Loan Modifications

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:

1. Primary residence
2. Have Negative Equity or no equity in home (Up-Side-Down)
3. 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:

1. 2 years of federal tax returns & W2s (all pages & all schedules)
2. One complete month of paystubs
3. 2 Months of bank statements (all pages)
4. 401k, IRA, Stock, etc. Statements (all pages)
5. Driver’s license
6. Original Note
7. Original HUD1 Settlement Statement from when you purchased the home
8. Recent Mortgage Statement
9. 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.

Tagged as: Loan Modifications

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A loan modification is a way for a home owner to renegotiate their mortgage with the bank. The goal of a loan modification is to prevent a short sale or foreclosure and keep the current owner in the home with a mortgage they can pay. Loan modifications are still new, and as with anything new you need to be very careful. As things become clearer in this field we will be updating our readers on this page with the latest and greatest information. 

The government is currently pushing banks to consider loan modifications in a way to prevent even more foreclosures from coming on the market and keeping home values from plummeting even more. Banks are willing to reconfigure some loans by lowering the current interest rate, extending the loan to a longer duration so the payments are lower and even in some cases reducing the balance of the loan. 

To do a successful loan modification the owner will need a good hardship letter stating their current situation and why they cannot continue to pay the current loan as it is structured. This letter needs to contain details, but should be the condensed version as the banks will not have the time or patience to read a long drawn out version. The owner will also need to provide documentation proving what they claim to be true in their letter. 

You have no doubt heard the commercials running on television stating call us before your house goes to foreclosure, we can help. Typically these commercials are being run by law firms who are offering to do loan modifications for you. Do you need someone else to do your loan modification? No, you can certainly contact the bank on your own and go through the process, but like anything else hiring someone to do this for you will save you some time and hassle. Whether you hire a lawyer, or a company that specializes in just loan modifications, you need to be careful and do your homework. You should never need to pay someone for a consultation to learn more about the process. If the company or law office is not willing to meet with you and explain the process you will need to go through, you should consider contacting a company like 123loanmod.com who will. While we have never worked with them directly, we have heard good things about them from clients who have worked with them.

The information on loan modifications is changing quickly and like many fast growing and new fields the buyer needs to beware. We recommend you first contact your bank and talk to them about what options are available. Then if you decided to move forward with the assistance of a lawyer or loan modification company we suggest you do thorough research first. As things change we will bring you updates on these pages. 

Any real estate agent who is working with a seller who is facing foreclosure or a short sale situation should make sure they notify their clients of the loan modification option. The option is not for everyone, and everyone may not qualify, but for those who can it can be an attractive option.

Tagged as: foreclosure, Loan Modifications, short sales

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