We had a great response from our previous post on loan modifications that we decided to bring you another entry. We asked Stephanie Boughton from State Mortgage to share her experience. Stephanie has done dozens of loan modifications and has the experience to speak first hand about the process.
A loan modification is a way to negotiate with your current servicer or original lender to get your payments reduced so that you can afford to keep your current home. The loan mod is not short. From our experience you can expect it to take approximately 2-4 months to complete the whole process.
We are often asked if the person applying needs to be late on their mortgage to be approved for a loan mod. While the answer is no, the lender is more likely to negotiate a lower payment if you are currently delinquent. The modification process usually lowers your interest rate or extends the term of your loan up to 40 years. Most lenders at this time are not willing to lower your principal balance.
Most of the modifications that are getting approved today are:
- Primary residence
- Have Negative Equity or no equity in home (Up-Side-Down)
- Have had a hardship, such as a layoff, divorce, family death, major illness/surgery or reduction in income. The banks also are willing to work with those that have had their mortgage payments increased due to having an adjustable rate (usually right before or after the payment goes up).
The documentation required for a loan modification includes:
- 2 years of federal tax returns & W2s (all pages & all schedules)
- One complete month of paystubs
- 2 Months of bank statements (all pages)
- 401k, IRA, Stock, etc. Statements (all pages)
- Driver’s license
- Original Note
- Original HUD1 Settlement Statement from when you purchased the home
- Recent Mortgage Statement
- Expense breakdown form using net income (not gross)
Recently I was able to help on client (Pam) work to achieve a successful loan modification on her home. Pam contacted us in October 2008 and she just closed her modification at the end of January 2009. Pam was a single parent working full-time who found out that she had breast cancer. While taking time off of work for 6 months to have 5 surgeries plus a double mastectomy, she continued to make her mortgage payments on-time by using up all of her savings. Now, she is in full recovery and has returned to work. Since she only makes $25k per year, she was unable to afford her $1650 month mortgage payment due to depleting her savings. After 3 months of negotiating with her lender, she lowered her payment by almost $400 per month & can now start saving again.
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