There are many “professionals” who have come out of the woodwork making a business of doing loan modifications for people. Some are doing them illegally and some legally. Buyer beware! I have blogged about it before and in this blog, I want to simply give you the easy steps that you can do yourself if you want a loan modification.
First, you call your bank and ask to talk to the loan modification department and customer service will directly you appropriately. You ask for a loan modification, the customer service person asks you a series of questions that you answer to see if you get a preliminary approval based on a verbal interview.
If you qualify for a loan modification from the verbal interview, meaning that you have a hardship and can not make the payments, they will ask you to send in some paperwork. Typically, they send you a one page form to fill out, ask you for 2 pay check stubs, 1 tax return, 2 months of bank statements, if you are self employed a P & L statement, a hardship letter, and that is about it.
You then fax in all the paperwork to the fax number that they provide to you. Make sure you call and confirm that they got the fax. You really need to follow up with them until they have confirmed that they have received the fax and that it is in the system. Then you simply call once a week to follow up and find out what stage the modification is in. The process takes about 60 days or less, maybe a bit more, but follow up is the key to success.
Once the modification is assigned to a negotiator, who reviews the information and makes the decision and the terms, you are close to getting an answer. Again, follow up once a week. If it is nearing 60 days or so, get a little more aggressive by asking for the negotiator’s name and direct phone number. Sometimes they give it to you right away and sometimes they do not. Sometimes they do not at first, but then you call again and another rep gives it to you. So, be persistent.
Many people have come to me and mentioned that they are overwhelmed or intimidated by the process and that is why they consider paying someone else to do it for them. Do not be intimidated. It is a VERY easy process. And, to be honest, the customer services reps are VERY helpful and nice and want to help you through it. They tell you exactly what you need to give to them and that is it. They are very friendly when you call. If you have questions, they are very good about answering them. It is really a smooth ride.
The modification “experts” who want you to pay them do not want you to know actually how easy it really is because this has become a very big business and a lot of money is being made, some illegally and some legally. I have blogged a bit about that in the past, and you can reference those blogs, but I won’t get into that topic right now.
You can do this for FREE! It is not intimidating. It is not hard, yet quite easy. The customer service reps tell you exactly what to provide and give you a fax number. The only real “work” is to call once a week to follow up, which is also quite easy. And, you really want to confirm that they have received the fax that you sent and that your information is in the system. When you call customer service about a loan modification, you are rarely put on hold and rarely even have to wait on hold. So, truly, it is an easy process.
For the hardship letter, you can not be so in over your head that it is impossible to ever get on track or make any kind of mortgage payment. The hardship letter needs to be a balance of hard times, but then show that there is a light at the end of the tunnel. The letter is really based on common sense and “selling” yourself to actually get the loan modification to help you through the hard times.
Also, if you are current on your mortgage payments, it is unlikely that you will get a loan modification because obviously it is the banks last resort if they can’t get money out of you any other way. So, of course, this takes a huge hit on your credit to be late, but it is a balance of what is best for you. That is your decision. If you can’t make the payments and you are late anyway, it is a no brainer and you need the help and the credit is already affected. If you are current on your payments, but you are really struggling and just don’t think you can keep it up, it may take missing a couple of payments to get the loan modification for future stability. And, a hit on your credit may or may not be worth your sanity. So, it is a balance and a long term decision on if you want to take the hit on your credit to get the loan modification, or if you want to struggle to make the payments and hope for the best.
Some people pay thousands of dollars to get a loan modification. I have heard all kinds of stories. And, I have heard of people taking money upfront from a number of people and then running off with the money. Well, I have heard it all. If you are struggling to make ends meet, I just don’t know why you would pay money to get this done when it is so easy and FREE. But, I also realize a lot of consumers are in the dark and do not know any better, and that is why they hire someone. And, I know these people make it sound so difficult that they make the consumer feel that they really need them to get it done, or get it done right. There is no right or wrong. The numbers are the numbers, meaning your income, debt, and assets. And, the banks make decisions on those numbers, plus the hardship letter and how you can get back on track.
Are loan modifications worth it? YES, YES, YES!!! I have tons of examples of success stories, but here are 2 just to give you an idea of how great they can be. I know someone who has Washington Mutual who holds their loan. They were in a negative amorization loan, which gives an option for a minimum payment, interest only, and principle and interest payment. In hard times, making the minimum payment option will actually increase the loan amount. So, bottom line, the loan amount was increasing monthly for this person. The interest rate was down to 5.27% and had been up to 7.5% when the rates were higher. The rate fluctuates with the market. At the time the client got the loan modification, the interest only payment was $4415.00. The loan modification this person was able to get is the following: WAMU reduced the interest rate to 1% interest only payment for 1 year. The new payment went from $4415 down to only $817 per month. Year 2-3 the interest rate goes up to 3% interest only, and year 4-5 the interest rate goes up to 5% and then the client has to refinance, sell, or get another loan modification. Pretty great deal, right? Oh, and WAMU took the payments that were late and added it on to the loan so that the client didn’t have to come up with all the back payments. And, put in the current month payment onto the loan so the client would have a cushion of not making the first $817 payment until the next month.
The second quick example is a client that had a 6% interest rate where GMAC reduced the rate to 1% interest only and amortized the payment over 40 years, as opposed to 30 years. And, GMAC also took the back payments and tacked it onto the loan so that the client didn’t have to make up those payments.