Loan Mod, Short Sale, or just WALK AWAY

Staying on top of a blog is hard work, with the market changing so rapidly we got so busy there for awhile i completely forgot about the blog.  At this point and for the last 10 months our primary focus has been short sales.  After a year of trying to get loan modifications done, we started leaning towards short sales more due to the fact that most modifications we did ended up just being band aids to a problem that needed more help(surgery maybe).  Let me explain:

In Arizona right now homeowners are generally about 30-50% upside down on their mortgages so if they were to do a loan modification they would have to get a 0% interest rate for their payment to be close to what it would be if they were to rent or buy a house today at 4.5%.  And then on top of that they are HANDCUFFED to their houses, they can’t sell without a short sale.  The lenders required them to go late before they approved the mod so their credit has been damaged worse than if they had done the short sale to start with.  Later down the road when they decide that they need to short sell the property they have a double hit of the lates(from the Mod), the Actual loan mod, and now the short sale.

My opinion tends to be that the sooner you get the damage done and over with, the sooner you are on the road to fixing your credit and buying a home again…not that you need to hurry, have you seen the stats for the market in July and August? 27% decline is sales July, and an Additional 5% decline in August.  Anyways i feel that if you do a short sale today in 2-3 years you can purchase again…and even if the market has picked up at that point you will still be in a much better situation than if you had stayed in your previous home.

Long Story short, I really feel that short sales work best for most homeowners but i just helped a really good friend get a loan mod this week and i finished a few more last month so the Loan Modification still has its place…it is just a very low percentage of people that I think it makes sense for.

I have  a tool on my website called a Break Even Calculator that arms you with the information to know how to move forward towards a loan mod, or short sale. Check it out at www.savingarizonahomes.com

Is your bank looking out for YOU…or themselves?

It seems like everyone you know has become a loan modification expert overnight, and there are countless stories of Average Joe calling up his mortgage company, demanding relief and winding up having $100,000 knocked off his principal balance, having his rate dropped from 8% down to 2%, and getting his term extended to 40 years. Now old Joe is paying $375 per month for his $500,000.00 home. Should be a simple matter for you to go out and with an afternoon’s worth of phone calls get something similar, right? Let me ask you this: Do you know Joe? I’d wager that the person who told you the story doesn’t know Joe either. Neither did the person who told them.

Joe may or may not be a real guy, who’s to say? What I can tell you is that if Joe really did get that kind of deal, 2 things are absolutely certain. 1) Joe didn’t do it overnight, and 2) Joe had a lot of help. The fact of the matter is that loan modifications can be had without hiring an outside company to do it for you, but your chances of getting a better deal will increase dramatically with professional help. For example, given enough time, I could build my own house too, but since I work in an air-conditioned office for a living, and don’t really know a lot about construction, I’d probably be in my house a lot sooner, and the house would be much safer, if I hired someone who actually knows what he’s doing. Things like doors and windows and such would probably work better too. Modifying a loan is the same way.

There are, literally hundreds of things that the average homeowner doesn’t know about their mortgage, nor should they in normal circumstances. Unfortunately, the need for a loan modification is way outside normal circumstances, and what you don’t know can absolutely hurt you. Add to that the fact that policies and procedures vary greatly among different mortgage companies and even different branches and divisions of the same mortgage company, and you could fill an encyclopedia with the amount of things that need to be understood. Without a competent professional to assist you, well, it’s quite possible that the roof could cave in on you’re homemade house.

There has been a recent trend among government agencies, banks, and the media to steer homeowners away from Loan Modification Companies (LMCs) on the basis that any company who charges a homeowner for something they can do themselves for free is either fraudulent or just taking advantage of you. While there are always going to be unscrupulous people out there, and you should definitely check the references of any company you are thinking of hiring, it’s patently absurd to think that the banks have your best interests at heart. To use Chase as an example, when you call their loss mitigation department, the automated voice tells you two things immediately: “Beware of third parties who charge for their service because Chase is dedicated to helping individual homeowners….blah , blah, blah.” And the next thing you hear is their disclaimer: “This is an attempt to collect a debt, and any information obtained will be used for that purpose.” And every other bank out there has a similar disclaimer. Does that sound like they’re trying to help you?

The banks are aware that you do not do this for a living, and they will capitalize on your lack of knowledge and understanding. They know that if they deny your application for modification, over 50% of you will not attempt to re-apply, and will do whatever you can to continue making your unaffordable mortgage payments. They win. Of those who do decide to try again, they know that they can offer a forbearance or a repayment plan instead of a modification, and because you may not understand the difference, another large percentage of you will sign up and allow them to again not modify the loan, but instead commit to 12 months of even higher payments to get caught up again. Again, they win.

Now I’m not saying that all mortgage companies are big evil corporations, but the truth is that they are in business to make money, and the more the better. If they can convince the majority of their borrowers that a modification is impossible or out of reach, they get to continue collecting interest payments at your expense, keeping the coffers full. Hiring a professional to do the legwork for you eliminates that risk almost entirely. In a lot of cases, those loans who have a third party LMC go to a different department, and get assigned to a negotiator who is experienced in dealing with LMCs, and knows that there is a certain amount of knowledge behind the modification request. This helps because it puts the homeowner on more even footing with the bank, and, in most cases, allows for a quicker turnaround time.

Weather you are building a house, facing a jury, learning Japanese, or applying for a loan modification, it just makes sense to get professional help. You need to make sure someone is really looking out for you, instead of putting you in a position of weakness.

Should You Hire A Loan Mod Company?

Let’s face it, over the last several months, Loan Modification Companies, or LMC’s have received a tremendous amount of bad press. The big lenders, as well as the federal government have all come out and discouraged the general public from hiring LMC’s to do something that anyone can do for free. This is absurdly inappropriate advice.
If a homeowner is having difficulty making their house payment, ,the chances are good that they are working as much and as hard as possible in order to get the needed income to keep the home. This means that they don’t have the time to sit on hold for hours, waiting to talk to someone who has no vested interest in seeing their needs met, and has no authority to make a decision even if they care to. Wading through countless automated phone systems telling you to press ’1’ for some option that doesn’t help, or they don’t understand. Then they are put on hold again, only to be transferred to someone else who doesn’t care and has no authority, etc, etc.
When a homeowner personally calls their lender or servicer and actually gets to speak to a real, live human, invariably, the first thing they are ‘offered’ is some variation of a forbearance or repayment plan.  Not a modification. Unfortunately, the average homeowner isn’t knowledgeable enough to know the difference most of the time, and winds up getting stuck with an even higher payment than the one they currently can’t afford. Having an advocate that knows your budget, your expenses, and how to navigate through all the bank’s hurdles is more than a luxury, it’s nearly a necessity.
An LMC can separate fact from fiction, and handle the hours of phone calls and faxes. They can set up the file correctly the first time so that a loan modification is more likely to be accepted. They have the know-how via experience to get the right people on the phone, and weed out the re-payment schemes to get to the ultimate goal: a fair modification to the terms of your loan.
I fear that if the public at large chooses to follow the bad advice given by the Banks, the Government, and the general media, this crisis we are in will continue much longer than necessary. The truth is, LMC’s offer an extremely valuable service to people who would otherwise have no one on their side.

Communication

Communication is what separates us as humans from the rest of natures creations. Well, that and opposable thumbs. But communication is by far more important, especially of you need a loan modification. Read on as I utilize my thumbs to type out an explanation.
Weather you use a company like mine to help you with your modification, or choose to go it alone, communication is the ultimate key to getting your loan mod done as quickly and effectively as possible. If you are being helped by a third party, they need to know all the details of your loan, your financial situation, and anything else that could be relevant to your need. Likewise, if you are dealing with the mortgage company directly, being able to articulate your position, along with your needs and desires in the process is paramount.
On the flip-side, they need to be communicating with you as well. If communication is completely one-sided, it’s no longer communication, it’s a monologue. The third party has to be able to speak to you clearly, and without resorting to industry lingo you don’t understand. The mortgage company must impart to you or your agent the requirements it has, and ask the necessary questions to get the problem resolved.
Good communication begins with the first call you make, be it to your lender, or a third party. This is when you state your problem, and spell out what you expect in a resolution to it. If you are doing it yourself, this is when the lender makes it’s first request for information and documentation, and if you’re getting help, this is when the third party will do the same. The difference is that the third party can at this time also go over what to expect from the process, and let you know their opinion, based on experience, of what you can expect in a final modification scenario.
Don’t get me wrong, I like my thumbs-they make it so much easier to hit the space bar. But when it comes to getting your mortgage loan modified, the ability to speak and listen are far more valuable assets. Modifications can be done without thumbs, but not without communication.

The Obama Plan-Simplified

Recently, President Obama produced a plan  to help out approximately 9 million families in jeopardy of losing their homes, called the ‘Making Home Affordable’ plan, or MHA. Since it’s release, there has been a lot of confusion on how the plan works, and who will qualify. Here is a broad overview of the plan and who will benefit.
The basic idea of the plan is to get your monthly payments as close to 31% of your gross income as possible. This can be done via a refinance, or by modifying the terms of your existing note to get you in the ballpark. In order to qualify for a refinance, you must owe 105% or less than the home’s market value. Since that is a rarity these days, we’ll focus on the modification side.
In order to qualify, you must first have a payment that exceeds 31% of your gross income. This is your Housing Debt to Income ratio. You also must occupy the property as your primary residence, not an investment property. And it must be a Freddie Mac or Fannie Mae securitized loan. At present these are the only types of loans being considered for the MHA plan.
Under the plan, the lender will do whatever it can to get the payments to that 31% threshold, and put the homeowner on a three month trial period at that payment. Once three consecutive payments have been made, the modification documents will be drawn up and sent to the homeowner for signatures. Once those documents are returned to the lender, the modification will become permanent.
It is important to note that during the ‘trial period’, payments must be on-time, and in certified funds, but once the mod is permanent, payment options will be normalized.

Begin It

Loan modifications are becoming more and more commonplace in today’s market. This is due to several factors; the down economy, the prevalence of Adjustable Rate Mortgages, layoffs nationwide, etc. Even as widespread as the phenomenon is, people still find it daunting to begin the process of trying to get their loan modified. The fact is, it’s not that difficult, but it requires time and preparation.
If you are currently behind, or fear you soon will be, you need to act. Don’t wait for the lender to start harassing you about your debt, be pro-active. Sit down and figure out your finances. Is there a way to increase your income? Can you live without some luxuries? Can some of your expenses like credit cards be negotiated down? Once you have a clear picture of where you are and what you can do, then you need to tell your story.
If you are going to be considered for a modification, the lender will want to know why. You will have to compose a letter explaining in detail what lead to your current situation. Pride will have to take a back seat on this one, because the Hardship Letter is very important, and must tell the whole story. The lender wants to help. But they need a good reason, so make sure you spend quite a bit of time on this aspect.
The next phase is to contact the lender. Now this is a very long, tiresome, and frustrating task to say the least. A good portion of folks out there choose to hire an independent 3rd party to log the hours on the phone, send the faxes, write the emails, etc. just because it takes too much time to be able to do it themselves. Others choose to go it alone. Either way, a modification is possible, but you must begin it before you can end it.

Mod Traps

The banking and credit industries have been training the public at large for the last couple of decades. When it comes to getting a loan modification, all that training and education will do nothing but get you into trouble. Here are some potential traps to avoid when applying for a mod.

It’s a common understanding that when you apply for a loan, you must first prove that you don’t need one. You have to show your financial situation in the best possible light, so as to present as small a risk as you can to a potential lender. Conversely, in the past when things got rough, in order to get any assistance at all, we had to show that we were completely destitute, otherwise we were told that we were too well off to qualify for help. Forget these lessons completely, as this is a whole new world, with completely different rules and guidelines.

For a loan modification to be approved, things need to be presented just a bit differently, so that there is an evident need for assistance from the lender, but not so bad as to be untenable. Ideally, to qualify for a modification, you should have a verifiable reason for the request, be it loss of income, medical situation, rising payments due to an ARM loan, or some other reason that affects your ability to pay as agreed. But the key to success is that situation must be resolved.

If you were laid off 5 months ago and are still not working, this is an unresolved hardship-you will be denied assistance. However, if you were laid off 5 months ago, and have recently gone back to work, albeit at a lower rate of pay, the hardship is considered resolved, and you may qualify. The key is to present a need, but at the same time show that you have a willingness and, most importantly, an ability to make payments in the future.

Avoiding these traps will help you to avoid an unnecessary denial of your modification application, and greatly reduce the amount of time spent trying to get an approval. While the lessons of the past are not easily forgotten, learning a new trick or two will benefit you tremendously. When thinking about how to best present your case, just remember the two main goals of a mod from the lender’s perspective: Cure the current delinquency, and prevent future delinquency.

What You Need to Start the Mod Process

Every lender in the country has a Loss Mitigation department. As of right now, that department is tasked primarily with the job of reviewing loans for possible modification. While all lenders approach this task from different angles, and with different criteria, there are a few items that you will need to have ready to satisfy all of them.

The most important piece of your modification package is your Hardship Letter. No matter who your lender is, they will all ask for this, and usually before they ask for anything else. A properly formatted Hardship letter is critical to having a mod either accepted or denied, so this should be the document that you spend the most time on to ensure it is as good as it could possibly be.

Financials are the second thing asked for, and nearly as crucial as the hardship letter. What the lender is looking for is an accurate depiction of what your outgoing expenses are on a monthly basis. Everything you spend, from bills to groceries to entertainment on a monthly schedule must be represented here. This is where people often make mistakes when trying to get ‘creative’ with the budget they submit to the lender.

Supporting documents will fill out the rest of the list here. This will include paystubs, bank statements, tax returns, etc. A basic rule if thumb is to multiply everything by 2. 2 months paystubs, last 2 months bank statements, 2 years tax returns, and so on. I don’t recommend just gathering everything and sending it all to the lender though. When talking about supporting documents, only send in the documents they ask specifically for. If they ask for last years taxes, don’t send them the last 2 years. If they ask for 1 month of paystubs, don’t send your bank statements as well. Sometimes less really is more. Just make sure that you have these documents, just in case they do ask.

All lenders approach modifications differently, but all with the same goal. They want to make sure they only have to do this once, and keep from having to foreclose. Knowing what to have on hand, and how to answer their questions is the most important, and one of the mistake ridden, things a homeowner can do to ensure they get the mod they need. Getting it done takes planning and preparation, so make sure you take the time to get all your ducks in a row before the first call is made.

What effect does my Credit Report have on a Modification

I get asked all the time weather or not lenders will pull and review a credit report when considering a homeowner for a loan modification. The answer is yes and no. Unfortunately, there is no universal procedure for doing loan modifications, and some lenders will pull a credit report just to have it in the file, some will pull one and review it as if they are underwriting the loan again, and others won’t pull it at all. And some don’t do anything consistently enough to say for sure weather they will or won’t.

In my experience, credit scores are of far less importance than income and expenses in the mod process. I have seen 780 credit scores denied for modifications due to overly negative financials, while 540 credit scores with financials that show they can make the new payments are modified regularly. Lenders are aware that you are in a financial bind, that’s why you’re applying for a modification in the first place.

If you are concerned about it, I would suggest you get a copy of all 3 credit reports, so that you can see what the lender sees. That way, if they ask you about something specific, you will have already reviewed it, and can give explanations as needed. But don’t spend too much time worrying about it because it probably won’t be a determining factor in the mod decision.

Credit reports are a key factor in getting a loan, but when applying for a loan modification, aren’t nearly as important as ability to pay. You already have the loan, you just need the payments lowered, or rate fixed, or term extended. To qualify for this, your credit report is really a non-issue.

Why Hire Someone Else

In the last twelve months, there has been a major boom in the business of loan modifications. In fact, if you Google “Loan Modification Companies”, you will get roughly 1.8 million hits. Most of these companies weren’t even in existence a year ago, but when a need arises, the market provides a solution. What does this mean to you, and should you use an outside company to help you get a modification?

Most lenders are more than willing to work directly with a homeowner to bring a resolution to a delinquent mortgage, including modifying the note. After all, this usually works to the lender’s benefit. Unfortunately, it can be more in-depth than a lot of people can comfortably handle on their own, and there are certain pitfalls that the average homeowner isn’t aware of that can jeopardize their chances of getting a modification in the first place. Having someone else to do the legwork, and ensure the lender gets the right picture can be a great benefit.

That being said, there are companies out there who will do nothing but take advantage of people, and hiring someone who has no history of success, and no real experience with modifying loans is risky at best. Look for a company that has been around for  a while, and don’t be afraid to ask for references. This is your home we’re talking about. If someone can’t show you what they have been able to accomplish on others’ behalf, why would you want them working on yours?

You can do a modification yourself, without spending a dime. Just like if you are accused of a crime, you can choose to represent yourself in court, and we all know the saying about the man who represents himself: He has a fool for a client. Sometimes it just makes sense to let someone with the knowledge and experience do the work.

Mods For Everyone

The saying goes, ‘You can please all of the people some of the time, and some of the people all the time, but you can’t please all of the people, all of the time.’ Sage wisdom from a simpler time, that still rings true today. This is also true with loan modifications.

Not all loans are alike, nor are all needs. Everyone has an idea of what they want, and it’s usually based on what they heard their neighbor up the street got. Well, it doesn’t really work that way most of the time.

When a lender puts together a Mod package, there are several things they considered to get to that point. What can the homeowner afford? What type of loan is this? What is the hardship, and has it been resolved? What are the current market conditions in the homeowner’s direct geographic area? Do they own other properties? All of these and more come into play when trying to figure out if and how to modify a loan, not least of which is the ability to re-pay at the modified payment.

The mod that Mr Jones got will not be the same mod that Mr Smith gets, nor will Mr Smith’s be identical to Mrs Ling’s, etc. The differences can be profound, up to and including, not getting a mod at all. Because some loans just will not qualify, no matter what your neighbors got for theirs.

My recommendation, if you get a mod, even if it’s not as good as you expected, if the payment is affordable, then you should do it. If you are still not happy with it 6 months to a year from now, re-apply! Most lenders will consider a loan for modification once or twice annually if necessary. In the meantime, you are at least making a more affordable payment and not ruining your credit with mortgage delinquency.

Mod Success

What is a successful modification? Of the many aspects of a loan that may be modified, what factors must be present for it to be considered a success? The answer is that it must, first and foremost, be affordable.

When applying for a loan mod, one must have at least a basic idea of what one must accomplish in order to be able to afford the payments. This requires knowing exactly what one can afford, in dollars and cents. You should go into the process with your eyes wide open, and with two numbers in your head: Your ideal payment, and the most you can comfortably afford. The reason for this is so that you don’t get caught up in percentage rates and other useless ideas.

Assume that you have a current payment of $1600. $1000 per month is your ideal mortgage, but you can live with $1300, gives you a better idea of what you are really getting when the lender offers a mod package. If you are only looking at the interest rate, it may seem like the lender is giving you a great deal by dropping the rate 3 points, but if the new payment is beyond your threshold, have you really been helped?

Having a specific range in mind from best possible, to unacceptable allows you to look at the bottom line and see immediately if the new payment falls within the acceptable range, and allows you to make an educated decision, rather than just taking what seems like a good deal. No matter how good the deal appears, if you can’t afford it, it will not help, and you will wind up in the same position later on down the road.

The two main goals of a loan modification are to bring the loan current, and prevent future delinquency by lowering the monthly obligation to an affordable payment. Knowing exactly what you can afford will help to ensure success.

The Mod Solution

There is a lot of speculation out there surrounding what the root cause of today’s financial meltdown, and how best to cure it. In actuality, the cure has to happen in two parts, one in the short term, and one dedicated to a long term solution. These two phases should be completely separate, as the long term solution will do nothing for the problems we face right now, and conversely, the short term solution alone would only exacerbate the problem over time.

To understand the issue, you first need to identify the causes, and there are many. Real estate values over the last 20 years increased at an artificial, and completely unsustainable pace, creating a market where the average Joe could not afford to join the ranks of American homeowners without some creative help from both the government, and the banking industry. This lead directly to what we are now referring to as ‘toxic’ loans. Basically Adjustable Rate Mortgages (ARMs), that started off with a minimum payment (often not even enough to cover the interest-only portion of a normal payment, which caused the loan to negatively amortize. Meaning that with every payment made, the homeowner slipped further into debt.), and then, after a predetermined amount of time, the loan would re-cast, and the payments would increase dramatically. Borrowers were either not informed properly and had no idea that this could happen, or they took the loans on the belief that values would continue to increase, and they would be able to sell for a profit, or re-finance at a lower rate before the loan re-cast. Unfortunately, the system crashed before many were able to get out.

At the same time, people had begun to depend more and more on credit to sustain their lifestyle. They bought anything that could be broken down into affordable monthly payments, regardless of the rate of interest, or the actual cost. At worst, they figured that they could pay everything off when they sold their house and made an obscene amount of profit. This happened gradually, and no one considered the possibility that they might lose a portion of the income that contributed to the monthly payments that financed the whole thing, much less the possibility of a housing collapse.

Now fast-forward a couple of years, and the first round of folks who couldn’t pay the mortgage after re-cast start to go into foreclosure. This creates two situations: 1) Property values begin to decrease, and 2) Others in similar situations begin to try to dump the properties before they get sucked down into the vacuum, causing values to plummet further. This cycle continues, and values fall at an unprecedented rate.

Now you have a situation where the public sees what’s happening, but doesn’t really understand it, so they lose confidence in the economy and begin to spend less. Not a bad thing, right? Well, when everyone stops spending money, the economy comes to a screeching halt. Businesses that were booming just a few months ago, all of the sudden had no customers, and therefore no income, and started to cut back on their spending, starting with the single biggest expense of any company: Employees. The layoffs began, and consumer spending decreased further, and that led to more layoffs, etc, etc.

Now unemployment rates are the highest they’ve ever been, banks are afraid to lend any money so no one can buy a home, people aren’t spending money because they may not have a job next month, and the government is trying to spend us back into prosperity by engulfing the country in the biggest deficit we’ve ever seen. How do we escape this downward spiral? I won’t address the long term, as it is too in depth to convey in this media, however, the short term options are fairly simple.

 

The Plan

In the short term, we have only two viable solutions to stop the bleeding. The first, and most likely to succeed, is basically pushing the universal ‘reset button’. Take a look at every mortgage on the books today, and for the ones that are ‘under water’, Immediately write off the difference between what the debt is and what the actual value is, in essence dropping the principal to within 5% of current market value, and fixing rates at whatever the current rate happens to be. This would allow a majority of homeowners to remain in their homes, and increase consumer confidence across the board. This will never happen, which leaves us with loan modification.

 

Liberal application of loan modifications is the only doable option that we have available to get people out of the situation we find ourselves in.  Do not confuse this idea with one of ‘fairness’. Investors will say that it’s unfair to reward those who allowed themselves to get in ‘over their head’.  It is necessary though, and will ultimately save them a very real fortune, as well as possibly saving the American economy, and by extension, that of the entire world. 

Without modification, a large percentage of these loans will default, putting an enormous strain on the banks. The costs associated with the process foreclosures alone would devastate most of our financial institutions, let alone the vast inventory of bank-owned property which would need upkeep and maintenance, as well as having the capital tied up in worthless property that they can’t liquidate. The risk of not endorsing widespread modifications far outweighs the risks involved in creating a more affordable loan product out of one that will eventually go bad. The value of a loan after modification is MUCH higher than the value of a loan which has been short sold or foreclosed upon.

In conclusion, and I know a ran a little long today, the last best hope for our current mortgage crisis is loan modifications, and a lot of them. It’s the least of all evils, it’s a marketplace solution, and with real effort on the side of the banks, can be done very quickly. They just need to decide to get it done.

Why Would A Bank Modify A Loan?

You see it in the news, on the internet, you hear about it on the radio. Even the banks are sending out letters about it before homeowners even ask. Loan Modifications. Simply defined, it’s when a lender changes the terms of a loan to help make it more affordable to the borrower. “Why would they do that?”

At first blush, it would seem counter productive for a lender to lower someone’s interest rate, or extend their term, or offer an interest-only payment period without any penalties. After all, these aren’t non-profit organizations, they are banks. The very ideal of capitalism. Well, it’s actually quite simple: It cost’s the banks less to modify a loan than it does to go through foreclosure.

From the bank’s perspective, with a large percentage of the population going through difficult times, the foreclosure rate has increased tremendously. This is putting a severe strain on the amount of capital they have on hand to lend, therefore having an effect not only on the losses they are seeing, but also affecting their ability to produce income. No new loans means no new interest payments or fees collected.

Rather than foreclose on a property and deal with the costs associated, and then most likely take a loss on the property once they are able to liquidate it, they can choose to modify a loan. By modifying, they eliminate the expense of foreclosure, and since they don’t have to re-possess the property, there are no losses due to depreciated value. They technically don’t lose anything, they just reduce the amount of profit they make on the loan. By doing this, they are helping themselves as much as they are helping the homeowner.

This doesn’t mean that the banks are going to mod every loan that comes calling, but it does mean that they are looking at all of them, and the odds are good that if you have a strong hardship, a desire to keep your home, and the ability to make payments, you can qualify for a modification.

5 keys to modification success

When pursuing a loan modification, there are several key elements that must be there to be successful. Every lender has a different list of things they require, and while they are widely varied, there are a few that are always in the mix. While this is in no way a complete list of items you will need, it is a good start, and knowing this list can help you to be successful. Here are the top 5 things you will need.

1: Demonstrate the Need. In order to qualify for a modification, no matter who your lender is, you will have to show them that you need one. You must, in detail, describe the event or series of events that led to your delinquency (or probable delinquency if you are current on payments).

2: Express Your Desire. You must let the lender know that you want to stay in your home, and that you want to get your rate lowered so that you can afford to continue making the payments. This sounds pretty obvious, but in a time when a large percentage of homeowners are choosing to just ‘walk away’, expressing a desire to meet your obligations is crucial to getting a modification.

3: List Your Expenses. You need to sit down and figure out exactly what your monthly obligations actually are. Include everything you spend money on every month, from the mortgage, to what you spend on dog food, to maintenance on your car(s). Only by having the full picture can you figure out exactly what you need, so be thorough.

4: Prove Your Income. You will need to have a few things available to do this, including paystubs, tax returns, and bank statements. Have them ready, and don’t guess on the numbers. When obtaining these documents, a good rule of thumb is to get 2 months of paystubs and bank statements, and your last 2 years tax returns. Every single lender out there will ask for these, so having them ready will save you time.

5: Take the Time. Modifying your loan is a lengthy process, and if you cut corners, or fail to provide accurate documents, that time frame will grow exponentially. You will get placed at the bottom of the stack, while people who have provided everything the lender has requested will be modified ahead of you, regardless of your need. Make sure your information is up to date, and be prepared to spend a lot of time on the phone, weather you’re speaking with the lender, or just on hold.

When you break the process down to it’s key elements, getting a loan modification is not terribly difficult or confusing, but it is time consuming and frustrating, and all the more so if you skip steps or fail to produce required documents. In the end, the more you gather ahead of time, the less painful the process will become.

Re-Fi, or Modify?

That is the question. You’re in a situation where your payments are just too much to handle, and there are so many hurdles to jump, you just don’t know what to do. It’s a common scenario, and one that will repeat itself over and over for millions of American homeowners.

The easiest answer to this question is if you can re-finance, it’s usually best and cheapest to do so. Best because it pays off the ‘bad’ loan you currently have, and puts you into a (hopefully) better loan that you can afford. Cheaper because it’s generally a lot quicker, and you usually get a break in payments when the new loan starts. Unfortunately, not everyone has the option to refinance.

Right now, with the tough economic times we find ourselves in, banks are being very stingy with the money they have to lend, which makes it nearly impossible to re-fi if you don’t have perfect credit, equity in the property, and plenty of disposable income. If you’re like most of us, you’d be happy with any one out of the three right about now, much less ‘all of the above’. For a great number of us, we’ve had pay cuts (or even lay-offs), we may have been late on a couple of payments, and our home has lost value to the point where we are “under water”. For us, modification isn’t an option, it’s all that stands between a happy ending and homelessness.

If this is you, don’t feel like the odd man out, you’re actually very nearly the majority right now, and the banks know it. Don’t wait until you get way behind in your payments to try to do something, do it NOW. Weather you have the time, energy, and patience to do it yourself, or you need to hire someone like me to wade through the bureaucracy and red tape for you, get started now. The sooner you start, the sooner it’s done and you can go back to your life.

When Do I Need A Modification

I get asked this question every single day, by potential clients, friends, relatives, and people I meet in my day to day life. The short and simple answer to this question is now. Of course that comes with caveats and stipulations, but the crux is that if you are asking the question seriously, then you should probably be actively seeking a modification of your home mortgage. Following are some facts about modifications that you may or may not already know.

Fact: If you are struggling to make your mortgage payments every month, you should try to get a modification. Even if, up to this point, you have been on time, and haven’t missed any payments, it’s possible to have your loan modified. What you need to show the lender is a likelihood that you will default or become delinquent. I know folks with perfect payment histories that have gotten mods, because of some change in circumstances that demonstrated that they may not be able to pay the mortgage in the future.

Fact: If you are currently behind, you should already be in the mod process. The more payments you miss, the further behind you get, the harder it is to catch up. Not to mention the damage done to your credit rating. The sooner you get the ball rolling, the sooner you will have a resolution, one way or another.

Fact: If you have an adjustable rate mortgage (ARM), weather or not you r are having problems making the payments, you should be applying for modification. The fact is that the lenders today are really more than willing to modify ARMs to fixed rate mortgages just to offset the possibility of future default. Break your ARM.

Fact: Finally, modification is not for everyone. Some people will never qualify for a modification, no matter how hard, or how often they try. If you are in a fixed rate loan, at 5%, for a 30 year term, and have stable income that keeps you ahead every month, the chances of getting a lender to modify your terms are Slim and None, and Slim left town. But you should still give it a shot. The worst thing that can happen is the lender denies the mod request, so you have to keep the terms that you aren’t having trouble with anyway. But on the other hand, they might give you a better deal, just to get you out of their way.

If you’ve read this far, you probably need to start the process. At worst, you request is denied, and you remain where you are. At best, well, experience says that if you want to win the Lotto, the first thing you have to do is buy a ticket.

Phone Tag: You’re it!

When dealing with a mortgage company, especially when trying to get a loan modification, it helps to know what to expect. The first thing to know and understand, is that once you get a negotiator assigned to your loan, no matter how many times you call, or messages you leave, they will not call you back. If they call you, it’s because they were looking at your file and saw something that was missing, or needed to fill in a blank.

The simple truth of the matter is that they just have too many files they are working to be able to call everyone back to answer a question, or give an update. And while this is incredibly frustrating for most of us, it comes with the territory. Some negotiators will work a modification from beginning to end (sometimes up to 90 days) without ever speaking with the homeowner.

This means a couple of things to you. First, don’t wait for them to call you back; keep calling until you reach them if you have a question you need answered. Sometimes just speaking to the customer service rep is enough to get what you need, but when it’s not, don’t be afraid to continue making calls until you are connected to the person you need to speak with.

Second, if you can get an email address for the negotiator, do it! While they often keep their phone extensions as secret as the location of Area 51, the email address is usually easier to obtain, and far more valuable. The reason for this is that getting involved in a phone call can sometimes lead to the negotiator being tied up on the phone for 25, 30, 45 minutes or even an hour, answering the same questions over and over again. Not a productive use of time, because nothing gets done. An email is much simpler. It takes just a few seconds to read, and they can respond in another few seconds, succinctly, and without interfering with their work flow.

At the end of the day, you are 100 times more likely to get a response to an email than a phone call, even if it’s just to say that there is no update right now. So if you have access to email, use it as your primary means to contact the negotiator if you can. If you can’t get the email address, well then, be prepared to make many, many phone calls.

Know You

The financial facts are an important piece of what lenders look at when considering a loan for modification. Sounds like a no-brainer right? Well, think again. One thing I’m constantly being asked is what to say to questions about income, and/or expenses. Things that should be readily known by the homeowner. So before you start babbling to your mortgage company, and pulling figures out of thin air, take some time and actually do the math beforehand.

Try to keep in mind that every time you say a number, or a dollar amount on the phone with your lender, two things are happening: The rep you are speaking with enters that number in the appropriate field, where it is viewable every other rep who opens that file, ad infinitum. And second, it is being digitally recorded on the audio recording system that they use to record ALL phone calls, both incoming, and outgoing.

Beyond that, if you don’t give accurate figures, it makes it hard to come up with a loan mod product that will actually benefit you. If the financial data you give shows that a $200 payment reduction will put you back in the black, even though in actuality you are in a $500 monthly deficit situation, guess what? The program you get offered will not really help you.

You need to sit down, and draw up a list of every source of income you have, including the $150 a month you make selling widgets on eBay, and make a thorough list of all of your expenses. All of them. And not just the car payments, credit cards, utility bills, membership dues and insurance payments. If you can’t go a day without a Venti double half-caf mocha chi latte, then that needs to be counted in your expenses as well.

Once you have the lists, go over them again, and then one more time to verify that it is an accurate picture of your budget. If the expenses outweigh the income by a substantial margin, then start to cut expenses, or figure out a way to bring in more money. If you are over-spending by $1000 every month, you will not get a mod, because no matter what your payments are lowered to, you still won’t be able to afford them.

 In the end, you want the list to be at least even, and maybe a little on the positive side to ensure you get the best deal available, but above all, know where you stand before you make the call.

Modification Crisis?

 I am fascinated by Chinese culture. Their philosophy, customs, familial relationships, and especially the language. And even more specifically, the written language. You see, the Chinese have no alphabet. Rather than putting together a series of letters to create a word, and then stringing together several words to make a sentence, etc., their language consists of over 40,000 symbols, each of which have their own meanings, and can be combined with other symbols to mean something completely different, and yet share a relationship with the original symbols. I give this brief language culture lesson to illustrate this: The Chinese symbol for ‘Crisis’, is in actuality a combination of two other symbols. That of ‘danger’, and ‘opportunity’.

The situation we currently find ourselves in is very often called a crisis. By the media, the politicians, the banks, CEOs, and those of us who actually work for a living. What does that mean? It means we are in financial ‘danger’, and yet we have an ‘opportunity’ to not only rescue ourselves, but to actually improve our overall circumstances. How, you ask? Read on!

In the history of the world, we have never faced a financial burden of the scope and breadth that we now face. Lenders of old could foreclose on a loan at any given time, without fear of losing anything more than what amounts to pocket change. Today, however, the sheer volume of what are being called ‘toxic’ loans puts the banks in a brand-new place. They simply cannot afford to foreclose on everyone. The losses would be insurmountable.

What this means to the average homeowner, who now faces the burden of making unaffordable payments on a property that has lost value, in a market where it’s almost cheaper to rent right now, is that we now have a voice. And it’s a voice that the banks and Mortgage companies cannot afford to ignore, so they really want to talk to us. We have an opportunity as homeowners to take advantage of the situation, and lower our payments, our interest rates, and in some cases, even the principal balances on our loans. All we have to do is use our voices.

The Chinese philosopher, Confucious is credited with the phrase “A man who lives in a glass house should not throw stones.” Don’t worry America, this house isn’t glass. Feel free to chunk a rock or two.