The Basics of Loan Modification by David Pit - HTML preview

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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.

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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


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
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.
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




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




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




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




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




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




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




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,