past. If you are confused about where to send it, call and ask. If you feel that you are receiving conflicting information, get the employees name and identification number and send it via certified mail. It is crucial that it is sent to the right place by the right date.
2. Sending Payments In The Wrong Format. It will be specified in the trial payment plan the proper format in which the lender requires of your payment (i.e. check or money order). You will want to make sure to strictly follow these guidelines because it can result in your payment being rejected and not applied to your account.
3. Making Larger Payments In Order To Speed Up The Process. There are many borrowers who believe that if they make all 3 payments at once, it can speed up this trial process. This is actually counter-productive for the borrower. This shows the lender that you have, at your disposal, 3 months' worth of mortgage payments at once. a. This can result in the lender offering you much worse terms than they would have originally. It also goes against the financial hardship in which you claimed when you filed for the modification in the first place. It is not a true reflection of your current financial situation.
4. Making A Smaller Payment Than Required According To Your Trial Payment Plan. First and foremost, you should not agree to ever make a payment that you are unable tonafford. If you are unable to meet the financial requirements of the trial payment period, then loan modification may not be the right option for you in your current situation. If you do send in a smaller payment, it is likely that the lender will pull your trial payment plan and still keep the partial payment that you made.
5. Making A Late Payment. Make sure that you get your payment in on the date that was put in writing in your trial payment plan. There are times when a lender will verbally communicate that you have 30 days after the due date in the plan in which to make the payment. This may be the case for some lenders, but most will tell you this in order to get you to default during the trial payment period.
Tips To Help You To Complete Your Trial Payment Period Successfully
Make a copy of each check or money order and keep it for your records
Mail the payment by certified mail or in such a way that allows you to have a tracking number
If at all possible, make the payment over the phone. When you do, make sure that you get the name and identification number of the employee that you spoke with during the transaction. Also, if you can record the conversation on the phone, do so.
Mail the payment out early enough that it will arrive at the lender with a few days to spare before the due date
Double check that the check or money order is properly filled out and is for the required amount (don't overpay or underpay- it can result in rejection of the payment)
Be aware of upcoming holidays that will affect the arrival of your payment Mediation During Loan Modification and Trial Payment Period Mediation during the trial payment period and loan modification can be extremely beneficial for homeowners throughout any stage of these processes. The WA State Foreclosure Fairness Act states that homeowners may be eligible for mediation in this process. These are some facts that you need to be aware of concerning mediation:
Timeline: It is quite likely that a trial payment plan will happen faster with mediation. If you are eligible for mediation, it is a good idea that you take advantage of it. Lenders have to pay their attorney's fees during mediation which motivates them to speed up the process to save them money.
Prevent Certifying: You want to make sure that your representative keeps the mediation open throughout the trial period, but the lender will encourage their attorneys to certify (close) the mediation one the trial payment plan is issued to the borrower. The mediation gives you a way to confirm that payments were received and aid in the reviewal of the final terms if there are questions. After, and only after, the borrower has received a final modification that has been countersigned will be okay for the representative to certify the mediation.
Grace Period: The opposing counsel can communicate with the lender on your behalf in order to secure a grace period if you run into circumstances that may result in a late payment. The open mediation will help to make sure that the payment is not rejected if it is late. You cannot rely on this because there is still a chance that the lender is going to deny the grace period extension. Although it is always better to pay on time, there is always the possibility of extenuating circumstances.
Trial Payment Period To Permanent Loan Modification 1. The borrower will receive the trial payment plan which will lay out the payment amount and the due dates for the payments. 2. Make the payments on the date specified in the trial payment plan. 3. Make sure each payment is received and applied to the account. 4. The lender will normally draft and issue the permanent loan modification documents around the second week of the last month of the trial plan. 5. The final loan modification documents need to be reviewed, signed, and notarized. 6. Make sure to follow up with the lender to guarantee that the permanent loan modification has been applied to the account. 7. Finally, regular mortgage payments can be made according to the permanent modification.
Frequently Asked Questions (FAQ)
Q. Is it possible to skip the trial payment plan and go directly to the permanent modification?
A. This is an unlikely situation. Once you receive a trial payment plan, you don't have the option to skip it. You have to successfully complete the trial process in the way in which the lender requests.
Q. How long is the trial period?
A. Trial periods normally start on the 1 st or 15 th of the month and will run for 3 months, typically.
Q. Will the trial payment plan include insurance, property taxes, and escrow?
A. If the trial plan includes the escrow, taxes, and insurance, they will be itemized in the plan. In most cases, these plans include the principal and interest.
Q. If the lender has not issued a permanent modification after three months, should I continue to make the trial payments according to the plan until a permanent modification is received?
A. Yes. It will state in the trial payment plan that you are required to make the payment according to the trial payment plan until the permanent modification is issued. Payment lapses could cause problems with this process, this is why it is so important to follow your trial payment plan strictly. Typically, you will have a permanent modification before the beginning of the 4 th month.
Q. What is a partial claim?
A. This is the term used to describe loan modifications through the FHA. They will enter a “partial claim” against your property and these are usually listed second like a second mortgage. The FHA lends you the amount needed to bring the account back to current. You then resume making the monthly payments on the amount of money that they loaned you for the partial claim.
Q. Do I tell my lender that I accept the trial payment plan or sign it?
A. The trial payment plan that you receive will give you directions on how to do this. Some lenders consider the plan accepted when the first payment is sent others will require a signed copy of the plan for their records and in their systems (and the first payment). There may be a due date for a signed copy in order to enter into the trial payment plan.
Q. Is there a chance that I will not get a permanent loan modification after I complete the trial payment plan?
A. If the trial process is completed successfully, according to guidelines outlined in the plan, they are typically obligated to issue the permanent loan modification. If you do not get one, there was a problem and you are probably going to require assistance to handle it.