Loan Modification

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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:

Start now: Not so long ago, loan modification was an option reserved only for homeowners who were in default – that is, when their lender filed a motion to start the foreclosure process, usually after 90 days of late payments. No more, says Jack Guttentag, a professor emeritus of finance at the University of Pennsylvania who runs the Mortgage Professor Web site.

Now, homeowners are receiving help before they go into default, says Moe Bedard, founder of LoanSafe.org and president of Loan Safe Solutions, a firm that performs forensic loan audits on mortgages for borrowers’ lawyers. “Some mortgage servicers require a borrower to be 30 days late or more,” Bedard says. “Some will work with you before you are late (that is rare). This is really a luck of the draw on who your mortgage servicer is and sometimes the negotiator you are assigned.” But the new federal assistance does not require that homeowners be in default before they seek help.

If you have questions on whether you’re eligible for a modification, you can complete a quick quiz on the Making Home Affordable site. You won’t get a definitive answer, however, so Roberts suggests reaching out as soon as you think that you could be getting into trouble.

You need professional help (or do you?): One of the first questions you need to answer is whether you want to tackle pursuing a loan modification yourself. Should you hire an attorney or a loan-modification firm? Seek help from a nonprofit housing group? The advice varies.

“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.

Uncover your lender: Knowing who your lender is may help you get a better modification. These days, your loan is either owned by a single bank or it’s been sliced up into tiny pieces and turned into a mortgage-backed security and is owned by many people.

“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.

Be honest: As part of an application, you’ll have to gather a bunch of your financial information and present it to the lender. Give the lender exactly what it needs, so the process goes swiftly. And make sure it’s accurate. “It can be tempting to bend the truth when you are trying to convince a lender to approve a loan modification,” Roberts writes on his blog. “Some homeowners are embarrassed by something they did to place their finances in jeopardy – possibly a gambling addiction or substance abuse. Others try to fudge the numbers to make themselves eligible for a loan modification they cannot otherwise qualify for.” But now isn’t the time for deception or anything less than full disclosure, Roberts says. It will only come back to bite you.

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.)

Write the ideal hardship letter: As part of your paperwork, you’ll have to write a so-called hardship letter that explains how you got into this mess. This letter is very important and needs to be written well. “You want to be to the point but also specific,” says Acorn’s Milton. “If the servicer can’t understand why you originally fell behind from reading your hardship letter, they may wonder whether there’s other things going on that you’re not telling them.

“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.”

Get the right people on the phone: Homeowners who’ve had their loans modified report that one of the biggest frustrations is just getting the right person on the phone. “If you’re trying to do it on your own, the first thing to do – it sounds basic – is just make sure you’re talking to the right department. You should be talking to ‘loss mitigation.’ You don’t want to be talking to ‘collections,’ ” Milton says.

Be realistic: The sad truth is, once your case is presented to your lender, you don’t have much influence over what your deal will be, professor Guttentag says. The lender’s representative looks at the numbers and presents a monthly payment that gets the lender the most money possible, while still keeping you in the house. Often what’s tinkered with most is your interest rate – sometimes it’s brought even as low as 2%, and on rare occasions even lower – until the monthly payment becomes affordable.

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.

Keep your cool: Understandably, homeowners often become frustrated and angry when seeking assistance from their lender. But poor behavior on your part can result in all sorts of things, including “accidental” phone disconnections to loan-modification officers who just don’t think you’re worth the trouble to deal with, Roberts says. Ultimately for the lender, “it is a business decision,” he says, “but there is flexibility, and if you treat them like an idiot you’re going to have less flexibility than if you are nice.”

Call in the politicians: “If you’re getting the runaround, don’t be afraid to ‘CC’ your senator or congressman” on your documents, Bedard says. He says he’s seen more than 100 homeowners use this tactic to good effect in the last year alone. Bedard says that he wasn’t aware of the politicians actually intervening but that he still thinks their inclusion on communications played a role when arrangements were worked out for these troubled borrowers – because the lender didn’t want the file to make headlines. “I wouldn’t suggest that on the first go-about,” he says, but only if you really encounter problems with the lender and are nearing an impasse.

Leave a paper trail: “Document everything,” Bedard says. “Every time you talk to your lender or get a correspondence, a document – you should write it down like a private investigator: ‘April 15 I spoke to Countrywide, with employee John Jones, employee number …’ ” he says.

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.”

Patience is not just a virtue, but a necessity: “Most importantly, you’ve got to have stick-to-it-ism,” Roberts says. “When they say ‘no,’ they probably mean they don’t know.” It takes time to work through the system. And even a normal modification can take 30 to 90 days, he says.

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

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