The Latest on Home Loan Modifications

Read more real estate analysis by Rob McNelis

Let me start this off by saying that this article is not intended as a topic of debate as to the morality of home loan modifications or whether or not you believe that anyone should be allowed to have the loan that they agreed to modified. It is only intended to give individuals information on the current status of the process itself, and to hopefully keep others from being scammed.

Now with that being said, I decided to write this because I get at least two emails a day from individuals asking about a "Home Loan Modification." A loan modification is very different from a refinance in that it is simply a modification of the terms of your current mortgage and does not change the servicer of the loan.

Where as a refinance is a brand new loan that may or may not keep the loan with the current servicer. More often then not, a refinance will also have closing costs that you will not see in a loan modification such as title insurance, escrow, appraisal, recording and other assorted lender fees. A number of these fees (if not all) can often be rolled into the refinance by either adding them to the loan amount or increasing the interest rate and having the bank pay for them on your behalf. 

So why would you refinance instead of just getting a modification?
Well the real answer had been that lenders were not really doing modifications. They received millions in government subsidies to implement a modification program that had no requirements on how many loans had to be modified, or who should qualify for a loan modification. So they were just going through the motions and putting customers off until they got tired of trying and gave up. If you were so far upside down on the home that your bank did not want the property back, but showed some ability to pay, and could prove a legitimate hardship, then there was a chance of a modification but only a very small chance. 

So what has changed?
Several months ago the California Attorney General settled a law suite with Bank of America and several other lenders for a number of things including something called "Predatory Practices." In this settlement were a few requirements going forward that the institutions had to ad-hear to including some new loan modification standards.

When I first heard about the settlement I must admit that I was more than a bit sceptical that anything at all would change and assumed that after a few weeks, it would be back to business as usual. I am a bit happy to say that I am hearing many first hand stories of actual success in attaining loan modifications from some Santee residents.

They have come from , , , and Citibank (four of the largest home loan servicers in the country). I even saw an actual lease agreement from a client that was going to short sale his home, but instead had Bank of America offer to accept a "Deed in Lu of foreclosure" and then lease the home back to him at about a third of his current mortgage payment for up to three years.

Chase made an offer to another family that took them from an interest only loan to a fully amortized loan and still lowered the payment by over $600, and the best part is that they are going to reduce the principal balance by $53,000 per year for the first three years if they make the new payment on time. That will actually put them right at what the current value of the home is.

Still another one I saw was from Citibank- they were dropping the customers payment $400 per month and deferring one full payment to help her get a little ahead on other household obligations. These are just a few examples of what I have seen first hand and in writing from different people in the community. 

Do I need an expert to help me get my loan modified?
Here is where stories get sad. Anytime you find a desperate person, it seems that there is always someone looking to take advantage of the situation right around the corner and the "Loan Modification" industry is full of those people. The truth is that there really is no "Expert" in this industry because there are no standardized guidelines that all servicers follow.

The good news is that the state attorney general did make it illegal to charge ANY UP FRONT MONEY at all for loan modification services except for a state licensed attorney. But most credible attorneys now know that the borrower has a better chance at getting there own loan modified for free than any paid representative does. So if you get someone claiming things to you like doing a "Forensic Audit" of your home loan, or "Forcing Your Lender to Provide a Copy of Your Note", please do not fall for it. These are well known scams in the industry and really have no merit. 

Is it easy to get my lender to modify?
Absolutely not. Nor should it be. You see lenders are still for profit businesses and rely on there performing assets to stay afloat themselves. Therefore if you are just looking for a reduction because Joe down the street got one but there has been no legitimate hardship in your life, you simply will not qualify.

If there has been a legitimate hardship in your life such as extended loss of employment, or death/illness of a contributing wage earner in the house, etc. and you do not qualify to refinance under the HARP, or HAMP programs, then you may just qualify for a modification.

I was told by one person that the process had already taken her three months to get qualified and it was going to take another month to get finalized. She also said that it was a real pain because the lender kept losing different items that she sent back so she was just frustrated with the whole process. Then I told her to just think of it a little differently. Think of the process as a part time job that could pay you an extra $300-$700 per month for the next 20 to 30 years. I think when looking at it from that perspective it does make it a little more palatable to keep re-sending documents time and time again.

The other bit of advice that I will give is something that I heard from a Senior Vice President of Bank of America at a California State Assoc. of Realtors conference: Make sure that you have your name, and loan number on the bottom of every single page you send to your lender. It is probably easiest to just get a few pages of printable labels from an office supply store and pre-print a bunch of them so that you do not wast your time writing on every single page. The reason for this is that most of the servicers ask you to fax all of your requested documents back to them and some times a page or two will get accidentally picked up by the wrong person. But if your name and loan number are on the pages, they can easily be redirected to the correct person handling your file. This step will save you both time and aggravation (well at least some aggravation). 

So how do I get started?
The first thing that you need to do is contact your current loan servicer and let them know that you want to apply for a loan modification. They will probably ask you a series of questions to help determine if you would first qualify for assistance in some other way.

Then they will send you a loan modification request/application package of some sort. Your lender will require you to send it back with a number of supporting documents such as recent bank statements, tax returns, and pay stubs. They will also need a hardship letter, which is just a personal letter from you stating exactly why you need their assistance. Remember if there is no hardship than there is no true need for a modification.

Try not to piece mail items back to your lender. Make sure they are all sent back together in an orderly fashion. The cleaner your package looks and the more complete it is, the more likely your are to have someone want to work on it. When your lender asks for additional information, just get it for them. Typically arguing with them as to why they need it does not help, nor does it change the request, so get any additional items back quickly.

The last thing is to be sure to follow up consistently. Anytime you send something in to your lender, you want to call within the following 48 hours to make sure it was all received, and that it was legible. Doing all of these things will not guarantee that you will be approved for a loan modification, but it will greatly increase your chances.

Rob McNelis
Summit Mortgage
NMLS#830519 

Helping Santee Homeowners since 1997

For more information, or to further discuss your options, give me a call at (619)928-9762 or email atrobm@summit-mortgage.com