Loan Modification 101 – Part 6 of 6

Hope you’ve been enjoyed the series on loan modifications. This is final (sixth) in a six part series on loan modifications written by Morgan Brown at Blown Mortgage. Please be aware that I can not help you with loan modifications. You should contact your loan servicer or a local mortgage company which specializes in loan modifications if you are seeking assistance. The Arizona Mortgage Team blog has information for those who are in the Phoenix, AZ market.

Part 6 of 6

Finalizing your loan modification

Congratulations! Your loan modification is almost done. Here are just a few tips to wrap up the process.

You’ll receive a loan modification packet from your bank that looks very similar to loan documents. Review them to ensure the following terms are what you agreed to:

  • Interest rate
  • Interest rate reset cap
  • Term of modification (how many years)
  • Monthly payment
  • Good faith payment due
  • New principal balance of your loan

If all of these are in good shape you’ll need to:

  • Sign the documents in the presence of a notary
  • File a copy for yourself
  • Wire good faith payment funds to the bank via the wiring instructions they provide (they will not accept a personal check)

Once that’s all done your loan modification is complete. Congratulations! You made it.

Stay tuned to this blog for more great real estate, mortgage and loan modification advice. Thanks for reading and please share this series with friends and family who may need this help.

Loan Modification 101 – Part 5 of 6

We’re almost there. Wow. This is a long series isn’t it? This is a fifth in a six part series on loan modifications written by Morgan Brown at Blown Mortgage. Please be aware that I can not help you with loan modifications. You should contact your loan servicer or a local mortgage company which specializes in loan modifications if you are seeking assistance. The Arizona Mortgage Team blog has information for those who are in the Phoenixa, AZ market.

Part 5 of 6

Negotiating new loan terms as part of your loan modification

If you’ve gotten this far, congratulations! It means you’ve been approved as a loan modification candidate and the bank has or will be making you an offer very soon. This post will cover some ways to negotiate with your lender to get the best possible modified terms for your new mortgage.

What to expect from your bank offer

If the bank does approve you for a home loan modification there are a few constants that you must be aware of:

  • The bank will not write down the principal balance of your loan, they will adjust your interest rate to lower your payments, but you’ll still owe the same amount on your mortgage.
  • The bank will not waive late payments. These will usually be added to your principal and tacked on the back of the loan.
  • The bank will require a good faith payment ranging from one to two month’s mortgage payment as a sign of good faith that you’re committed to the mortgage.
  • The bank will demand that you have the ability to afford a reasonable market interest rate as part of your modification. (You won’t be negotiating for 1% when the going rate for a 30-year fixed is 6.25%.)

What you can negotiate

  • Interest rate. Your interest rate will typically be reduced between 2% and 4%. If you’re interest rate is currently 9% after an ARM adjustment, you can negotiate for a 6% 30-year loan fixed for 5-years no problem. You will have problems negotiating for a 3%. It’s not going to happen.
  • Post-modification adjustment cap. After a fixed period (typically 5 years) your modification will expire and your rate will become adjustable again. You can negotiate the cap of your adjustment. Say if you agree to a 6% loan you can negotiate a cap at 8% or something similar to protect you from a similar reset disaster in the future.
  • Good faith payment. Every bank will require a good faith payment of some sort to get caught up with delinquent payments before they go through with a loan modification. This is typically one to two months of mortgage payments. If you’re in a bind this may not be feasible. You can often negotiate this down to half a mortgage payment. Either way you’ll need to make some sort of payment – be prepared for that.

Take yourself out of the equation emotionally

Your home is an emotional asset. Your family lives there, it holds your memories, etc. Do not let you emotions get in the way of negotiating. Use these tips to be a better negotiator with the bank:

  • Have a game plan. Have a hoped-for mortgage payment and interest rate so that you know what you’re negotiating for. Stick to your guns and be firm on the terms so you can get the best deal possible.
  • Keep a calm demeanor and realize you’re working with another human who can either help you or make your life hell. Work to make them want to help you more.
  • Be polite, yet assertive. If you don’t agree with something speak up and voice your objection. Be polite, but know what you want and stick to your guns.
  • Appeal to people’s sense of fairness. Use terms like “doesn’t that seem fair?” or “isn’t that reasonable?” People have a hard time objecting to something that seems fair or reasonable.
  • Get something if you’re asked to give something. Quid pro quo is fine here. If you’re asked to give something up (like a slightly higher monthly payment) then ask for something in return – a lower good faith payment, for example.
  • Document everything. Don’t get stuck in a game of he said, she said. Write down offers so that you have a record of what’s on the table at any given time.
  • Elevate to a decision-maker. Feel free to ask to speak to a manager or supervisor if you’re dissatisfied with your progress.

Negotiate to a point where you’re in the target range of your hoped for mortgage payment and interest rate and good faith payment. Once you’re there take the offer. No need to get greedy when your home is on the line. Next we’ll talk about wrapping up your loan modification.

Loan Modification 101 – Part 4 of 6

We’re halfway through already and I trust the information has been very useful to you so far. This is a fourth in a six part series on loan modifications written by Morgan Brown at Blown Mortgage. Please be aware that I can not help you with loan modifications. You should contact your loan servicer or a local mortgage company which specializes in loan modifications if you are seeking assistance. The Arizona Mortgage Team blog has information for those who are in the Phoenixa, AZ market.

Part 4 of 6

Tips for qualifying for a loan modification

So far we’ve discussed the basics as it relates to getting a loan modification. Now we’ll talk about a few tips that will help you qualify for a loan modification. These tips are centered around your hardship letter and the monthly expense worksheet.

The hardship letter

Called an LOE in the biz (letter of explanation) this letter is your explanation of why you believe you qualify for a home loan modification. Remember these facts when writing your hardship letter:

Banks want to work with people that:

  • Are credit-worthy and have a good payment history
  • Have been in their home for a long time
  • That have been impacted by an unusual adverse event
  • Have good potential to keep earning their current level of income
  • Have good potential to pay back the mortgage
  • Are likely not to go in to default after modification

Banks don’t want to work with people that:

  • Have been chronically late in making mortgage payments
  • Have lived in their home less than a year
  • Are a poor credit risk
  • Have lost their primary source of income
  • Are likely to go in to default after modification

You want to write your hardship letter with these facts in mind. A good hardship letter includes:

  • An explanation of the event that caused you to fall behind on your mortgage (or if you’re current why you’re requesting a modification). This should be positioned honestly as a one-time setback that is in the past.
  • These can range from your adjustable rate mortgage resetting, to an illness now recovered, to a job loss that has been replaced by a new, stable and similar paying position. These are all one-time events that don’t impact your ability to pay a reduced amount moving forward.
  • A statement of your desire to stay in the home and make paying the mortgage a priority.
  • A statement of why your situation was temporary and one-time.
  • A statement of why your situation is improving.

If you’d like a free hardship letter simply subscribe to Blown Mortgage’s Loan Modification Tips email list.

Be brief and to the point. We don’t need a novel, just a straightforward and accurate letter that states your willingness to stay in the home and the freak nature of the event that caused you to request a loan modification.

Monthly expense worksheet

Because your DTI is such a critical part of calculating whether you qualify or not, we want to be as high-level in our detail reporting to the bank. This means that we want to focus on big ticket items that we know will be consistent month-to-month and not the variable expenses that we can control through sacrifice and restraint.

Recommendations for your expense worksheet:

  • Submit your own first. Let the lender ask for more detail. Your expense worksheet should include all items on your credit report and nothing else. Car, home, credit cards, student loans or second mortgages are the big ones.
  • Variable expenses should be left off initially since it is impossible to predict the future and how your spending will change – it all comes down to the modification before you can accurately calculate that expense.
  • If you are close to 50% call your credit card companies and ask for a reduction in your monthly payments. Even if you can save $40 per month on each card you could benefit with a lower DTI.
  • Can you live without HBO? If you’re on the border look for ways to shave dollars off monthly expenses. While these won’t be in round one of our expense report it’s important to keep these in our back pocket for possible reductions.
  • Double-check your expenses. Are you self-employed and pay for your car from your business? That doesn’t go on your expenses as it’s a business expense.

By preparing your own financial worksheet first you can save the time of filling out the lender’s which is often more detailed and time consuming and present your application quickly to the lender. If the processor accepts your application as is you’ve gained valuable time. If they request one of their own then you’ll have the information already collected. However; by preparing a detailed and accurate monthly expense worksheet that focuses on the items on your credit report and grouped in high-level buckets you’ll make it easy for the bank to see your financial snapshot and determine whether you’re a good candidate for modification.

With all the demand for modifications, making the bank’s life easy goes a long way. Remember these are just people swamped with work and in a demanding job where they have to say “no” a lot. Give them a reason to enjoy working on your file by being organized, efficient and together and you’ll get better treatment than someone who is difficult, disorganized and non-responsive. In the next post we’ll discuss negotiating your modification terms.

This site is for informational purposes only. It is not sponsored or in any way affiliated with the government. If you are in need of a mortgage loan, consult with a licensed mortgage professional. All fair housing and equal housing opportunity laws apply when applying for a mortgage or buying a home. Copyright 2012.