Emotions play a big part in our decision making so with that in mind this is the practical guide to processing your own loan modification.
Your Scenario: The Bank has been calling you because you're behind on your mortgage payments. You are about to pick up the phone to call them but than you procrastinate and say ill do it tomorrow. Every time the telephone rings your anxiety increases and when leave your home you can expect a message on your answering machine. We understand, it's tough to return the call or answer the phone. Nobody wants to talk to a debt collector.
So, before you make the initial call, let's do the following:
1. Gather your documents
Below is an expanded list of documents you will need to reference to complete your loan modification:
After gathering up the aforementioned documents take everything and place them in a folder for future reference. Inside the folder staple a piece of paper so that you may document all correspondence with the bank. In one way or another, the documents above will be used to complete your lender's loan modification package.
2. Create a Financial Statement and a Hardship Letter
(Sample Financial Statement, Sample Hardship outline) The financial statement is the most important document the lender will look at. We want to make sure it is filled out completely and as accurately as possible. The lender will derive from your financials your Current DTI Ratio and a Proposed DTI Ratio. You should also calculate those ratios:
If your rate is about to adjust, calculate your future DTI ratio. Again, if the ratio is above 45% than your likelihood of completing a loan modification is good. Some lender's may require you to be late while others may perform the loan modification before you become late. The DTI ratios are a good rule of thumb when formulating your loan modification case but there are other points to also consider:
The bank is going to look at your specific expenses. If you are looking for a reduction in your loan but have a lot of "luxurious" expenses, than the bank will take that into consideration. The bank may want the "luxurious" expenses applied towards the loan payments. So, make sure you have eliminated all those unnecessary expenses in your life.
They will look at your total expenses vs. your total income. If your total income is greater than your total expenses than they might ask you to take the difference and apply it towards your loan payment.
With all things considered, always remember, the loss mitigation department will try to minimize their losses. They will find every excuse to make sure you make the highest payment possible without you defaulting on the mortgage payment again.
The Hardship Letter is a document that must be created in your own words. Basically you want to get across to the bank that you did experience a hardship but are looking to resolve the situation with their help. I would also include if you saved any money that you are willing to put that towards a good faith deposit. Also include the new mortgage payment you can afford.
3. Prepare yourself for the loan modification process
You must stay calm but persistent with the lenders. You will be contacting the loss mitigation department at the bank so be prepared for inconvenience. Department growth, consolidation in the industry, litigation by both the investor holding the note and the government, new legislation amongst other variables have all contributed to change at the loss mitigation department. In particular new software, procedures, and employees are being added and changed on a daily basis. Because of the constant change, loss mitigation has a high probability of losing your information. In addition, your information is often gathered by loss mitigation employees who are overworked and underpaid.
4. Call your servicer's loss mitigation department
There is a difference between the mortgage originator and the servicer. The mortgage originator is who you got the loan from originally. The servicer is the one collecting and processing your payments. Now that you are on the phone, you've hit your first road block. It's called the automated attendant. There are numerous tricks to circumvent this problem. Be creative.
For example with Countrywide, press the pound key (#) approximately twelve times and you will get a customer service representative on the phone. This trick does work with other banks. Great, you have customer service on the phone. Request for a loan modification. Describe your situation and ask for a loan modification package. If you have no income but want your loan modified, think again, the bank will deny your request. So don't over communicate your hardship. After receiving the package follow their directions and send it into your bank. Fax the package twice and send a copy in the mail. I would follow up in a couple days to make sure they got the package. After the package is received by the loss mitigation department your file will be assigned to a loss mitigator. There might be multiple loss mitigators involved throughout the process. The banks make it hard to communicate with the loss mitigator so again be patient but persistent in your follow up.
5. Document all communication with the lender
As I said before: Take the folder containing all of your documents and staple a blank piece of paper on the inside of the folder. Every time you correspond with your lender write down what was said by all representatives. Include the date, the name of the representative, the time frame in which you will get an answer from the bank and what the next step is to proceed forward with the loan modification. If the bank faxes, emails, or mails anything to you, make sure to include that with your folder. There may be a lot of error on behalf of your lender so be diligent in recording all correspondence.
6. Closing the deal
The time frame to get a loan modification approved is between 30-60 days. You have proposed an affordable mortgage payment so by the time you get the approval back, you should have saved up some money to put towards the new modified loan. It is not uncommon for a bank to ask for a deposit upon approval. But to get to the approval, you must be persistent, consistent, and unwavering in the face of possible bank mistakes and bad customer service. It is an arduous process. Many homeowners have gone through it, so can you.
To learn more about how to stop foreclosure please visit our website dedicated to helping home owners, where you will also find direct links to all rulings mentioned in the article as well as links to definitions of all the legal terms used.
Your Scenario: The Bank has been calling you because you're behind on your mortgage payments. You are about to pick up the phone to call them but than you procrastinate and say ill do it tomorrow. Every time the telephone rings your anxiety increases and when leave your home you can expect a message on your answering machine. We understand, it's tough to return the call or answer the phone. Nobody wants to talk to a debt collector.
So, before you make the initial call, let's do the following:
1. Gather your documents
Below is an expanded list of documents you will need to reference to complete your loan modification:
- Mortgage Statement (most recent for 1st and 2nd)
- Property Tax Statement (most recent)
- Homeowners Insurance Statement (most recent)
- Flood/Wind/Earthquake Insurance Statement (most recent)
- Car Loan Statement (most recent)
- Car Insurance Statement (most recent)
- Other Loan Statements (most recent)
- Credit Card Statements (most recent)
- Utility Bills (most recent water/sewage, gas/oil, telephone)
- Cell Phone Statement (most recent)
- Medical/Dental/Life Insurance Statement (most recent)
- Medical Expense Statement (most recent not covered by insurance)
- School Tuition and/or Child Care Statement (most recent)
- Bank Statements (for the last 4 periods)
- Tax Returns (for the last 2 years)
- W2's (for the last 2 years)
- Pay Stubs (for the last 4 pay periods)
- Hardship Documents supporting your hardship (birth certificate, death certificate, medical bills, divorce papers, bankruptcy papers, etc.)
After gathering up the aforementioned documents take everything and place them in a folder for future reference. Inside the folder staple a piece of paper so that you may document all correspondence with the bank. In one way or another, the documents above will be used to complete your lender's loan modification package.
2. Create a Financial Statement and a Hardship Letter
(Sample Financial Statement, Sample Hardship outline) The financial statement is the most important document the lender will look at. We want to make sure it is filled out completely and as accurately as possible. The lender will derive from your financials your Current DTI Ratio and a Proposed DTI Ratio. You should also calculate those ratios:
- Current DTI Ratio = (Mortgage Payment + Taxes + Homeowners Insurance) ÷ Gross Income If the Current DTI Ratio is above 45% than your likelihood of completing a loan modification is good. On the other hand, if you have no income or very little income, than your Current DTI Ratio might be extremely high and it would make sense for the bank to pursue other options like foreclosure.
- Proposed DTI Ratio = (Mortgage Payment + Taxes + Homeowners Insurance) ÷ Gross Income The guidelines for the proposed DTI ratio differ according to each bank but your proposed ratio should be between 31% and 45%. IndyMac Bank is looking to modify homeowners to a 38% ratio. Bank of America is looking to modify homeowners to a ratio of 34%.
If your rate is about to adjust, calculate your future DTI ratio. Again, if the ratio is above 45% than your likelihood of completing a loan modification is good. Some lender's may require you to be late while others may perform the loan modification before you become late. The DTI ratios are a good rule of thumb when formulating your loan modification case but there are other points to also consider:
The bank is going to look at your specific expenses. If you are looking for a reduction in your loan but have a lot of "luxurious" expenses, than the bank will take that into consideration. The bank may want the "luxurious" expenses applied towards the loan payments. So, make sure you have eliminated all those unnecessary expenses in your life.
They will look at your total expenses vs. your total income. If your total income is greater than your total expenses than they might ask you to take the difference and apply it towards your loan payment.
With all things considered, always remember, the loss mitigation department will try to minimize their losses. They will find every excuse to make sure you make the highest payment possible without you defaulting on the mortgage payment again.
The Hardship Letter is a document that must be created in your own words. Basically you want to get across to the bank that you did experience a hardship but are looking to resolve the situation with their help. I would also include if you saved any money that you are willing to put that towards a good faith deposit. Also include the new mortgage payment you can afford.
3. Prepare yourself for the loan modification process
You must stay calm but persistent with the lenders. You will be contacting the loss mitigation department at the bank so be prepared for inconvenience. Department growth, consolidation in the industry, litigation by both the investor holding the note and the government, new legislation amongst other variables have all contributed to change at the loss mitigation department. In particular new software, procedures, and employees are being added and changed on a daily basis. Because of the constant change, loss mitigation has a high probability of losing your information. In addition, your information is often gathered by loss mitigation employees who are overworked and underpaid.
4. Call your servicer's loss mitigation department
There is a difference between the mortgage originator and the servicer. The mortgage originator is who you got the loan from originally. The servicer is the one collecting and processing your payments. Now that you are on the phone, you've hit your first road block. It's called the automated attendant. There are numerous tricks to circumvent this problem. Be creative.
For example with Countrywide, press the pound key (#) approximately twelve times and you will get a customer service representative on the phone. This trick does work with other banks. Great, you have customer service on the phone. Request for a loan modification. Describe your situation and ask for a loan modification package. If you have no income but want your loan modified, think again, the bank will deny your request. So don't over communicate your hardship. After receiving the package follow their directions and send it into your bank. Fax the package twice and send a copy in the mail. I would follow up in a couple days to make sure they got the package. After the package is received by the loss mitigation department your file will be assigned to a loss mitigator. There might be multiple loss mitigators involved throughout the process. The banks make it hard to communicate with the loss mitigator so again be patient but persistent in your follow up.
5. Document all communication with the lender
As I said before: Take the folder containing all of your documents and staple a blank piece of paper on the inside of the folder. Every time you correspond with your lender write down what was said by all representatives. Include the date, the name of the representative, the time frame in which you will get an answer from the bank and what the next step is to proceed forward with the loan modification. If the bank faxes, emails, or mails anything to you, make sure to include that with your folder. There may be a lot of error on behalf of your lender so be diligent in recording all correspondence.
6. Closing the deal
The time frame to get a loan modification approved is between 30-60 days. You have proposed an affordable mortgage payment so by the time you get the approval back, you should have saved up some money to put towards the new modified loan. It is not uncommon for a bank to ask for a deposit upon approval. But to get to the approval, you must be persistent, consistent, and unwavering in the face of possible bank mistakes and bad customer service. It is an arduous process. Many homeowners have gone through it, so can you.
To learn more about how to stop foreclosure please visit our website dedicated to helping home owners, where you will also find direct links to all rulings mentioned in the article as well as links to definitions of all the legal terms used.
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