Modification Applications Archives – Refinance – Mortgage Refinancing Rates And Information

Loan Modifications, How to Write an Effective Hardship Letter

February 15th, 2010 No comments

Hardship letters are like any type of tale, they must be clear, they must be simple, and must drive your argument like a B52 in a battlefield – powerfully. Unfortunately, many loan modifications get thrown in the wrong stack simply because homeowners fail to explain their situation effectively.

Step 1. KISS

Keep it simple stupid! The hackneyed cliché holds true in hardship letters also. Loss mitigation departments, those that have the fascinating job of reading about every lender and his mother´s problems are overwhelmed with loan modification applications. They don´t want your autobiography, they certainly do not want 10 pages of you crying on their corporate shoulder. A good hardship letter does not have to be more than a page long.

Step 2. Address the Hardship clearly.

The key point you need to make is why you can´t afford your current mortgage, or why you won´t be able to once your mortgage rate adjusts or some other tragedy occurs. This needs to be specific, vague musings on how difficult life is will get you nowhere. Try for a reduction in income, the death of a spouse, illness or a change in the interest rate. It needs to be something specific you can prove not some vague musings on the difficulties of life.

Step 3. Express commitment.

It is very important you make it crystal clear you WANT TO PAY FOR YOUR MORTGAGE. As you probably guessed lenders do not appreciate borrowers changing their mind on paying for a loan they were very happy to sign for when they wanted to buy their home with somebody else´s cash. The letter needs show you do not want to continue delinquent, or become delinquent, but you want to find a solution so you can keep your home and they can get paid for the loan.

Let us illustrate these three points with a sample letter that follows these three steps.

You can use this sample and apply it to your personal circumstances. Keep in mind there is no one “RIGHT WAY” of writing a hardship letter, although there are plenty of wrong ways.

Some feel that a handwritten letter is more personal and has more chances of being empathized with. However, this only works if the handwriting is clear enough to be read easily.

Date:

To: (Lender Name)

Address of lender.

Re: Loan Number. (It is always a good idea to give all the reference numbers and information you can to make things as easy as possible for the loss mitigation officer, keeps him in a good mood)

(STEP 1. Remember to keep it simple and short)

To Whom It May Concern: (Generally it is better to address a specific person, however your hardship letter will probably be read by many people so there is not great advantage in being specific in this case)

The purpose of this letter is to explain the reasons why I am behind in my mortgage payments (or will be soon due to the hardship you are about to explain). After exhausting all my resources I have only one alternative left and that is to apply for a mortgage loan modification.

The main reason I am late in my payments is (STEP 2. Here is where your hardship reason comes, keep it simple and clear, and avoid vague generalities). This has caused me to become further and further behind in my payments. I cannot refinance my home because the value of my home has dropped by xxxx (this is generally viewed as a preferable option to lenders so it is a good idea to explain why it is not possible, which with the number of underwater homes is not difficult)

I am confident that if I obtain a loan modification I will be able to afford my mortgage and pay for the modified loan. I trust you will consider working with me on resolving this situation. (STEP 3. Show you are eager to pay for your mortgage if you are granted a loan modification)

Sincerely and Respectfully,

Your signature,

Co-Borrower Signature (if applicable)

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Loan Modification Applications, What Are Lenders Looking For?

February 15th, 2010 No comments

Loan modifications are often presented to us as a murky, obscure and scary financial world of shadows where normal people like you and me should not even dare to tread without the faithful advice of an expert, or preferably two, for fear of being swallowed up by an ARM, or something worse, hiding behind the bushes. Fortunately, although there is some truth in the previous depiction, we can understand the mechanics behind loan modifications and work with along with a trusted expert without playing the part of the helpless victim.

Lenders, like most predators, are simple creatures; they just use complicated jargon and scary formulas as a smoke screen. Lenders are only interested in two things: your hardship and your income, which when you really think about it, is the same thing.

This is one of the dirty secrets of loan modifications, unfortunately there are many, but this is a big one. Lenders are only interested in what you can afford to pay. If you can’t afford to pay any reasonably priced mortgage they are not interested in you as a client and will foreclose or short sale your home before you can say Jack Robinson.

Therefore, it doesn’t take a rocket scientist to realize that it is of vital importance to present yourself to your lender in the right financial light to stand a chance of success. This is tricky. You need to be able to prove there is no way you can afford the current mortgage payments while establishing without a shadow of a doubt that you are a perfect candidate to a modified loan with lower monthly payments. Get that right, and you have just increased your chances of success beyond recognition.

How do you get it right?

The key is to understand your enemy – I mean your lender. You must see through his eyes and understand how a lender calculates your income. The way lenders calculate your income when assessing your loan modification application is different to the methods used for traditional home loans. Surprisingly, this is good of thing, because guidelines are set in your favor.

The first step is to write a hardship letter deserving of a Pulitzer Prize, more on that later. Second, you must prove you do have the income to pay for your modified loan. The first step disqualifies you from your present loan, while the second is designed to qualify you for your new one.

When you calculate your income for a loan modification you can use any income, that you can prove, of course. And I mean any, it doesn’t even have to be completely legal, as long as you can prove it. For instance you can include income from a second job you get paid for… let’s call it informally, without a problem. You can include your grandparent’s SSI, or your spouse’s income, even if they aren’t on the mortgage, just as long as you can prove it.

Proof must be provided in the form of bank statements, 1099 forms or in some other documentable form. The specific guidelines change and will be detailed in your submission paperwork. All this evidence of your income is the backbone of your loan modification application, get it right! You will need it to write an effective hardship letter and to pass the NPV test, both of which you need to do to qualify for a loan modification.

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Loan Modifications, Servicers and Who Is Profiting From the Credit Crisis

November 4th, 2009 No comments

The news is full of loan modification horror stories describing how homeowners have struggled for months with lost documents, changing standards, unreasonable loan modification agents and the slow tides of bureaucracy. Bad news does always seem to travel faster and further so you don’t hear half as much about the hundreds of thousands of loans that have been successfully modified.

However the question still remains why loan modifications are moving so slowly if the government is willing to pay the bill for the expenses mortgage servicers and investors have to incur when modifying a loan. Recent studies seem to indicate the reason is that the incentives and handouts the government is making through HAMP and TARP just don’t cover the real cost of modifying the fast increasing volume of loan modification applications.

How can this be so when TARP and HOPE have deep pockets of over 75 billion dollars? The answer seems to lay in the mortgage servicers, the companies that collect monthly mortgage payments and then distribute them to the investors that lent the money in the first place. Mortgage servicers have found it is often cheaper to foreclose on homes than to offer a loan modification even though a loan modification would benefit both the borrower and the investor.

The key is not only the rate of return when managing loans and loan modifications but the expenses related to the operations. The assumptions we generally have as consumers is that foreclosures are a bad deal for everyone. Numbers that are thrown around for example are losses of 10 to 20 percent for lenders on short sales while lenders have to face 20 to 30 cents to the dollar when dealing with foreclosures.

These figures only tell part of the story, mortgage servicers have other ways of measuring profit and often have different priorities. A recent report examined foreclosures between 1995 and 2009 and found that loan servicers made more money by offering forbearance (a period of time where the borrower does not have to make payments so he can consolidate his finances) than by cutting principal or reducing rates of interest, which is what loan modifications do.

This means that when deciding between foreclosure and loan modification loan servicers have to choose between certain loss with loan modifications and potential profit if they foreclose the loan. What would you do? Exactly. This is why loan servicers have been dragging their proverbial feet with loan modifications. Of course there are also other issues to consider like public opinion and bad publicity. The government has tried to use this weapon by publishing loan modification leagues that encourage banks to reorganize their systems to increase loan modifications.

So what is the solution? No easy fixes obviously or they would have already been implemented. However the administration could enforce stricter rules that regulate foreclosure and make loan modifications more attractive like regulating loan originations, mandate loan modifications before foreclosure or have third party loan modification mediation programs that control what mortgage providers do.
The best thing you can do now if you are at risk of foreclosure or behind in your payments is to contact the HOPE program by visiting their website or calling 1-888-995-HOPE.

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