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from: Learn How to Obtain a Loan Modification From Your Lender
Moe Bedard
A loan modification or loan workout is an agreement that is
negotiated with your current lender that changes the terms of
your current loan. Lenders are willing to negotiate when
borrowers are facing financial difficulties and can't obtain
other financing alternatives. You must show the lender why it
would be in the lender's best interest to agree to a workout
arrangement. If convinced, a lender may be willing to reduce the
loan interest rate, reduce monthly payment amounts or change
other loan terms.
A loan modification generally occurs where the parties to a
problem loan mutually agree to workout the problem by creating
new and better loan terms. The hope is that the new loan will
enable to the borrower to meet their obligations.
When applying for a loan modification, make a game plan on how
exactly you are going to approach them. These people are trained
in minimizing loss for their company and they get paid to by
getting the most amount of money out of you as possible or
declare that your case is un workable and foreclose on you. That
is how they mitigate loss. If you understand this, then you'll
know that you have to approach them and all conversations very
carefully. Everything can and will be used against you.
Items You Will Need When Applying For a Loan Modification
Document income and expenses. Keep all correspondence (even the
envelopes) Before negotiating a deal, gather all the information
you need, starting with any correspondence from your lender.
That includes anything that you have unopened from the lender.
Don't throw away envelopes from the servicer -- postmarks
sometimes can make the difference between being eligible or
ineligible for relief.
Collect everything that relates to income and expenses. Find
your last four pay stubs. They want to see at least one month of
income. If your income is very sporadic, the support your story
by showing how you're getting paid so we can calculate an
average over time. Gather at least three years worth of W2s and
tax returns, plus three to six months of bank statements. Find
all the mortgage paperwork and add that to the file. Pull
together all bills, paid or not, from the times you were falling
behind on the house payments until now. Include utilities, auto
payments, credit cards, student loans, child support, medical
bills. Find the winter and summer heating and cooling bills. You
need to also include everything that documents why you fell
behind. An employer's notification of reduced hours or a layoff,
an invoice for an auto repair or a furnace replacement, a
shutoff notice from a utility.
What to Do When You Call Your Lender:
Your lender has two platoons of employees who talk with
delinquent borrowers. The first is the collections department,
which consists of people who try to pry money out of you and get
you current on the payments. The second group consists of the
loss mitigation specialists. These departments go by different
names, depending on the servicer, including foreclosure
prevention, loan resolution and delinquency customer service.
We'll use the most common name for the department: loss
mitigation, or loss mit. It can be difficult to get through to
the loss mitigation department if collection agents are
discouraged from transferring calls. This is one of the benefits
of having a helper, such as an attorney or a housing counselor.
The first will intimidate bill collectors and the second might
have contacts within the loss mit department.
The trick with any bank and getting a work out done is learning
to navigate their phone system so as to increase your chances of
getting a live person. Over the years Ive learned some tricks
that help, sometimes you hear options that you know will lead to
a person like when it says "to speak to a representative press
___" but sometimes they don't give you these options (cricket
wireless is the worst at this) so you have to think, what
options WOULD get a live person. For example often anything that
involves new clients signing up will get a live
representative...cause they always want new business. You have
to be a little savvy though, you cant just tell the sales guy
you called them so you could get a warm body to answer the
phone!
Once you get a live person, you want to be working your way up
to a decision maker. This is sometimes harder to do for a
homeowner than a 3rd party. Often with the homeowner they get
stonewalled at the first level, and sadly the first tier in Loss
Mitigation is really a glorified collections department. They
are paid hourly employee's who have very little if not zero
motivation to go the extra mile and help you get some needed
comfort and relief while resolving your problem. Often they just
compound the problem by being rude and demanding, telling people
things like "just pay your bills". So its essential that you get
beyond these people and to a specialist.
Sometimes to get to this point you have to put up with the
hourly employee's through a process of filling out their forms
and information. Providing them with items such as pay stubs,
tax returns and a whole host of financial information. Once
everything is provided, then some lenders will assign the file
to someone higher up in the loss mitigation department.
The MOST crucial element to this whole process is your Budget
and if you have dome your due dillegence, you'll be ready . They
will ask you for a detailed list of your monthly expenses. If
its too tight, you may not get approved, if you have too much
extra income you are going to have an outrageous payment plan.
Don't agree to it!
The 2nd MOST important thing you can do is DO NOT SPEND YOUR
HOUSE PAYMENTS. Often people stop making their payment because
they are falling behind on other bills, or they cant quite make
the whole house payment. Over the years more often than not, the
people I met with still have an income coming in each month,
they just cant meet all their obligations, so while the house is
falling behind they take advantage of the fact that they aren't
paying the house payment in order to catch up on other debts.
THIS IS NOT WISE AT ALL. Sock away as much of that money each
month as you can. Its crucial, heres why;
If you don't pay your mortgage for 3-4 months and your lender
decides to negotiate a repaymenyt plan or a loan modification,
then they will want what is called "good faith" money for you to
come to the table with. Typically this is from 30-75% and
sometimes 100% of what you owe in delinquent fees and attorney
fees. Often I speak with homeowners who spend all their money
and have nothing to work with. If that is the case, then don't
expect them to work with you or you better have a REAAAALLLY god
explanation and proof as to why you have no money to bring to
the table.
We all know life throws curve balls at us, its the nature of the
game, you'd better just expect it, cause its coming in one form
or another. Whether it be a car breaking down, an illness,
injury or death. An accident in a car, you just don't ever know
and its ALWAYS a good idea to have a rainy day fund. The crazy
thing about going into foreclosure is that you can actually come
out of it better off than you went in sometimes.
Is it Better to Just Walk Away and Start Over?
Many homeowners are just in over their heads. Many they love
their home and their family does too. But what good is it when
you are so stressed out that you cannot enjoy your home. Your
maxed out and you don't have a dime to take the kids for an ice
cream or the movies. That's no way to live. This is a serious
time to really sit down and see if it's all really worth the
stress and heart ache. If it's not then maybe it's time to just
thorw in the towel and down size. Get something you can afford
and enjoy. Just close the door on this time in your life and
move on. Sure, it will affect you for years, but place your
health and well being before making a house payment. If this is
you, you're not alone. Think about it. Is it all really worth
the pain and stress? You're already down, maybe it's time to
just move on and take that money and get a nice little place to
rent and regroup.
By saving up your payment for 2-3 months or more depending on
the foreclosure time line in your state, you can not only have
enough to put together a really nice plan with your lender, but
also have some in the bank for a rainy day or worse case
scenario, a rental. Often payment plans with the bank can be
pricey and very short terms, like 6 months total to repay what
you fell behind on. The people iI have worked with who took my
advice to save up and keep some funds in the bank, were
successful 100% of the time at keeping their home. Because they
were prepared for life's curve balls. Even though they had
fallen behind in the past, if they had an expense one month,
they just pulled a little from the slush fund in the bank to
help supplement their house payment that month.
The Lender Has Made You a Deal, What Now?
Respond to your lender, but don't be rushed into making a
promise that you can't keep. Before making a deal with your
lender, describe your situation to an attorney, accountant or a
knowledgable mortgage person. You need to make sure that it is
reasonable and not an agreemnet that will stop foreclosure for a
month or two.
Many lenders are likely to offer a forbearance. Theses are only
good for a short term band aid and not for the long term. Most
commonly, this entails adding a set amount to each month's
payment. A forbearance plan can go as long as 36 months. But
many are set to fail and are completely unreasonable for
borrwers to pay back. Usually this will require palcing the
delinquent amount on top of your monthly mortgage payment. If
you had trouble making your mortgage payment before, good luck
paying your new larger more unaffordable payment.
If all else fails, seek out a third party to handle this for
you. There are many non-profit housing counselors, attorneys and
for profits that are very experienced in loan modifications and
loan workouts.
Plan to arrive at an agreement, but prepare for the unwelcome
news that you'll have to move out. If you turn over the deed in
lieu of foreclosure, or agree to a short sale (in which the
lender lets you sell the house for less than the mortgage
balance), or are forced out in a foreclosure action, you'll need
to consult a lawyer and maybe an accountant.
Don't give up and fight to stop foreclosure and save your home!
If all efforts fail, it's not the end of the world. Just make
sure that you mitgate loss to you and do your best to save what
little credit you have left.
Good Luck!
About the author:
Moe Bedard
Founder & Homeowner Advocate
www.LoanSafe.org - #1 Stop Foreclosure Forum for Homeowners
www.LoanWorkout.org Loan Modification & Loan Workout News
www.PredatoryLendingLaw.org Predatory Lending & Mortgage Law
951-271-6283 Direct
800-734-8819 Fax
Moe at LoanSafe.org Email
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