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The Basics of Loan Modification by David Pit - HTML preview

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LEGAL NOTICE

The information herein represents the author’s current views as of the time of publication. Because there are many factors that may change such views, the author reserves the rights to alter such views based on the new set of conditions. The Publisher has strived to be as accurate and complete as possible in the creation of this report.

Publisher assumes no responsibility for errors, omissions, or contrary interpretation of the subject matter herein. Any perceived slights of specific persons, peoples, or organizations are unintentional.

This book is not intended for use as a source of legal, business, accounting or financial advice. All readers are advised to seek services of competent professionals in legal, business, accounting, and finance field.

Table of Contents
1. Don’t Confuse Loan Modification with Refinancing!
2. What You Need to Know About Loan Modification
3. Tough Questions You Need To Ask Yourself before Requesting a Loan Modification on Your Mortgage
4. Approaching Your Lender about a Loan Modification
5. Asking Your Lender for Loan Modification Help
6. How to Negotiate a Loan Modification
7. Writing a Hardship Letter
8. Buried in Paperwork: The Forms you’ll need to apply for a Loan Modification
9. How a Loan Modification May Affect Your Taxes 10. The Loan Modification Timeline

Chapter 1

Don’t Confuse Loan Modification with Refinancing!

 

There are a lot of different mortgage terms being thrown around

 

these days, with loan modification and refinancing becoming two of the

 

most popular. If you are looking for a way to slash your mortgage

 

payments, you may be considering one of these two options. But wait!

 

It’s important to know the differences between them to avoid getting

 

into another mortgage mess.

 

Loan Modification vs. Refinancing

 

It can be easy to confuse a loan modification and a refinance,
especially since both are designed to lower your current mortgage
payment, but there are some important differences to consider before
applying for either:

 

1. Refinancing a mortgage requires you to reapply for a new loan – a
modification doesn’t. Modifying your current mortgage is simply a
way to change your current mortgage contract by asking for either an extension of the loan terms; an interest rate reduction;
or principle forgiveness, to help you reach a payment amount you
can live with. Since most people needing to lower their payments
these days do not qualify for a new loan, refinancing may not be an
option.

 

2. Since you already hold a mortgage, loan modification rules are a
lot more lax than refinancing a loan, making it much easier to
negotiate new loan terms.

 

3. There is a lot less paperwork involved in a loan modification than
a refinancing. Remember all of that paperwork you had to fill out
when you applied for your mortgage? If you refinance you will
have to resubmit everything! Depending on the lender, a loan
modification may not even ask you for your pay stubs!

 

4. Refinancing a mortgage these days is tough! It may sound crazy to
think it’s easier to get a loan modified than to get a whole new
mortgage, but it is. Refinancing your current mortgage will
require equity in your house; a stable income; and a very good (if
not great) credit rating. If you are one of the millions of homeowners right now looking for
ways to lower their monthly mortgage payment due to financial stress, a loan modification may be the better option.

Chapter 2

What You Need to Know About Loan Modification

 

How would you like to slash your mortgage payments by 10% …
20% or even 50%? Then you may want to consider asking your lender
for a loan modification. Of course, modifying an existing mortgage isn’t
for everyone – it does some with some serious consequences. But, if you
are one of the millions of American families these days unable to make
those monthly payments, it is definitely an option to consider.
Maybe you’ve heard the term loan modification, but you aren’t
exactly sure what it entails. In its most basic form, mortgage
modification is a permanent change to your loan agreement designed to
bring your payments down due to some sort of long-term financial crisis. There are several ways in which a mortgage can be altered in a
modification:
1. By extending the life of the loan. Let’s say that you are five years
into a 25-year mortgage and you suddenly become disabled. Maybe you
have enough income to keep your house as long as you can lower your
monthly payments. Your lender may be agreeable to extending that 25
year loan to a 40-year term in order to get those payments low enough
for you to afford.
2.
By lowering your interest rate. Adjustable subprime rate loans have

 

gotten a lot of people into trouble in recent years. As interest rates

 

skyrocketed, so did their payments, leaving many unable to keep up.

 

More and more lenders are now realizing the benefit of offering these

 

homeowners a lower permanent rate in order to keep them in their

 

homes and up-to-date with their payments.

 

3. Forgiving late payments, penalties and interest. If you are one of

 

those homeowners who fell behind on your mortgage payments due to a

 

job loss, only to discover that the penalties, interest and late fees

 

were adding up faster than you could pay them once you got back on your financial feet, you may qualify for forgiveness of these add-on

 

fees through a loan modification.

 

4. A partial loan forgiveness. It’s not very common, but sometimes

 

lenders will forgive a portion of a borrower’s loan if they believe the

 

homeowner can keep their account current in order to avoid

 

foreclosure.

 

Of course, knowing the different types of loan modifications

 

available is only the first step in the process. Here are a few other

 

things you must consider when seeking this type of mortgage help:

 

• Whether or not your loan qualifies for modification. In the past

 

only loans held by the original mortgage lender qualified for

 

modification. That rule is slowly changing, however, making this

 

option available to more borrowers than ever before. Still, there

 

are strict qualifications for loan modification, so check with your

 

lender to see if you even qualify.

 

• There are no laws requiring a lender to offer modification

 

assistance, no matter what the circumstances. Approval is under

 

the sole discretion of the lender. No one can make them do it.

 

• Modifications are easier to get than refinancing or new loans.

 

Depending on the lender, the process can be much easier, involving

 

far less paperwork and financial information. Some don’t even

 

require that standard income/debt ratios be met as long as you can

 

prove that you can handle the new payment.

 

• Loan modifications are not new loans! They are a change to an

 

existing loan.

 

• Although there are some small fees required for a modification, no

 

standard closing costs associated with most mortgages apply.

 

Now that you better understand what loan modifications are all about, you will be better prepared to negotiate one for yourself.

Chapter 3

Tough Questions You Need To Ask Yourself Before Requesting a Loan Modification on Your Mortgage

 

Loan modification is a real buzzword these days, with millions of

 

homeowners looking into this viable option for slashing their current monthly house payments. But, not every mortgage is eligible for

 

modification, and some people may actually be hurt by it.

 

To figure out whether a mortgage modification is right for you, begin by

 

asking yourself these important questions:

 

Does my loan even qualify?

 

Unless your mortgage is still held by its original lender (and most

 

aren’t), the odds are you don’t even qualify for a traditional

 

modification. Until this year, any mortgage that had been sold to a new

 

loan provider couldn’t even request a modification of terms. Although

 

this rule has been eased up a bit due to the current financial crisis,

 

there is still no guarantee that you can even apply through a secondary

 

lender.

 

The best way to see if your loan qualifies for modification is to ask your

 

lender.

 

Am I behind in my mortgage payments?

 

Timing is crucial when negotiating a loan modification. Most

 

lenders require you to be behind on your payments to qualify – but not

 

too far behind. Your best strategy is to ask for help as soon as you

 

realize you can’t make your current payments, but before any type of

 

foreclosure proceedings begin.

 

What got me in this mess?

 

Your lender is going to want to know why you can’t make your

 

current mortgage payments and how you intend to make the new one.

 

They would rather negotiate new loan terms with someone who

 

unintentionally got into financial trouble due to an illness or lost job,

 

versus someone who overspent.

 

Do I really want to keep my home – and my mortgage?

 

It isn’t always easy to admit, but some people aren’t ready to make

 

the hard changes necessary in order to meet their mortgage obligations.

 

If you are one of those people, than you may want to consider other

 

options.

 

Am I sure I can make the new payments?

 

Mortgage lenders only give you one shot at loan modification, so

 

be sure you can handle whatever new payment you agree to. If you fall

 

behind again they’ll likely foreclose.

 

Can my lender even lower my interest rate?

 

The most common loan modification tactic involves lowering the

 

interest rate in order to lower the monthly payment. The problem is, if

 

you already have a low interest rate, your lender may not be able to

 

take it down any further.

 

Do I have any better options?

 

If you lender feels as if you have other options that are better

 

than a modification, they may require you to take one of those instead.

 

So, be sure that you understand your options clearly before asking for

 

a loan modification.

 

Once you have answered these simple questions (honestly now),

 

you will have a better idea of whether or not a loan modification is the answer to your mortgage woes.

Chapter 4

Approaching Your Lender about a Loan Modification

 

Once you have taken a good hard look at your financial picture,

 

and have figured out that you need help with your mortgage, it’s time to

 

take some action!

 

Here are some basic steps to getting your lender to agree to a mortgage

 

modification:

 

Step # 1: Be Pro-active

 

The best time to approach your lender for help is before you have

 

become delinquent. Contact your mortgage lender as soon as you

 

realize that you are in trouble. Once your account falls into arrears;

 

it will be harder to convince the lender that you are trustworthy.

 

Step # 2: Check Your Lenders Website for Modification Procedures

 

Many lenders these days are offering a step by step guide to

 

mortgage modification on their websites; complete with the necessary

 

forms and contact names. Although modification isn’t something you can apply for online, using the information on the bank’s website is a

 

good guide for getting started.

 

Step # 3: Make a Call

 

Once you have downloaded the information and forms you need

 

from your lender’s website, you must call them and let them know you

 

are interested in a loan modification. Have all of your paperwork and

 

financial information ready when you call, and always ask to speak with

 

a loss mitigations representative – they are the only ones authorized to

 

modify any mortgage loan.

 

Step # 4: Keep Your Cool

 

No matter how the person on the other end treats you, it is

 

crucial that you remain calm and polite when speaking with your

 

lender’s representatives. The fact remains that they are under no

 

obligation to help you and if you allow your emotions to run wild, you

 

may find yourself without the modification help you need right now.

 

Step # 5: Get to the point

 

Once you get the right person on the phone you’ll want to make

 

your pitch for a modification quickly. Practice explaining your situation

 

clearly and briefly before making this important call. Give the information they need to begin the process without belaboring each

 

point and wasting the representative’s time. Remember, they must work

 

with hundreds of people just like you every week and the odds are

 

they’ve heard your story a thousand times since the mortgage crisis

 

began.

 

Step # 6: Don’t Be Afraid to Ask for Help

 

Be sure that you know exactly what type of mortgage modification

 

help you need and be sure to ask for it. You wouldn’t believe how many

 

people call their lender asking for help, without ever telling the

 

person on the other end of the phone what they really want. Then they

 

are angry when they can’t get their payment lowered to the amount they

 

need. Be clear with your requests.

 

Step # 7: Be Sure to Follow up

 

Every time you speak with someone on the phone, be sure to get all

 

of their contact information (name, title, department, phone number,

 

etc) and document what you talked about. That way, if questions or

 

disputes arise, you will have a clear record of what was said (and by

 

whom). Finally, always send a written thank you to everyone you speak

 

with as a polite follow-up to your conversation. It’s a great way to help people remember you and make them more willing to go that extra mile to help you out.

Chapter 5

Asking Your Lender for Loan Modification Help

 

One of the biggest, mistakes you can make when hard times hit and

 

you know you can’t make your mortgage payment any longer is to avoid

 

asking for help. Asking your lender for help right away – before you get

 

yourself into even deeper financial trouble – is your best defense.

 

If you know that you’re going to be out of job in the next few

 

months, or your interest rate is getting ready to be reset, act now! It’s

 

always easier to negotiate with a lender while you remain in good

 

standing, rather than after you’ve missed multiple payments and they

 

have decided to foreclose on your property.

 

The first step to negotiating a loan modification is simple: pick up

 

the phone and let them know that you are in trouble. Call the 1-800

 

customer service number found on your payment coupon and ask for help. Keep in mind that these phone representatives can’t give you the

 

help you need, but it is a good place to begin. Calmly explain your

 

situation and ask to speak with someone in the company’s loss mitigation

 

department. You may be lucky and get right through, or you may enter

 

into an exhausting and frustrating game of phone tag as you are

 

transferred from one department to another.

 

Keep in mind though that it is the loss mitigation department that you

 

seek. They are the only ones authorized to negotiate a loan

 

modification

 

Once you finally make it through the maze of phone contacts to

 

the department you seek, be prepared to simply explain your situation

 

and what solutions you have come up with. Have solid budget numbers in

 

front of you so you can prove that you deserve a loan modification.

 

No matter how prepared you are for this phone call, the odds are

 

against them agreeing to a modification of your loan right away. Your

 

first contact is simply to get your foot in the door and get the ball rolling. It is the lender’s job to get all of their money, and your job to

 

negotiate a payment you can handle, so be willing to negotiate!

 

Here’s an important tip: document every conversation you have

 

with your lender including the day, time and name and job title of the

 

person you spoke with, as well as a detailed description of your

 

conversation. If you can get a direct phone line number, great! It’ll

 

make follow-up calls much easier. Always follow up with every

 

conversation with a letter that details your conversation.

 

Admitting that you need help isn’t going to be easy, but until you

 

take this initial step, you aren’t going to be able to get the help – and the loan modification – that you need.

Chapter 6

How to Negotiate a Loan Modification

 

It can be hard to face your mortgage company to ask for help. It

 

can even be harder to negotiate a loan modification you can both live

 

with. While it may seem at times as if your lender is playing hardball (and they probably are) remember, they are doing you a favor by even

 

considering changing the terms of your loan. No one (not even the

 

federal government) can make them modify your loan, so it is in your

 

best interest to negotiate nicely.

 

That doesn’t mean that you can’t negotiate a new payment you can

 

both live within the years to come. You just have to learn a few

 

negotiation tips.

 

Tip #1:

 

Lenders Aren’t As Opposed to Modifying Loan Terms As They Once Were

 

With foreclosure at an all-time high, lenders aren’t as resistant

 

to negotiating mortgage modifications like they once were. If you are

 

proactive, able to ask for a loan modification before your home enters

 

the foreclosure process,