5 tips to surviving the loan modification process
The mortgage modification process is no picnic. But if you understand these tips, you can increase your chances of getting help and keep your sanity too.
If you look at the federal government's Home Affordable Modification Program (HAMP) website, getting a loan modification seems pretty straightforward. But as thousands of homeowners can attest, getting a loan modification is anything but straightforward. At times, the process seems more like trying to win the lottery than following a government-administered program to help troubled homeowners.
While getting a loan modification is far from a sure thing, knowing these five tricks can help you maximize your chances of successfully navigating the process (or at the very least, adjust your expectations to reality).
#1. Understand the odds. Truth be told, the deck is really stacked against you. Through most of 2010, fewer than half all loan modifications were successful, and there are continuing doubts about how many people the program has been able to help. If you understand those odds right off the bat, you'll eliminate any unpleasant surprises.
Why hasn't HAMP gained more traction? For one, HAMP is voluntary. Only Fannie Mae and Freddie Mac lenders are required to participate. Other lenders only participate if they want to, and they get to make up different modification strategies or rules as they see fit. Lender participation has also suffered due to constantly changing rules which make it difficult for mortgage lenders to update their procedures and train their employees accordingly.
Understanding this alone, it's no wonder that so few homeowners have successfully gotten permanent HAMP modifications.
#2. Document every step. Two almost-universal experiences related by those seeking HAMP modifications are the constant miscommunication and the repeated loss of documents. Too often our readers have shared stories of how they receive one explanation from one representative and a completely different explanation to the same issue from a different employee the next time they call.
This kind of behavior may be unintentional -- for example, the collection department of the lender doesn't generally communicate with the retention division, so while one group of employees is working with you on your modification, the other is pestering you about your "default" and threatening to foreclose.
Being on the receiving end of this kind of miscommunication is stressful, but understand that while you are being evaluated for HAMP, your lender is not allowed to foreclose.
Receiving different answers to the same question, and being asked to resubmit paperwork is a waste of time and money for everyone involved. Here are some ways you can help your cause and speed up the process:
- Keep a file of everything you send. From the insider info we've heard, HAMP applicants should expect to send and fax documents more than once. If you're mailing in your documents, be sure to get a "return receipt" which certifies your papers were received. Keep all proofs of receipt as well. Organize your documents as though you will be taking them to court to prove your case.
- Update and organize your file every week. Each time you get new documents -- such as a bank statement or pay stub -- drop them in your file. If you do this, it's no big deal to send in the newest documents when asked for them.
- Call the lender weekly to get the status of your modification. Take detailed notes about your conversation: record the name of whomever you speak to, the date it occurred, and for how long the conversation was for. The weekly updates are your chance to have your contact clarify anything you don't understand.
- Make sure your trial payments are made on time, every time. The easiest way to be denied a permanent modification is failing to make your payments on time. Be prepared to prove that you made those payments.
#3. Read up on the latest loan modification guidelines. Your lender's loan modification employees may not be well-versed in the latest guidelines, so don't rely on their knowledge. As we mentioned, it is very common for applicants to get different interpretations of the same rules from different employees within the same company. The Government Accountability Office (GAO) reported in June 2010 that loan modification guidelines were being applied very unevenly across the nation's lenders.
For example, do you know which of your assets can be counted towards your ability to make payments? While the HAMP program guidelines for mortgage servicers specifically says that retirement assets are not to be considered, loan modification employees often have their own interpretation of the rules.
One Nevada homeowner (who did not wish to be identified because he is still fighting with his lender), described how volunteering information about his retirement assets set him back: "One employee told me that I would be declined for HAMP because I still had a 401(k) account. Two others told me that retirement accounts were not considered.
"Eventually I was declined for HAMP and then offered another program that was not as good. I wish I'd never included the 401(k) in my assets, since it wasn't supposed to be counted."
The lesson? Do your own homework on the HAMP guidelines rather than rely on the advice of your lender's employees.
#4. Reapply if you are denied. HAMP guidelines don't include provisions for any appeal process. However, you are allowed to reapply if your circumstances have changed after your denial.
Self-described "loan mod guru" Anna Cuevas encourages people to reapply as many times as necessary to get their modification. For example, if you are denied a modification because you have at least three months' of mortgage payments in the bank, you can reapply once you no longer have it.
#5. Stay positive. If you can jump through the hoops, a mortgage modification can be worth the hassle. It's not all doom and gloom. A successful loan mod can save you a lot of money, not to mention your home.
Cuevas points out in her e-book, Dirty Little Loan Modification Secrets, that you must "go in with a certain mindset of success in order for you to accomplish the goal of modifying your loan. It is not impossible and you can do it, but it is important that you take a courageous, determined and knowledgeable approach to requesting a loan modification."
Just how much can a loan modification help? A joint report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision found that successful HAMP modifications in the second quarter of 2010 gave borrowers an average monthly payment reduction of $608, while private loan modifications lowered payments by an average of $307.
How can you calculate your potential upside if you actually make it through the approval process? One way is to multiply your gross monthly income by 0.31. (Your modified HAMP payment, including principal, interest, any HOA dues, taxes and insurance, should not exceed 31 percent of your gross monthly income.) Subtract that payment from what you currently pay for all of those things, and you'll see your potential savings.
Once you have a concrete number in hand, you'll know if the possible benefit is worth the hassle of applying for a loan modification. By following these tips -- and throwing in a good dose of persistence -- you can maximize your chances of getting approved.
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