Loan Modification is Stressful; Know Your Options

by ritasimpson on April 3, 2012

in Money Talk

“Applying for a loan modification is a stressful process that can take several months without a lot of communication back and forth from the lender. The best way to ease that stress is to know as much as you can about your options and to understand what goes on behind the scenes to avoid simple mistakes.”

Here are some need-to-know items:

  • Make sure a loan modification is right for you: Ask yourself if you are emotionally attached to the home, because a lender likely will extend the terms of the mortgage to 40 years to reduce the monthly payment. If you’re underwater on the mortgage—if you owe more than the home is worth—a modification probably is not the answer because of the years added to the note. If you’re not emotionally tied to the home, ask local realtors about options such as short sales.
  • A loan modification is not a refinance: A loan modification reduces your monthly mortgage payment without requiring any credit checks, appraisals, home equity or closing costs. The only qualification is financial hardship, which can include reduction in income, illness, divorce or any number of trying circumstances.
  • HAMP is not your only option: The government may want you to think that, but the fact is, more than 70 percent of modifications now are internal modifications made available by the investor holding the mortgage note. The only way to get an internal modification is to ask for one. Worth noting: HAMP bases its modifications on gross income (your mortgage must exceed 31 percent of what you make in a month) while internal modifications are based on monthly net (after-tax) income.
  • Be complete and thorough in your paperwork: Lenders receive thousands of faxes every day, so make sure your account number is on every page and that all questions and categories are filled out. A document manager who comes across an incomplete form may put it aside and move on to the next one. Just like that, the 30 days you may have to wait to hear from that manager becomes 60 or 90. It’s also best to follow up with the lender weekly.

“The process can be filled with stress, mistakes and misinformation, It was a journey to get your house. Be ready for the journey to keep it.”

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