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What Is A Loan Modification? The Three Keys To Loan Modification Success

February 11th, 2010 No comments

This seems a rather basic question to be asking in a website dedicated to commenting on blown mortgages and how to pick up the pieces. However, it is sometimes useful to sit back and ask ourselves the basics again to reassess our understanding and check we are still on the same page.

Loan Modifications are a change to a loan contract between the lender and the homeowner. The whole purpose is to adjust the terms of the contract so that the loan is affordable for the borrower. Loan Modifications have changed in the last years. Previously they existed only in the form of an interest rate reduction for a period of time when a delinquent borrower was suffering from a specific type of hardship, as a divorce, illness or a job loss.

Now loan modifications are provided for a wider set of circumstances and usually change the terms of the mortgage permanently.

What has not changed is the raison d’être of loan modifications; to help homeowners that can afford their home but not their current mortgage. This means that the homeowner has the ability to make reasonable monthly payments on their home but their current mortgage payments are to high.

Understanding this is vital to understand why so many homeowners apply for a trial loan but will never get one.

The second key factor that makes a homeowner eligible for a loan modification is the existence of a valid situation of hardship. A borrower must make sure they can prove the hardship and that it qualifies them to apply for a loan modification.

These are examples of hardship that give you a good chance of getting approved: ARM, adjustable rate Mortgage, reset payment shock, illness of a close family member dependant on you, loss of job (as long as there is proof you will be able to meet the modified payments), reduced income, death of the borrower (that is an excellent one), death of spouse or co-borrower, military duty, medical bills, damage to your home, not being able to sell or rent the property.

However excuses like: I didn’t realize how expensive it would be, or my realtor/lawyer/wife lied to me are just not going to work.

The third factor is accurate documentation. You don’t only have to be able to afford your home and undergo a valid situation of hardship; you also need to prove it with proper documentation.

These three points are the ABC of successful loan modifications:

a) You must be able to afford the payments of a reasonable loan modification.

b) You must be experiencing some type of valid hardship.

c) You must be able to prove it.

Convincing your lender or loan servicer of the truth of those three factors is the most important part of applying for a loan modification. You must focus all your energy in making these three points loud and clear when you communicate with your lender, whether your are speaking on the phone or writing your hardship letter.

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Loan Modification, DIY or Professionals, which is the best route.

August 31st, 2009 No comments

Finding a loan modification you can live with and getting your bank to accept it is no easy task. It requires a lot of time, large amounts of patience and determination.

Banks are swamped with more loan modifications than they have ever had to handle and the dilemma of some loan modifications costing them more money than they are worth. Bringing all kinds of issues, like why would a bank provide help to a borrower through a loan modification if it is more cost effective to foreclose the mortgage?

The complexities behind a loan modification can be scary and frustrating but if you jump through the hoops and stick to your guns you have a good chance of reducing your monthly bills and even saving some money.

To get us started lets answer some basic questions most borrowers that are looking for a loan modification ask?

Do I need to have a job to get a loan modification?
Not necessarily. You can apply for a loan modification even if you don´t have a job as long as you can prove you can pay for the modified mortgage payments in some way or are likely to be able to do so soon. The details of your case will condition what response you get. For instance if you have recently been sacked or laid off from a well paid job and have the skills to get one soon you are more likely to get a loan modification than if you have been unemployed for a year.

Do you have to pay someone to manage your loan modification application?
Not at all. The government is backing a variety of loan modification programs that are designed to incentivize banks and service providers to supply sustainable loan modifications. Government websites and helplines are in place to guide you through the mortgage modification process.
It is true that loan modification consultants can provide you specialized advice on how to fill in applications to maximize your chances of being approved but you can do just as well with a little patience and by reading the instructions carefully.
If you do decide to hire someone make sure they are not one of the many con artists and scammers that are so common now. Stay clear from companies that guarantee successful applications and ask for upfront fees. There is no way to guarantee a bank will accept a loan modification and it is illegal to pay for services that have not been provided.

How do you get the ball rolling?
Call your bank and ask to be put through to the mitigation department. You will then be asked to jump through a few hundred loops and explain your situation. It is a good idea to find out first what paperwork you need and make sure it is all correct before starting your application process.
What kind of information do you need?
You will need W-2s from your employer, a pay sub and details on your savings and investments. You will then be asked to provide an income to expenses ratio and basic paperwork to support your claims. Don´t forget to be honest, any discrepancy that is picked up by the service provider will cause your application to be dropped.

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