Steps To A Mortgage Modification
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– Establish that you would be better off with a modification than with refinancing: In general, borrowers should seek refinancing rather than a modification if they can do so at a significantly lower rate at a reasonable cost. However, you can’t refinance advantageously if you are behind in your payments, have little or no equity in your property, or don’t qualify for a refinance for other reasons such as a low FICO credit score or inability to document adequate income.
– Deliver the information the servicer requires, in the form the servicer specifies: The loan servicer is the company to which you make your mortgage payments. It will be the one you deal with on your modification. The most important part of the process is to place in the hands of the servicer all the information about you that the servicer needs to make a decision. While this information is pretty much the same for all servicers, each has its own questionnaire that it expects to be used.
To help you with this, I have compiled the information required by each of the major servicers and how to get their questionnaire in “Mortgage Servicer Information” on my Web site.
Make sure the information you provide is correct: Having the right form is one thing, but filling it out correctly is something else. A questionnaire with obvious errors may fall to the bottom of the pile, or it may lead the servicer to conclude that you do not qualify for a loan modification when, in fact, you do. Being accurate is a challenge for some borrowers because most questionnaires are not borrower-friendly. In the future, I will write about some of the sources of help available
Make sure your information does not get lost in the shuffle: Most servicers prefer to receive documents by fax, although some also provide mailing addresses. I am told fax is more reliable. A few servicers, including Chase and Wells Fargo, want borrowers to call them before submitting detailed data, and thus provide only telephone numbers for contact. They evidently prefer to have their own staff participate with the borrower in compiling the information.
The principal danger of delivering documents by fax is that they will get mixed up with those of other borrowers. To prevent that, place your name and mortgage account number at the top of every page you fax.
– Determine whether you are eligible for special modification programs: Servicers are under a lot of pressure and they might overlook your eligibility for specific programs. Borrowers who took subprime adjustable-rate mortgages after Jan. 1, 2005, that have interest rates scheduled to reset before July 31, 2010, may be eligible for a modification under the “fast track solution” adopted voluntarily by servicers last year. Borrowers with housing expenses that exceed 31 percent of their gross before-tax income may be eligible for a modification under the government’s recent Making Home Affordable program.
If you have good reason to believe that you are eligible under either program, add a statement to that effect in your hardship letter. (My Web site also has an article that looks more closely at the eligibility requirements for these programs.)
– Nudge the servicer as needed: The process of modifying mortgages is slow and error prone. A firm that two years ago may have had two people modifying mortgages today may have 200, most of them newly trained. Development of computer systems has lagged and much of the work is done manually.
So you may need to nudge. If the servicer’s stated policy is to reply within 21 days, call on day 21 if you haven’t heard back. If they give you a quick denial on the grounds of ineligibility and you believe that’s wrong, let them know it is wrong — in a nice way. Remember that getting a modification is not a negotiation, and you have no place else to go.
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site, http://www.mtgprofessor.com.
© 2009, Jack Guttentag
As a Reno/Sparks real estate professional, I encourage all questions and comments on the Reno/Sparks real estate market or any of the articles posted in this blog. Please feel free to use my back door to the MLS and search the houses available in the Reno/Sparks and most Northwest Nevada neighborhoods. I can be reached by email @ chance@ballard-company.com or http://www.myspace.com/chancegates . You can also follow me at http://www.twitter.com/chancegates . If you are behind on your house payment and looking for a loan modification, go to making homes affordable to request a modification. If the modification fails, contact your local real estate professional to help short sale your home. To make sure there is no deficiency judgment a homeowner might find it necessary to hire an attorney. For a free copy of my blog titled “5 Steps For Reno/Sparks Homeowners To Prevent Foreclosures” go to my about page http://chancegates.com/about and ask for more information on preventing foreclosures.
