Loan Modification Hype vs. Reality
NOTE: This is a new section and content is being added daily. I expect the ballance to be completed by Wed 3/28/2009. Please check back often for updates.
There are a lot of companies out there that guarantee that they can modify your loan. First, no one but your own lender can guarantee this (How to avoid loan modification scams). Second, the steps to call your lender and go through the modification process are very simple. You may be thinking that you know nothing about loans. On top of that, you simply cannot even think of calling your lender, as they keep calling you and attempting to collect some back payments. Why would you want to call them? Right now I just want you to have a little bit of faith. I will break down the steps one-by-one. If you ultimately choose to use a modification company you will need to complete Step 2 that I will detail, anyway. This by the way is the majority of the work. Also, not all lenders will work with these 3rd party companies. Your only option could be doing this on your own.
Legal stuff: I am not an attorney, CPA, or debt counselor. I am a licensed Idaho Real Estate Broker. This qualifies me to represent buyers and sellers of real estate in the state of Idaho. Some of this information falls beyond the scope of my license and is not intended to be a recommendation for your specific situation nor is it a substitution for retaining appropriate counsel. It is simply a sharing of information to help increase your knowledge so you can make a better decision.
The process involves 4 steps.
- Gathering information
- Putting together your financial information
- Submitting your information
- Follow up and receiving the modification
Let’s rate your chances of success first.
|Which scenario best describes you?
||Chances of a successful loan modification
|Had a major loss in income and got behind on our payments but now have an income at the same or a bit lower than before.
|Lost job and have no income or just enough for food, utilities and basic needs.
||Medium to low
|Have had no major loss in income but just want a lower rate.
Step 1: Gathering information
Call your lender and determine their procedures for a loan modification. Each lender has their own set of procedures and they do not publish what they are. On top of that the procedures change periodically.
Dialog: “Hello – we very much want to keep our home and we have overcome a substantial amount of financial difficulty. Can you please transfer me to the work-out department or whatever department that handles loan modifications.”
Your goal is to ask as many questions as you can and NOT to go over your financial information at this time.
Q: How do I know if I qualify for a modification?
Q: How long does it take?
Q: Can you tell me what type of modifications you are seeing for my type of loan?
Q: Who is the investor on my loan? Do they have to review my information as well or do you do that for them?
Q: Exactly what information will you need from me?
Q: Is there a more direct number to get to you or this department?
Step 2: Compile your financial information.
Fill out all income and all obligations on the work sheet located on your lenders web site. If none is listed here is a good sample from Citi Mortgage. This is where the work comes in. Ideally your income will be about 5-10% above your total monthly debt. If it is not then prioritize your debt, restructure your bills and update the spreadsheet. Keep in mind that your lender will pull your credit and know what recent balances there are, etc. If you have restructured some of these debts be prepared to document why and how.
If your debt exceeds your income think about which items are most important to pay and which ones you can live without or reduce the payments on. Here is an example way to prioritize debt. Highest to lowest priority.
- Food and basic utilities.
- Business expenses (if self employed). Critical items to keep your business running.
- Secured debt.
- Unsecured debt.
- Credit cards, consumer debt, medical bills, etc.
If you can now only pay #1-3 above, call the people in #4 and let them know what you can pay for the time being. Even if its $5 month. They will be the hardest to deal with because they are in the weakest position. Just be firm and tell them what you can do and no more. Their goal (especially if you are dealing with a collection agency) is to get as much money out of you as possible without regard to anything else. They do not care if you lose your house, car or anything else as long as they get theirs. Dave Ramsey has a lot of great content on his site about this topic http://www.daveramsey.com/
Step 3: Submitting your information
Now that you have all of your ducks in a row, call your lender back and go over your financial information. Often times they will tell you that you qualify for a modification. They will also let you know what else they will need from you (recent paycheck stubs, 3 months bank statements, hardship letter, etc.). If they ask for additional documentation put that together and once you get it to them call them a few days later and verify they received it.
In the event they tell you that you do not qualify for a modification ask them what it takes to qualify. Once you know this, then determine if that is possible for you to accomplish. If it is possible for you to do so then complete those items and then and repeat step 3.
Step 4: Follow up and receiving the modification
Once your loan modification is preliminarily approved or submitted for underwriting then ask them how long it will take. Typically this is 30 days. Once you know this follow up with a phone call after 60-70% of the time is up. This is to insure the following:
- To makes sure they didn’t lose your file (yes this does happen).
- That program changes have not required you to submit additional information.
- That guidelines have not changed that would make you ineligible.
- That the time line they gave you is still reasonable.
Once you receive your modification the lender will send you the modification paperwork.
|Countrywide loan modification agreement for adjustable rate loans.
|Ocwen Streamline loan modification. This was for a 2nd mortgage and reduced the payment almost in half.
This will be a legally binding agreement changing the terms of your note. It will require a notarized signature. You can locate a notary at most banks, your insurance agent’s office or at my office (I do not charge for this).
If you are not approved for the modification and cannot make the payments please call me about a short sale.
|This is by far the most important part and something that I definitely recommend you spend some time on, as its one of the two things you can control: Keep a positive attitude I have a few tips on this located on this page. The other thing that is in your control is what actions you take and CONGRADULATIONS you are already taking control of those.