Despite reported efforts to simplify mortgage modification by everyone from lending institutions to the White House, mortgage modifications are still tricky and time-consuming. As of today, it's still difficult for homeowners struggling to make mortgage payments to have their mortgages modified by lenders. As a result, i's become a sub-segment of the real estate legal profession, including at my office.
Stay in Your Home: The Keys to Mortgage Modification
All indications are that law firms handling loan modifications have a higher rate of success than the rest of the population (similar to property tax appeals). This subject was brought up at a recent real estate seminar I attended, and the fact that firms know what the lenders are look for was the main reason for this success.
Certainly, there are several areas where an attorney's assistance will help in modification. But there are some keys to the modification process that don't require a law degree. Here are some of those keys:
Everyone who's ever handled a modification knows that patience is vital, though often difficult to apply. If you're trying to modify your loan, you're going to spend a lot of time on the phone. This time will sometimes be fruitful, other times wasteful. Many lenders are expanding their loan workout/loss mitigation/default management staffs, but it's often not enough for the swell of people in mortgage trouble. Whenever you talk with someone on the phone, be prepared to get their name or Operator ID number, any direct phone lines for key personnel and a date when you can call back. Keep a log of this when possible.
2. Do Your Math
The general rule is that your monthly mortgage payment should not surpass 31 percent of your monthly income. All of the banks' mortgage modification packets ask you to compute your monthly expenses, so that they can see how you fit in with this equation. If your mortgage payment is below 31 percent of your monthly income, you will likely not be a good candidate for a modification.
3. Explain Your Situation
Nearly every lender requests a hardship letter. Some banks will offer a checkbox for your particular situation within a pile of forms, not specifically requesting a hardship letter. I encourage clients to write a hardship letter regardless of the packet instructions, so that the bank is aware of your specific circumstance. Let them know what happened, and how you intend to make payments if they are lowered.
4. Try, Try Again
Much has changed in the last year with respect to loan modifications. As indicated above, banks have incentives now to modify loans and avoid foreclosure. If you've been declined before, try again. It can't hurt. This is especially true if you were denied last year, or your financial situation has changed.
5. Ask For Help, If You Need It
Lastly, consult an attorney familiar with the modification process if you've run into any obstacles. My firm handles many modifications, and we have a system in place that streamlines the process. We can reach bank reps quickly. Any firm that handles modifications on a regular basis can do the same.
There are indications that the modification process will improve in the coming months. A modification saves the bank money in the long run (over foreclosure), so we'll likely see some legislation with teeth that further provides incentives to lenders who modify. Until then, follow the above tips.