May 1st, 2009
These days, it seems there are companies everywhere advertising their expertise in loan modifications. At the same time, the federal government and banks are telling you to do your loan modification yourself, and not to pay a fee for someone to do it for you. Should you do it yourself? Yes, sometimes.
In the next couple of posts, I’ll talk about who should do it themselves and who should seek professional assistance.
Who should do a loan modification themselves?
If you can answer YES to all of the following questions, you can probably do a successful loan modification without assistance:
1. Will your mortgage holder do a loan modification for your loan in compliance with the published Home Affordable Modification Program, hereinafter referred to as “HAMP”. You must contact your lender to get the answer to this threshold question. Also, you should ask it many times throughout the process, because the answer sometimes changes. If the answer is ever NO, the loan modification terms may be a product of negotiation, not government guidelines, and you should consider getting professional help.
2. Do you have precise, steady monthly income, such as a weekly salary or pension? Gross monthly income is a key component in the loan modification process, and the calculation is often subject to interpretation and manipulation. Should you use your last month or your last 3 months or your last tax year to establish your average monthly income? If you’re on a regular salary, that’s probably not an issue. If you’re self employed, or have changed jobs, or were unemployed for a while, or are in sales and had record sales last month, then average monthly income is subject to debate. If your income is overstated or exaggerated for the last month, your monthly house payment may be larger than it should be.
3. Are you unconcerned about how long it will take to get a loan modification? Note that lenders will start or continue foreclosure proceedings while considering your loan modification request. It often takes longer than 90 days to get a decision from the lender, and your home may be sold at a foreclosure auction while you are waiting. Most often a lender will state that your home will not be sold at a foreclosure auction before a loan modification decision is made, but I’ve never seen a lender put that in writing. I’m aware of at least one occasion where a property was sold at a foreclosure auction in spite of the lender’s verbal commitment to the borrower not to do so while considering their request for a loan modification. The home was sold at a foreclosure auction two days before Christmas, 2008.
4. Do you have the availability and patience to apply for your own loan modification? Note that it is not unusual to be left on hold for more than an hour each time you call, or to be transferred and then disconnected numerous times when trying to make contact with your lender’s appropriate department; and you will have to call several, if not many, times. The simple act of faxing documents can take hours or even days to complete because some lenders claim there is only one fax number to that department, and you must keep trying until that telephone line is no longer busy.
5. Are you sufficiently knowledgeable with the terms of HAMP to be able to determine if the loan modification offer from your lender complies? You shouldn’t rely on the goodwill and competence of your lender to give you all of the benefits for which you qualify under HAMP. Every penny you get is a penny your lender doesn’t get. You should know the terms for which you qualify, or learn what they are before you apply.
Here is an example of a person who might save some cash by doing her own loan modification request:
- A salaried employee
- A hardship created by her adjustable rate mortgage increasing to an unaffordable 10%, while the value of her home has decreased by 20%, preventing a refinance
- The borrower has drawn from her quickly dwindling savings account, and soon will not be able to make the full mortgage payments
- The borrower’s loan is owned by Fannie Mae, and her servicer agreed to comply with HAMP
- The borrower has read and understands the terms of HAMP and monitors the internet for updates
- The borrower is intent on saving money by doing her own loan modification, has sufficient schedule flexibility at work, and will not be discouraged by the aggravation and time required to make repeated calls to her lender and handle the job herself.
Note that another free avenue may be to contact a HUD Borrower Counseling Service. As you might expect, they are very busy right now. I recently contacted a HUD Counseling Service for a borrower, and was offered an appointment to speak to the first available Counselor at the earliest available time, which would be 18 days later. If you have the time, you may want to consider this option. I suspect the level of competence of these government workers varies widely, but one thing is certain… they are busy.
A final thought about doing your own loan modification… This involves what seems to be a very simple modification under HAMP:
A man calls his bank because his mortgage rate increased and his house payment went up to $1,500 per month, which he can’t afford on his $4,000 a month teacher salary. His bank asks for documents which he provides. His bank gives him a loan modification with payments starting out at $1,240 per month for the first 5 years, and goes up only slightly after that. He is elated. His payments went down by $260 per month, a savings of over $3,000 per year. Why shouldn’t he be happy?
He shouldn’t be happy because as a teacher he makes $4,000 per month for only 9 months of the year. His annual income is $36,000, for an average monthly income of only $3,000. His new house payment could have been reduced to $930 per month, for a savings of $6,840 per year. Nothing in this case was done inappropriately, illegally, or contrary to guidelines. However, it could have been done much better for the homeowner. Unfortunately, under HAMP only one modification for the life of a mortgage is allowed.
Here’s that final thought… You only get one shot at a HAMP loan modification. Get it right the first time, because you’ll have to live with it. There are no “do overs” allowed.
In the next couple of posts, I’ll talk about who should do it themselves and who should seek professional assistance.
Who should do a loan modification themselves?
If you can answer YES to all of the following questions, you can probably do a successful loan modification without assistance:
1. Will your mortgage holder do a loan modification for your loan in compliance with the published Home Affordable Modification Program, hereinafter referred to as “HAMP”. You must contact your lender to get the answer to this threshold question. Also, you should ask it many times throughout the process, because the answer sometimes changes. If the answer is ever NO, the loan modification terms may be a product of negotiation, not government guidelines, and you should consider getting professional help.
2. Do you have precise, steady monthly income, such as a weekly salary or pension? Gross monthly income is a key component in the loan modification process, and the calculation is often subject to interpretation and manipulation. Should you use your last month or your last 3 months or your last tax year to establish your average monthly income? If you’re on a regular salary, that’s probably not an issue. If you’re self employed, or have changed jobs, or were unemployed for a while, or are in sales and had record sales last month, then average monthly income is subject to debate. If your income is overstated or exaggerated for the last month, your monthly house payment may be larger than it should be.
3. Are you unconcerned about how long it will take to get a loan modification? Note that lenders will start or continue foreclosure proceedings while considering your loan modification request. It often takes longer than 90 days to get a decision from the lender, and your home may be sold at a foreclosure auction while you are waiting. Most often a lender will state that your home will not be sold at a foreclosure auction before a loan modification decision is made, but I’ve never seen a lender put that in writing. I’m aware of at least one occasion where a property was sold at a foreclosure auction in spite of the lender’s verbal commitment to the borrower not to do so while considering their request for a loan modification. The home was sold at a foreclosure auction two days before Christmas, 2008.
4. Do you have the availability and patience to apply for your own loan modification? Note that it is not unusual to be left on hold for more than an hour each time you call, or to be transferred and then disconnected numerous times when trying to make contact with your lender’s appropriate department; and you will have to call several, if not many, times. The simple act of faxing documents can take hours or even days to complete because some lenders claim there is only one fax number to that department, and you must keep trying until that telephone line is no longer busy.
5. Are you sufficiently knowledgeable with the terms of HAMP to be able to determine if the loan modification offer from your lender complies? You shouldn’t rely on the goodwill and competence of your lender to give you all of the benefits for which you qualify under HAMP. Every penny you get is a penny your lender doesn’t get. You should know the terms for which you qualify, or learn what they are before you apply.
Here is an example of a person who might save some cash by doing her own loan modification request:
- A salaried employee
- A hardship created by her adjustable rate mortgage increasing to an unaffordable 10%, while the value of her home has decreased by 20%, preventing a refinance
- The borrower has drawn from her quickly dwindling savings account, and soon will not be able to make the full mortgage payments
- The borrower’s loan is owned by Fannie Mae, and her servicer agreed to comply with HAMP
- The borrower has read and understands the terms of HAMP and monitors the internet for updates
- The borrower is intent on saving money by doing her own loan modification, has sufficient schedule flexibility at work, and will not be discouraged by the aggravation and time required to make repeated calls to her lender and handle the job herself.
Note that another free avenue may be to contact a HUD Borrower Counseling Service. As you might expect, they are very busy right now. I recently contacted a HUD Counseling Service for a borrower, and was offered an appointment to speak to the first available Counselor at the earliest available time, which would be 18 days later. If you have the time, you may want to consider this option. I suspect the level of competence of these government workers varies widely, but one thing is certain… they are busy.
A final thought about doing your own loan modification… This involves what seems to be a very simple modification under HAMP:
A man calls his bank because his mortgage rate increased and his house payment went up to $1,500 per month, which he can’t afford on his $4,000 a month teacher salary. His bank asks for documents which he provides. His bank gives him a loan modification with payments starting out at $1,240 per month for the first 5 years, and goes up only slightly after that. He is elated. His payments went down by $260 per month, a savings of over $3,000 per year. Why shouldn’t he be happy?
He shouldn’t be happy because as a teacher he makes $4,000 per month for only 9 months of the year. His annual income is $36,000, for an average monthly income of only $3,000. His new house payment could have been reduced to $930 per month, for a savings of $6,840 per year. Nothing in this case was done inappropriately, illegally, or contrary to guidelines. However, it could have been done much better for the homeowner. Unfortunately, under HAMP only one modification for the life of a mortgage is allowed.
Here’s that final thought… You only get one shot at a HAMP loan modification. Get it right the first time, because you’ll have to live with it. There are no “do overs” allowed.
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