Loan Modification FAQ
- Adding the delinquent balance to the loan. Rather than require payment up front, the lender may choose to add the balance owed to the new loan terms ensuring you will eventually pay it back;
- Reduce the interest rate. You’ll need to prove that a rate reduction can positively affect your situation and allow you to resume making timely payments;
- Extending the years due. By adding years to the loan, the lender is able to reduce the monthly payment knowing that they will recover the amount later on;
- Reduce the balance owed. Under some circumstances, the lender may elect to reduce the balance of the loan. To do so, they’ll want to be absolutely sure you will be able to make the new payments.
- Tried to refinance but got turned down. Many homeowners with adjustable rate mortgages are trying to refinance but simply can’t qualify under stricter lender guidelines. When the housing market began to decline and lenders were forced to cut back or even close the doors altogether, it became much harder to get a loan. As such, homeowners aren’t getting the help they need. Loan modification, however, is proving a viable way to work out an agreement when refinancing isn’t possible;
- Suffered a hardship. In this tough market, people are getting laid off from their jobs and have no means to pay their monthly mortgage. Others are dealing with the issues that pop up throughout life. Family illness, accidents that cause injuries, a decline in income and unexpected events are all legitimate reasons for falling behind on a mortgage that would otherwise be getting paid on time. Lenders are pretty open to workouts for hardships, especially when you show an ability to pay in the future. You’ll need a hardship letter to present this to the lender;
- Simply can’t keep up with the mortgage. As the economy and individual markets suffer, many people are seeing once stable and predictable income decline to a point that they can’t afford their home any longer. It’s possible a loan modification agreement can be reached that would bring payments to a more affordable level. This is an especially attractive possibility if you can show your income will again rise to previous levels.
Loan workouts take more than just asking nicely. You have to craft a picture that includes finances and hardships. It has to be presented to the lender in such a way that convinces them to work something out.
With that said, there are some principle things to consider on your way to working out a solution.
It’s about the money
The first thing you have to realize is that it’s all about the bottom line. A lender is willing to work with you on a solution if it makes sense to their own bottom line. It sounds harsh, but it’s the truth. The good news for borrowers in trouble is that foreclosure is expensive to the lender and more times than not, they consider it an unfavorable outcome. That leaves a litany of other workouts that a lender is willing to negotiate. Short sale, short refinance, loan modification, deed-in-lieu of foreclosure and forbearance are all common loss mitigation programs that have their own pros and cons. It’s about your ability to pay.
Your finances are going to be front and center in any potential loan workout. The lender wants to know where every penny is coming from and where it’s going to end up. If they are to offer a workout for your situation, they want to be sure it’s a worthy investment. There are some things you may want to cut out from your monthly bills:
- Excessive vehicle payments (less car is a good idea)
- Cell phones
- Cable TV
- Inessential purchases
Stick to the necessities. Lenders want to see you making a serious effort to find room to make your monthly mortgage payment.
It’s about where you live
In places where it’s harder to sell homes on the market (California, Florida, Nevada), chances are better to get a loan workout agreement being reached. Because if a lender ends up with the deed to the home, they have to sell it to recover their investment. If the home can’t sell, they’re stuck. That’s guaranteed incentive to get a solution worked out. Lenders are acutely aware of market activity and will know what is and isn’t working in certain regions.
It’s about your commitment
A situation where you can’t pay your mortgage flat-out is tough. If you can face the fact you need help and reach out for a consultation with a law firm you’ll work something out. If you’re in denial and unwilling to realize that times have changed, you could be in big trouble. Be willing to humble yourself a little bit. A strong commitment to getting things fixed will go a long ways toward getting you back on track.
- Each lender has different policies and approaches – Some lenders will work with you, some won’t. The process with one lender can be very different from the next. Perhaps you think you understand everything you need to do, only to find out that your specific lender has different guidelines. What happens when you take the wrong actions? It could cost you your chance at successfully negotiating new loan terms.
- Lenders are not going to make this easy – A lender is already leery of your ability to pay your mortgage because you have missed payments. They are going to be detail-oriented when considering your application for a loan modification and will want hard proof that you will be able to handle the new terms. In other words, you’ll need to dot each ‘I’ and cross every ‘T’. Modification companies have developed forms that make sure to cover every part of the process and not miss a single thing. Can you say that in conducting your own negotiations that you are confident you have done everything the lender requires?
- The negotiation takes some expertise – We all have our niches of expertise and loan modification is no different. There are subtle tricks and issues that can have a huge effect on your loss mitigation success. Having worked with lenders, law firms who specialize in this work aren’t going to get tripped up by a lender during the process. The law firm will smoothly maneuver through the process and avoid critical mistakes that could cost you dearly.
- Time is critical and none of us have enough to spare – Between work, family and social responsibilities do you have the time required to accomplish a loan modification? There’s no getting around it, you will have to spend long hours figuring out your financial picture and discussing your situation with your lender.
- Securing help – Immediately, but it’s up to you.
- Getting a full loan modification package submitted – 1- 2 days if you are proactive about getting everything done quickly.
- Internal auditing and underwriting of the file – 24-72 hours.
- Submit file to be assigned to a mitigation specialist with your lender – 3-14 days depending on the lender.
- Mitigation process and getting a decision back – Typically 30 – 60 days, but it depends on the lender and can take longer or shorter than the typical time.
- Making the newly modified loan official – 1-7 days depending on how quickly you return your signed agreements.