Getting a loan modification is no easy task, especially if you go it alone. Banks, swamped with borrowers seeking help, are overwhelmed and understaffed. Homeowners complain of their files getting lost, months and months of waiting, and flat-out rejection, even when they have followed all the rules.
Getting a loan modification is no easy task, especially if you go it alone. Banks, swamped with borrowers seeking help, are overwhelmed and understaffed. Homeowners complain of their files getting lost, months and months of waiting, and flat-out rejection, even when they have followed all the rules.
For those who are patient and diligent, the quest for a loan modification can be a highly rewarding endeavor. Loan payments can be reduced by hundreds of dollars each month, truly making them affordable and enabling owners to hold on to their homes.
Q:
Can I get a loan modification if I don’t have a job?
A:
Yes. Borrowers who have lost their jobs may still be eligible for help. They need to demonstrate they have some kind of ability to make their payments, be it with savings or unemployment benefits. Maisah Williams, financial literacy coordinator with the Human Services Coalition in Miami, said lenders will consider the circumstances of your job loss and what the chances are you will be reemployed soon. They may offer you a forbearance plan, in which all or a portion of your monthly payment is temporarily postponed.
Q:
How are most loan modifications structured, and how low can my payments go?
A:
Payment reductions range from between 20 to 30 percent. Under the federal government’s Making Home Affordable program, a lender will first reduce the interest rate on your loan to no less than 2 percent, then, if necessary, extend the loan term by up to 40 years to bring the monthly payments down to 38 percent of pre-tax income. The Treasury matches, dollar for dollar, further reductions until the payment is no more than 31 percent of your income. The new interest rate is fixed for five years. Then, it ticks up by one percent annually until it reaches the rate on the day your loan was modified.
Q:
Do I need to hire someone to help me through the process?
A:
No. It is possible to go it alone, but modification counselors warn the process can be time-consuming and complex. Karel Reyes, creator of StepByStepLoanModificationDVD.com, said there is no need for cash-strapped borrowers to pay thousands of dollars to an attorney or private firm, if they learn about the process and are willing to spend the time and effort it requires. Avi Shenkar, president of GMA Modification in Miami Beach, Fla., however, said professionals know banks’ inner workings. They ensure an application is moving quickly. He also said a pro may have greater success getting fees and penalties waived. Others said professionals know how to present applications to increase the chance of approval.
If you decide to hire a private company, make sure you check it out. Steer clear of firms that guarantee success or ask for hefty upfront fees.
Q:
How do I get the process started?
A:
Call your bank and ask for the loss mitigation department. Usually the representative will conduct a screening and ask you about your situation. If you meet basic eligibility criteria, the lender will send you an application package.
Q:
What kind of information will I need to provide to the bank?
A:
W-2s from your employer, a pay stub, and information about your savings and investments. You’ll be asked to document your debts and expenses. Don’t forget things like the birth of a baby or car insurance. Reyes said borrowers forget the small things that add up. Don’t forget to include all your income, such as rent collected from a roommate or child support. Document as best you can your loss of income or the impact of a divorce. If you owe more on your home than it’s worth, Reyes suggests sending in comparable sales info from your neighborhood. You’ll have to write a letter explaining why you need help. The more detail, the better, Reyes said.
Q:
I’m seriously underwater. Will the bank reduce the principal balance of my loan?
A:
Probably not. Lenders sometimes make principal reductions, but they are not common. A sharp interest rate reduction, though, will reduce the total amount you owe. Remember, too, that even though the bank lenders won’t reduce the principal, they may allow you to short-sell. That means you can sell the home for less than you owe them. It’s another way to avoid foreclosure.
Q:
Does the bank charge a fee?
A:
Banks may charge a negligible administrative fee. Other fees and late payment penalties can be waived, if you ask for it.
Q:
My house is already scheduled for a foreclosure auction. Is it too late for me?
A:
No. Lenders can cancel the foreclosure sale up to the very day of the auction. If you contact your bank at a very late stage in the foreclosure process, make sure the lender cancels the sale. There have been instances where homes have been sold at auction or taken back by the banks even though the home owner is being considered for a modification.
Q:
How long does the process take?
A:
About three to five months, though it depends on the bank. Some are more responsive than others.
Q:
How do you get your application to the top of the pile?
A:
Repeated follow-up calls are key. Roy Oppenheim, a foreclosure defense attorney, said you should call the bank as much as they called you when you fell behind.
Q:
What happens to the payments I don’t make while I wait for my approval?
A:
The missed payments are typically folded back into the balance of the loan.
Q:
What if I have a second mortgage or a home equity credit line?
A:
Under the Home Affordable plan, second mortgages are automatically modified with the first.
Q:
Will the lender expect me to spend my savings or tap retirement accounts before approving me?
A:
No. IRAs, 401(k)s, life insurance policies and annuities are off limits. Oppenheim says lenders can and may consider cash you have in the bank, stocks held in your name or other real estate. If you have too much of that stuff, you could be disqualified. Mainly, though, lenders are interested in your income.
Q:
If I overstate my expenses or understate my income, will the lender be more inclined to approve me?
A:
Modification counselors say borrowers often undermine their efforts by making themselves appear worse off. If you are too needy, lenders won’t approve you, Shenkar said. Lenders want people who can pay the loan once it has been restructured, or they want to foreclose and quickly resell it to recover their losses.
Q:
I’m current on my payments. Can I still get my loan modified?
A:
Yes, but it’s tough. Under the federal Making Home Affordable plan, lenders are encouraged to modify loans before borrowers fall behind, but that is not widely practiced. Banks want homeowners to, at least, take a hit to their credit score to avoid the moral hazard of everyone asking for a modification, it is thought. Banks say they must deal with borrowers in danger of losing their homes first.
Q:
I can’t cover my mortgage with the rent from an investment property I own. Is there any help available for me?
A:
Yes. You won’t get help from the federal government’s modification plan, but most banks have other programs that will consider loan modifications for investment properties. Oppenheim said he frequently handles loan modifications for investors.
