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Pt 1. The Basics - Do It Yourself Loan Modification

What's A Loan Modification

Mortgage loan modification, the changing of terms on an existing home loan, is becoming a well-known practice as the US housing market continues to crater. 


Borrowers who find themselves underwater on their mortgage - owing more than the property is currently worth - and facing a rising monthly mortgage payment are being encouraged to pursue relief through modifying their home loan. 


But for all the news and hype around loan modifications very few homeowners really understand what goes in to getting their home loan terms changed to a level that they can afford.

How To Start & Who To Call - Pt 1

What We'll Teach You

In this series of posts we’ll teach you the basics of how the loan modification process works so that if you’re considering a loan modification you’ll understand how to give yourself the best chance of successfully completing the process.


How To Start & Who To Call - Pt 1

What We Cover

In this series on loan modifications we’ll cover:


•How to start the loan modification process 


•Doing your homework 


•Determining if you qualify for a loan modification 


•Tips for qualifying for a loan modification 


•Negotiating new loan terms 


•Finalizing your loan modification 

How To Start & Who To Call - Pt 1

NOTES

Who to call to start a loan modification 


Find your statement for your first mortgage and call the customer service number. Get to a customer service representative as fast as you can.


TIP: Note this sequence down in a notebook. The notebook that you’re going to dedicate to tracking your efforts to get your loan modified. Keeping the keystroke sequence (e.g. 1,1,5,0) will allow you to bypass the automated menus and get you to people faster. Since you’ll be spending a lot of time on the phone this will come in handy. Trust me.


Once you have a customer service rep on the phone ask the representative to transfer you to the “loss mitigation department.” This is the department that you’ll be working with on your loan modification. Before you are transferred ask for the direct number to the department. You guessed it. Jot that number down in your notebook.


You’ll be greeted by another low-level rep in the loss mitigation department. These low level reps handle inbound calls and try to vet the calls to find people who have a chance at qualifying for a mortgage. What you want to tell them is that you’re facing “imminent default” due to a change in your financial situation and that you need to get an application for a loan modification faxed or emailed to you immediately.


TIP: Note that the rep is going to try to get as much information out of you as possible upfront, including perhaps, your monthly income and expenses. Defer answering these questions by saying “I don’t have that information handy.” DO NOT provide estimates or guess. These reps are trying to get a quick calculation on your debt-to-income ratio (which we’ll address later) to see if you make the cut. Do not play roulette with your loan modification chances by answering these off the top of your head. Ask for the application and say you’ll fill out your financial information on the application.


TIP: Get the name of the rep and their EXACT extension number. If they resist be persistent. You’ll speed your process by working with someone specific as opposed to going in to the call round-robin each time. YES. You’re putting that information name, phone extension, time and date called, notes of the conversation in to your notebook.


If you don’t get the application shortly follow up with the person. You’ll be doing a lot of following up so not to worry. Just be pleasant and persistent. Remember that loan modification departments are swamped right now and the people on the other end of the phone are just that - people. By remembering that you’ll be able to effectively move through the process in the most beneficial manner possible.


Got the loan modification application? Great! Get ready for step two. Doing your homework.



Click here for Do It Your Self Loan Modification - Part 2 - Preparing For Your Loan Modification

There Are Many Types of Loan Modifications for Mortgages

  • Forbearance

    A forbearance happens when a lender temporarily suspends or reduces payments for the borrower. Typically, this is a short term modification to help them get through financial hardships. This type of modification is different from others in that the lender expects to recoup the full difference once the forbearance period ends. Borrowers typically can make payments in a lump sum or installments. Other types of modifications typically reduce payments and then add them to the end of the loan, payable when the loan matures or the property is sold.

  • Rate Reduction

    Lenders also offer a mortgage loan modification which reduces the interest rate of your loan, either for the short-term or sometimes for the life of the mortgage. A short-term interest rate reduction lowers monthly payments for a set period of time. Once that period has expired, the interest rate will revert to the original rate specified in your mortgage contract. The purpose is to lower payments to allow homeowners to keep their homes while getting back on their feet financially. When the rate reduction period ends, borrowers resume their regular mortgage payments. Sometimes, the reduction will last the life of the mortgage. This option is only open to those whose payment abilities are not expected to return to full capacity in the near future.

  • Loan Extension

    A loan extension changes the length of the term of the loan. For example, if you currently owe $100,000 over 15 years, your extension could allow you to pay that amount over 20 to 30 years instead. Borrowers will pay more interest over the life of the loan under this type of mortgage modification, but the monthly payments will be reduced, making it easier to stay in your home.

  • Principal Deferral

    A principal deferral occurs when the lenders modify the loan to lower the payments, but it also reduces the amount of principal that is paid off with each payment. The deferred principal amount is due when the property is sold or refinanced or when the loan matures.

  • Repayment Plan

    Prior to foreclosure, a borrower or lender can come up with a repayment plan that brings the borrower current on all payments and fees. Typically, an upfront lump sum payment is made as a percentage of the delinquent amount. Then, increased payments are made until the debt is settled.

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