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.