Below is a helpful article that may answer some questions regarding the process and information requirements.
11 Essential Loan Modification Tips
If you’re considering ways to lower your monthly payments, here’s what you need to know to get the help you need and avoid scammers.
If you’re one of the many Americans who are staggering under the anvil weight of your mortgage, two words may yet save you: loan modification.
Simply put, a loan modification is a retooling of your home loan – by adjusting the interest rate, the loan’s duration or other factors – until it’s low enough each month that you can afford to pay it.
“There are as many as 5 million homeowners who are struggling with their payments, who are 30 days, 60 days, 90 days behind,” says Ralph Roberts, author of the blog KeepMyHouse.com and the book “Protect Yourself From Real Estate and Mortgage Fraud.” (Another of his books, “Loan Modification for Dummies,” will be published this summer.) “Lots of people need loan modifications.”
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Past loan modifications have often simply delayed the pain; homeowners’ new loans weren’t good enough and they soon found themselves in trouble again (read “6 reasons modified loans are going bad“).The Obama administration is trying to fix that with its Making Home Affordable modification program, which focuses on home modifications and refinances.
But how do you ensure that you get the most favorable terms you can, so that you can stay in your home? Should you tackle it yourself or get professional help? The following 11 tips and strategies can put your mind at ease and keep your home off the auction block:
“Are you savvy enough, and do you have the time, to battle these lenders on your own?” Bedard asks. “It’s always wise to have someone help you.” However, he adds, “if you do have some type of track record, and you have some time and you are savvy about these things, then you could tackle it yourself … because no one is going to fight like you.”
Alexa Milton, homeowner advocacy and partnership director for the nonprofit Acorn, recommends seeking out an agency like hers – a HUD-approved counseling agency (find one here) that doesn’t charge for its services and that has extensive experience dealing with loan modifications, even complex or tricky ones. “You shouldn’t have to pay for these services,” Milton says.
Depending on state laws, it can even be illegal to charge upfront for these services – a definite warning sign if you’re vetting loan-modification companies.
Roberts says spending perhaps $2,500 on an attorney who’s well-versed in these issues can be money well-spent. There are a number of loan-modification scams out there, so be careful not to pay any fees upfront or disclose bank-account information to parties other than your loan servicer or bank.
“If the bank owns the loan, you for sure have the possibility of getting more flexible terms, because they don’t have to go anywhere else to get pre-approval,” Roberts says. “You really don’t know what you qualify for unless you know who owns your loan.”
How to find out? Go directly to your mortgage servicer and ask who owns your loan, Roberts says. You can find servicers’ phone numbers on your mortgage statement or book of payment coupons or at Hope Now. You also can try the Web sites of Fannie Mae and Freddie Mac, where you can input your address to find out if it is a Fannie or Freddie loan, respectively.
In addition, the new Making Home Affordable program hopes to help about 9 million American households. Participation by servicers is voluntary, but the government is offering incentives for them to participate. Most major servicers are expected to participate, and an updated list can be found on the Web site.
According to the Making Home Affordable site, you’ll want to gather the following paperwork before reaching out to your servicer:
- Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources.
- Your most recent income-tax return.
- Information about your savings and other assets.
- Information about your first mortgage, such as your monthly mortgage statement.
- Information about any second mortgage or home-equity line of credit on the house.
- Account balances and minimum monthly payments due on all of your credit cards.
- Account balances and monthly payments on all your other debts such as student loans and car loans.
- A letter describing any circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.) if applicable. (See next tip on how to craft the perfect letter.)
“One common mistake would be (for example) if someone had a heart attack in August, and they spent most of the letter talking about how that put them behind, when their finances actually show that they started to fall behind in June.”
That letter writer should have been precise in explaining the exact train of events: His hours at work were cut back in the spring, which led to trouble with the mortgage, which led to more stress, which led to the heart attack in August, for example. That makes more sense, Milton points out.
And keep it concise, she says. “It’s easier to read a two-paragraph or three-paragraph letter than a five-page letter.”
So the lender, in essence, slides you a deal across the table. “Don’t take it out of desperation,” Bedard warns. That is, don’t sign on to a deal that you can’t afford.
If the modified loan is too high, say so. “In general, there is some potential for them to have some discretion,” Milton says of lenders. “You need to muster your argument as to why it’s too expensive.”
Show them the budget that demonstrates, in great detail, how even this new deal will leave you too close to the edge. Through the work you’ve done with a professional, or through your own number crunching, tell them what payment would work for you.
You’re not being deceptive or bluffing – you’re being honest. At the same time, Bedard says, because there are so many homes now that lenders don’t want to get stuck with, “it’s really a game of poker, and the game is getting better and better for homeowners.”
“Foreclosing is extremely expensive (for lenders), and it’s only getting more expensive,” Milton notes.
Why? “If you have all this, and you still face foreclosure later, you can bring all this to an attorney” and use it to build a solid case that you tried to find a solution, which can help you keep your home. And at the very least, it keeps you incredibly organized during the process.
Also, use certified mail and/or shipping companies like FedEx, to ensure that documents arrive – and that you get proof of it, Bedard says. During the loan-modification process, some lenders may say they never received documents, he says. “With FedEx I get a signature and an employee number, and now things never get lost. So spend the 15 bucks, homeowner.”
Here’s how to keep sane and productive, Roberts says: Get a timeline at the start of the process. Know what the waypoints are, and follow up – professionally – as deadlines arrive, if you haven’t heard anything.
And there you have it. The road to financial wellness (or just improvement) is a twisty one, but follow these tips – and be dogged in your pursuit – and you’ll be on your way.
Source: MSN Real Estate, Christopher Solomon