Loan Modifications
Stopping Foreclosure with a Loan Modification
A loan modification can help homeowners with stopping foreclosure permanently by changing one or more of the terms on the mortgage to make the monthly mortgage payments more manageable. This can include lowering the interest rate, increasing the term of the loan or adding missed payments to the loan balance.
The loan modification process is not easy, involving persistent phone calls to the lender, strong attention to detail specially when completing a lender’s paperwork and abiding by their deadlines, and finally involves some negotiation skill. The worksheets and guides, which include a step-by-step foreclosure prevention checklist, can help you manage the loan modification process.
How to Succeed with a Loan Modification
- Keep notes of all contact with the lender, consider using a call log. Include details such as the date and time of contact, the form of contact made (in-person, by phone, fax, email, or mail), the first and last name of the representative, and the outcome.
- Follow up any oral requests you make with a letter to the lender. Send your letter by certified mail with a “return receipt requested.” Keep copies of all letters and enclosures.
- Meet all deadlines set by the lender, and if possible complete any requests ahead of time and as soon as possible. Loan modifications are very time sensitive and homeowners are usually fighting the clock on a foreclosure.
- Loan modifications are usually only available on owner occupied properties, so do not move out or rent your home during the process. Renting a home should only be considered if the rental income is enough to maintain the loan current.
- Maintain persistent contact with your lender. Follow-up is crucial to your success with stopping foreclosure.
Before You Call Your Lender
Prepare for your first call with the lender or loan servicer by gathering the following financial information and jotting down responses to these questions on paper so that you have a well prepared argument:
- Your home loan account number.
- Your most recent income documentation, including:
- pay stubs, or if you are self-employed, your tax returns or a year-to-date Profit & Loss Statement
- benefit statements from Social Security, Disability, Unemployment, Retirement, or Public Assistance
- A comprehensive list of all household expenses.
- Conduct a Net Present Value (NPV) evaluation of your mortgage. Save a copy and share it with your lender or loan servicer when discussing your options.
- A brief explanation of your circumstances. Illustrate for the lender the events that led you to miss your mortgage payment(s). Support your explanation with any documents you may have.
- Describe how you have tried to resolve the problem?
- Is your problem temporary, long-term, or permanent? How would a loan modification help you get back on track?
- Are there any other financial issues that may prevent you from getting back on track with your mortgage?
- If it were up to you, what type of arrangement or work-out plan would allow you to better manage your finances and your mortgage payments?
Making Contact with Your Lender
There is no alternative to calling your lender if you are trying to successfully accomplish a loan modification. For your convenience, phone numbers are available for most lenders. If you reach a department other than loss mitigation, ask to be transferred after taking note of the direct number. Expect to have several conversations with your lender. It may sometimes appear that you are moving backward instead of making progress, but stick with it.
Remember to document the date and time of contact, the first and last name of the representative, and the outcome of the call after you are done. Explain your situation and the cause of your financial hardship; i.e. interest rate increase, loss of a job, etc. You should add that you are or may soon become delinquent on your mortgage and would like to request a loan modification to avoid falling further behind. Stress the urgency and seriousness of your situation.
Answer honestly any of the representative’s questions and be sincere about the disparity of your financial situation. If the representative can determine from the initial phone call that you potentially qualify, you will receive a loan modification packet that will help establish your inability to make the current or increased mortgage payment after a rate adjustment. You also must prove that a loan modification will improve your situation to a point where you will be an acceptable risk for them.
It is important to keep the following in mind regarding your loan modification package:
- It will include information, forms and instructions.
- The package must be completed completely and returned to the lender quickly.
- Only completed packages will be reviewed before the lender discusses any potential solutions with you.
- If you do not hear back from the lender within 7 to 10 days after submitting the package, contact your lender again.
Consistent follow up is important. Lenders’ loss mitigation departments are overwhelmed and you must take the lead in pushing for a resolution to your situation.
Detailed Notes are Critical
You will have to make a lot of phone calls and deal with several different people within the loss mitigation department. This in itself can lead to unique challenges and road blocks if you don’t have your efforts well documented. Keeping track with a detailed call log that reference promises, comments and details should help you overcome objections as you talk to other people in the department. If there are any delays with the loan modification and the home goes into foreclosure, the log that you have created can be used to justify your good faith efforts in trying to find a resolution to your situation.
Finally, remember that we offer a step-by-step foreclosure prevention checklist to help prepare and guide you through the loan modification process.
Which Loan Modification Programs Do You Qualify For?
There are several government sponsored loan modification programs available and a few private options through individual banks. The two principal federal government foreclosure prevention programs are:
- Making Home Affordable program, and
- HOPE for Homeowners (which is a refinance option rather than an actual modification)
California also offers four programs under the name Keep Your Home which are intended as short-term help and are in support of or can be used in anticipation of a loan modification.
The banks that offer private loan modifications programs include:
- Bank of America Home Loan Assistance Program
- CitiMortgage Homeowner Assistance Program
- JP Morgan Chase Homeownership Preservation Office
- Wells Fargo
Other lenders might have additional private options or home-grown loan modification options for homeowners, but usually they work through the government sponsored ones. Sorting through these options can be overwhelming. If you find that your lender or loan servicer is not being as helpful as you expect, we suggest contacting a counselor which will help reassure you that you are exploring all the loan modification options to saving your home. Also, keep in mind that HUD-certified counselors can only help homeowners with their primary residences. If you are a homeowner who would like to save a non-primary home, such as an investment property, a second home or vacation home, then you should turn to a private counselor.
The types of loan modifications that are common are:
- Recapitalization Programs – A lender will recapitalize a loan by adding the past due payments to the principal balance of the home loan, in a way, adding a small second loan onto the existing mortgage.
- Rate Reduction Programs – A lender will reduce the interest rate on a mortgage thereby reducing the monthly mortgage payment. The reduction in the interest rate can either be temporary or permanent, depending on the homeowner’s situation.
- Principal Reduction Programs – This type of loan modification is usually only available on second and third mortgages. It is almost impossible to get a lender to reduce the principal on a first mortgage without going through litigation.
- Forbearance Programs – A lender will add a portion of the arrears to the regular monthly mortgage payment until the borrower is caught up, usually over a short period of time. This will increase the monthly mortgage payment while the borrower attempts to become current on his mortgage. This type of modification does not “stop” a foreclosure but rather delays it while the borrower is making their forbearance payments. If the borrower manages to catch up, then the foreclosure is dismissed, otherwise the lender is ready to continue foreclosure proceedings the minute that a homeowner misses a payment while in this program.
