Loan Modification

If you can no longer afford to make your monthly loan payments, you may qualify for a loan modification to make your monthly mortgage payment more affordable. There are several reasons why your payments may be hard to afford. Perhaps your interest rate has increased or you have lost a job or have less income. Maybe you are experiencing a hardship that has increased your expenses, like medical bills. Even if you have already missed one or more payments, you may still be eligible.

Many homeowners are struggling to make their monthly mortgage payments perhaps because their interest rate has increased or they have less income. A Home Affordable Modification will provide them with mortgage payments they can afford. Lets walk through the steps to see if you are eligible for this option.

• 1. Is your home your primary residence?
• 2. Is the amount you owe on your first mortgage equal to or less than $729,750?
• 3. Are you having trouble paying your mortgage?

For example, have you had a significant increase in your mortgage payment OR reduction in your income since you got your current loan OR have you suffered a hardship that has increased your expenses, like medical bills, divorce or increase in other expenses.

• 4. Did you get your current mortgage before January 1, 2009?
• 5. Is your payment on your first mortgage more than 31% of your gross income. When figuring this out, be sure to include principal and interest, taxes insurance and any homeowners fees for the property. You may need to use a calculator to figure this out, but this is the rule of thumb that lenders are using to determine eligibility.

You may qualify for the Home Affordable Modification if you answered yes to all the five basic questions. So, you still live in the house, your having trouble affording these mortgage payments, and your loan was originated before 2009 and is less than $729,750.

The next step is to gather the information you will need to provide to your lender. Generally, its best to gather this information before you call the lender – this will reduce your frustration and the amount of time you spend on this process overall.

After you have the information put together, you should call your mortgage servicer and ask to be considered for a Home Affordable Modification. The number is on your monthly mortgage bill or coupon book.

Preparing a Hardship Letter

A letter describing the circumstances that caused your income to be reduced or expenses to be increased. You should be specific about anything that happened – this might include job loss, reduction in income, divorce, illness or health care expenses.

In some cases, you are asking the lender to consider changing the terms of your loan based on the financial pressure you are experiencing. This is based on your personal issues. So, its important you let the lender know what challenges you are facing. Its also important to put it in writing. Just letting a lender know over phone may not be enough to have the proper consideration given to your request. After all, when they see it in writing, the lender gets a full understanding of your situation. So, lets discuss some tips you should consider when completing a hardship letter.

• 1. Clear introduction – be sure the lender can read the first sentence and know what you are asking. Chances are that the person opening the mail is NOT the person who ultimately makes a decision on your loan. So, be sure that the person opening the mail can clearly see what you are writing about. For example, you should be clear – “I am writing this hardship letter to address the reasons we are behind on our payments, and ask you to work on a loan modification.”
• 2. Be sure that there is one stand alone paragraph that lists the reasons you have become delinquent. You can use bullet points, or multiple sentences. Of course, there may be more than one reason. Answer this question when completing this paragraph – “what CHANGED since the time you originally got the mortgage.?” Maybe it’s the loss of income, or increase in payments, or a divorce or medical bills.
• 3. Be sure that you are clear about time. WHEN did the hardship first occur, and how long do you expect it to last? If permanent, then say why.
• 4. Be sure to include information on how this is going to get better. If you are seeking new employment, be clear about that. If you are having other debt cleared, or paid off, be sure to explain that. You should try to answer the question – “how is this going to change”
• 5. Finally, be sure to end with what you are requesting. If you know how much you can afford, then tell the lender. If you know how much LESS the payment needs to be then be clear about that. Its also important to be clear whether you plan to continue to live in the house. And what your goals are with the property.
• 6. Be sure to include all your contact information, including email, cell phone, home phones, addresses. Also, be sure that the loan number is on EVERY page of the document. This way, it will be sure to be associated with the file.
• 7. Last step – be sure to sign the letter. If there is more than one borrower, its better to have all borrowers sign it if possible.

And remember, its very important to be honest. Its is a federal violation to knowingly make false statements to the lender. That will only make your situation worse.

Information Needed for Loan Modification

The next step is to gather the information you will need to provide to your lender. Generally, its best to gather this information before you call the lender – this will reduce your frustration and the amount of time you spend on this process overall.

You should put together information about your gross monthly income, as well as the income of any other parties who are on the loan with you. Lenders are most concerned about your gross income – the amount you get BEFORE deductions. You should gather your most recent pay stubs if you receive them or documentation of income you receive from other sources. You should also make copies or be ready to supply your most recent W2 forms from any employer, or your tax returns for the past year. The lender may not need ALL of this information, but its best to get prepared in advance to avoid delays later.

Information about the monthly gross income for your household – that’s the income BEFORE tax - including recent pay stubs or documentation of income you receive from other sources.

You may also need to supply your most recent income tax return.

The lender will need information about any second mortgage on the house. Sometimes the second mortgages are referred to as equity lines of credit. You should gather the most recent monthly statement or coupon. It may be helpful if you have the original paperwork from the loan – the mortgage note that you originally signed.

Be sure to create a list of all account balances and minimum monthly payments due on all of your credit cards, student loans, car loans or other debt. If you have the statements or coupons, you can just provide copies. Or simply prepare a list.

After you have this information, you should call your mortgage servicer or lender. Remember, the servicer is the organization to whom you make your monthly mortgage payments. So, ask about the Home Affordable Refinance application process and how it works with them. The phone number for your servicer is on your monthly mortgage bill or coupon book.

Please be patient. Lenders and servicers are getting requests from many consumers, and it may take time before they are ready to accept applications. That is why it’s so important to be prepared, so you are ready to move quickly once you make contact with the lender.

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