Guide for Loan Modifications

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Here’s your quick guide for a loan modification.   There’s no need to pay a company thousands of dollars with no guarantee.

The loan modification industry has been a haven for ex-mortgage bankers.   When the housing market crashed and credit market tightened, they found it extremely difficult to find well qualified borrowers.   No more stated income, no more 100% financing, and no more investment properties!

I always tell people to be cautious when choosing a loan modification company.   You might think that obtaining a loan modification requires a certain skill set that only these loan modification consultants possess, but the truth of the matter is that many of them don’t know how to go about it.

Let’s test this theory.   Call into a loan modification company and ask them what a NPV (Net Present Value) test is and how it relates to getting a loan modification.   Ask them if unemployment income counts towards your income.   Ask them if you can have monetary contribution counted as income, even if you can’t prove it.   Chances are that they’ll know none of the answers to these questions.

My point is this.   Getting a loan modification company does NOT require a special skill set that you can’t learn.   All it takes is patience, and the willingness to learn how to do it.

The first step is in getting a loan modification is to list ALL your financial information such as your income and expenses.   Take a look at your last month paycheck and figure out what your gross & net income for that month was.   Do this for ALL borrowers on the loan and for ALL people who live in your household who contribute to the mortgage. (Yes, even if they are not on the loan you can count it as income!)   Next, write down your expenses to the finest detail.   After itemizing every expense, see what your disposable income is (Net Income — Expenses = Disposable Income).   If you find yourself with a huge deficit, chances are that you won’t get a loan modification. The reason is because you HAVE to show affordability in order to get a loan modification.   It’s too much risk for a bank to modify a borrower who does not have enough income to sustain the mortgage.   Ideally, you want your disposable income to be on the positive side.

Next, figure out what your Housing DTI (Debt-to-Income) ratio is.     You can calculate this by taking your mortgage payment (including taxes & insurance) divided by your gross monthly income.   Generally speaking, if your DTI is over 31%, you won’t qualify for the Making Home Affordable program.   In this instance, you might have other debt obligations outside your mortgage that you’re struggling with such as credit cards or excessive auto loans.   A borrower who has a 31% DTI or under should be able to afford their mortgage payment without difficulty.

The next step is to fill out a request for modification assistance package which can be found here. Always be sure to send in ALL pages of your bank statements, even the pages that say “page left intentionally left blank.”   The single biggest reason why some modifications take a while to complete is because of incomplete documents.   One single page can back up your file for weeks!   A well organized package is essential in successfully obtaining a loan modification from your lender.     Follow up with banks are important.   Always call on a weekly basis to make sure they are not requesting additional documents.   Save your fax confirmation pages and always write down the name and employee id # of every customer service representative you speak with.

Lastly, getting a loan modification won’t fix your financial problems.   Take this as a costly lesson, but you must learn how to spend money wisely and create a budget within your means.

If you have any questions, feel free to ask me a question!


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