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.

Mod Speed!

 

 

Modifications move at the speed of slight. No, that’s not a typo, it’s a description. One thing that folks need to keep in mind when in the modification process: Nothing ever happens quickly. Mortgage companies historically take their time when doing anything that they perceive may cost them money. Weather it’s a simple reduction in rate, or a principal balance reduction, the bottom line on the deal is changing, and not necessarily to the lender’s benefit.

Add to that the incredible volume of modification requests they are now receiving on a daily basis, and you have a recipe for what we euphemistically call a ‘slowdown’ in response time. They are hoping to lose some of those requests to attrition, ie: If you finally get fed up with repeatedly not getting anywhere, you’ll just drop the whole idea and continue to make your monthly payments. You get things like multiple requests for the same documents that have already been sent and received, files that go to loan purgatory for seemingly unending periods of time, and a never ending stream of representatives who have no idea what they have or what they need.

It’s no wonder the average homeowner can’t get anything done! Who has the time to spent 3 to 5+ hours a week on the phone with their lender? Or faxing documents back and forth, to this department or that department? Now more than ever, it’s imperative to have someone on your side, who can make the calls, send the faxes, update the info, evaluate the financials, and basically be ready when the lender requests some obscure document. And that is exactly why we’re here.

Can an independent third party get you a modification in record time? No, but hiring someone to do the legwork for you can save you time, which can save you money. And not just in the long-term either. I’ve spoken to homeowners who have lost days of work trying to get their own modifications done. That money is never recovered. It should be tallied up as a modification expense.

In the end, it’s a long, slow process, which can be incredibly frustrating. As a professional in the field, I have been on both sides of the modification fence, both as a Negotiator for the largest home lender in the world, making the best deal possible for the lender, and now as an independent third party, negotiating on the homeowner’s behalf. It still takes what feels like forever, but I get results, and you don’t have to deal with the day to day headaches.

Loan Mod Article

“Hardship Letter”

 

In any given loan modification, one of the very first things the lenders ask for is a ‘Hardship Letter’. They will not even begin the process without having one on file in most cases. It is of the utmost importance because it states, in plain terms, the cause of the financial burden, as well as the scope of the crisis that caused it. That being said, this is the item most often done incorrectly, and is a leading cause of modifications being denied.

 

The biggest mistake most homeowners make on the hardship letter is being too vague. When a lender’s Loss Mitigation department reviews a file, the first thing they look at, before even the financial information, is the reason for the default, or possible default. If you state “I lost my job, and could no longer make my payments.” Your request will be declined. You need to say: “In December 2008, I was laid off from my job as a bookbinder with Goofy Publishing, where I was employed for 22 years.” They want to know exactly what the hardship is, and when it started, so be sure to include dates.

 

The lender wants to look at the letter, and have it coincide with the beginning of the default, so if you lost your job in October, but had already started missing payments in August, then there is obviously another reason besides the loss of wage for the default. This raises red flags, and will put you on the fast-track to denial of a mod. Whatever the reason for default is, they want to know the full story, and the reason for that is a good one: They want to know that the problem is resolved. If your dog got sick, and you had to pay $5000 in vet bills, include that in the letter, but make sure that the whole story gets told, whatever it is, while keeping in mind that the hardship must have a solid ending point.

 

If you state, “I lost my job and could no longer make my payments, but now I’m working again.”, well, you haven’t really told the story. It needs to be complete, with a beginning, middle and, most importantly, and end :

“In December 2008, I was laid off from my job as a bookbinder with Goofy Publishing, where I was employed for 22 years. After being unemployed for 3 months, I was able to regain employment as an editor at Mickey’s Coffee and Books in March of 2009, but had to take a 30% pay reduction. Due to the lack of income January through March, I was unable to make my monthly mortgage payments, and became seriously delinquent. With the reduction of my income, I do not believe I will be able to continue with the payments as they were. I am confident however that I will be able to make my monthly payments in the future, if those payments are reduced.”

 

Note that the problem that caused the default has been resolved, but there is still a need due to the lower income amount. Also take note that the last sentence states very clearly what the homeowner is requesting-a lower monthly payment.

 

Last, but not least, tell the truth. If you lie, or change dates to suit your needs, it will seriously lessen your chances for success. That doesn’t mean telling your lender you lost the mortgage payments for the next 6 months at the Craps table in Vegas, but if that’s what happened, don’t tell them your daughter is terminally ill. Figure out a better way to state the facts, without making up a bogus sob-story. Believe me, they’ve heard them all, and can usually tell when something doesn’t jibe.

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