SHOULD I CALL MY BANK FOR A LOAN MODIFICATION?

The more I talk to banks and new clients that have already talked to their bank, the more concerned I become. Here’s one true story that shocked me:

A client came to my office after trying unsuccessfully for four months to get a loan modification from her bank. During that time, she fell further behind on her mortgage. I determined quickly that her loan was owned by Freddie Mac. Her bank never told her that. I did the financial analysis, and found she qualified in all respects for the government Making Home Affordable, MHA, loan modification. The bank would have to approve her. She was happy.

When reviewing the information my client had previously given the bank, I noticed an entry of $500 per month for child support. She hadn’t mentioned that income to me. She told me she didn’t receive child support, but the guy at the bank told her she needed about $500 more income to qualify for a modification. So, she told him that her daughter’s father sometimes gives cash to help out with expenses. In reality, there was no court-ordered child support, she rarely saw her daughter’s father, and she never received money from him. He never had much to give. Her daughter may have occasionally received a few dollars or a Happy Meal, but my client never received anything.

After further analysis, I found that including that extra $500 of monthly income, which she never received, was just enough to disqualify my client for a loan modification. It put her just under the 31% DTI ratio needed to qualify. My client thought the guy from the bank was doing her a favor by telling her what she needed to qualify. In fact, he told her just what she needed to be disqualified.

The happy ending to this story is that my client was approved for a Making Home Affordable loan modification.

The lesson is that you better know the rules before you play this game. Had my client not sought professional help, she would not have been approved for the modification, and might have lost her home in foreclosure by now. I don’t know if the “supposed help” from the guy at the bank was an intentional attempt to derail her application, or if it was simply advice from an unknowledgeable bank employee. Either way, the result was the same; the borrower would not have received a loan modification because she acted inappropriately on the advice of the bank.

You could take a stern view and say it isn’t a bank’s fault if a borrower doesn’t qualify because of “lies” on a loan modification application. I would agree with you if the bank doesn’t describe, quantify, and encourage a dishonest act by indicating it may be the only way for a borrower to prevent foreclosure.  That’s especially true when a bank should have initially approved an applicant based on the information provided prior to any bank manipulation or coaxing. 

Be careful out there. It’s tough to figure out who you can trust.  There are certainly some loan modfication firms you can’t trust (law firm based or not), and now you have to add banks to your list.

Finally, a quick tip… Please, please don’t use an out-of-state company to apply for your loan modification; particularly if the company is from California or Florida. The company would likely be in violation of Illinois law, whether a law firm or not.  Also, what will you do when the company doesn’t get a modification and doesn’t refund your money? Find an Illinois attorney with an office within driving distance from your home.Then visit the office to get an idea of the quality of the people and operation.

Good Luck.