Applying for and receiving a loan modification can be a frustrating process. Here are our top 10 tips to make sure that your loan modification process is handled efficiently and effectively to help maximize your chances of getting the relief that you need.
1. Make sure you qualify.
In order to receive a loan modification, you first need to establish a bona fide hardship such as a decrease in your income, a loss of a job, unexpected medical bills, or a divorce. Second, lenders need to ensure that you will be able to afford a modified loan. If your loan exceeds 31% of your gross monthly income, the lender may look to modify your mortgage so your modified monthly payment is 31% of your gross monthly income. If you’ve temporarily lost a job, which caused you to fall behind in your payments, but have since re-gained employment, you may qualify for a modification. However, if you cannot establish sufficient income to afford the mortgage, your application will not be approved.
2. Set realistic expectations.
The unfortunate reality is that 1-4% mortgages that qualify for a loan modification end up receiving a permanent modification. Although many borrowers receive trial modifications, most are not moved into permanent modification. Most of the time its due to the fact that 75% of modified mortgages re-default.
Further, your modified loan payment may only go down slightly from your original loan payment. This is particularly true if you’ve missed several payments and penalties and late fees have accrued. Since these fees and arrears are added to the principal of the loan, you may find that your modified loan isn’t as low as you hoped. However, with your modified loan, you no longer have to get caught up on the amount in arrears and you’re given a fresh start.
3. Create a checklist for all of the documents that you need.
The reason most loan modifications are rejected is due to lack of necessary documentation. Contact your lender and ask for all of the documents that you need. Create a checklist and make sure that all documents are compiled in a complete and organized fashion.
4. Constantly follow up with your lender to ensure they have all documents.
A set-it-and-forget it approach to a loan modification application will not work. The bank has so many applications to process, you cannot count on them to contact you if they’re missing anything. It’s your obligation to make sure the bank has everything they need. If the bank is missing something, ask for their fax number and get it to them right away. Most applications end up getting rejected because the application lacks the required documentation.
5. Write your loan number at the top of every page you submit to your lender.
Although you may believe you’ve sent the bank everything they’ve asked for, pages go missing, files get passed around from person to person. To help protect yourself from the bank coming back to you and saying they didn’t get a certain document, write your loan number at the top of every page you send them.
6. Pick the right partner for help.
Should you hire a loan modification company? I would not hire anyone you cannot meet face-to-face. There are several “fly by night” loan modification companies making promises that they can get you a loan modification. No one can guarantee you a loan modification. The decision to modify your loan is up to bank or the ultimate holder of your mortgage and it may serve their best interest by denying a modification. The best partner to work with is an attorney because only an attorney will be able to help you in the event that your home ends up in foreclosure.
7. Write an outstanding hardship letter.
The key to getting a modification is a good hardship letter.The more specific the letter is the better. It’s not always about the numbers. Believe it or not, but you are more than your loan number to the individuals reviewing your loan modification application. If you can write a compelling letter for why you need a loan modification, it can go a long way in getting your application approved.
8. Be honest.
Another easy way of getting your loan modification application rejected is by fudging the numbers. Disclose all of your financial affairs fully and honestly to the best of your knowledge. Don’t overstate your income, don’t conceal income, don’t conceal assets, don’t understate your expenses. Honesty is key with the lender.
9. Document everything.
When you’re speaking with your lender, take notes. Write down who you spoke with, when you spoke with them, and what was discussed. If necessary, write your lender a letter to document the contents of important conversations. Documenting the contents of your conversation in writing could be a huge lifesaver down the road.
10. Be patient and cooperative.
Speaking with a lender who will not work with you is frustrating, but you don’t want to lose your cool when speaking with your lender. If you want the time of day from them, you have to be polite and cooperative. Promptly respond to their requests. Follow up with them. Once the lender informs you that your application is complete and under review, give them the time to review the application. If your application is rejected, ask for a detailed response for why the application is rejected.
Zachary Zawarski, Esq.