I must admit that even as a lender, I am woefully lost when it comes to loan mods, why? Truthfully, it seems to be a moving target that fluctuates with the daily political winds with no 'rhyme or reason' except expediency for politicians and bureaucrats. Also, I don't make any money doing them yet want people to know there is a possible solution for their problems. For the moment, here in two parts is the 'latest and greatest' guide to help you or someone you may know.
Loan Modifications Short Guide To Success Part 1 – The ProblemsObama’s loan modification program can be seen as a failure, if you focus on the millions upon millions that are benefiting, or as a modest success with over 650,000 borrowers on trials and 375,000 on the fast track to getting permanent modifications by January 2010.
As reported earlier the government is in the process of sending special task forces to win over, bully or cajole, depending on your point of view, the big lenders that decide how well the loan modification program goes.
The big question is why are loan modifications not working better with all the money, over $75 billion, being thrown at it. This article will look at some of the main problems that are creating the loan modification minefield borrowers are currently suffering.
Problem 1. Lack of information
Government firms like Freddie and Fannie are contracting the services of outside companies to go house to house providing accurate information on how to go about getting a loan modification.
This is a reply to lenders complaining that the main reason loan modifications are slow is that borrowers are really bad at filling in forms and providing the information required. Of course, the media is littered with counterexamples of model borrowers that provided all the information and battled with the conflicting instructions that lenders requested.
Problem 2. There is a lot of people that need Loan Modifications.
Around 7.5 million households in the U.S alone are delinquent on their mortgage payments. 25 percent of all borrowers are underwater in their mortgage, owning a home that is worth less than what the mortgage is worth.
Those figures are huge, to deal just with the paperwork, information and mechanics of dealing with so many people on a subject that so few of us understand is a big job that even if all the players wanted Loan Modifications to work it would be hard to do faster.
Problem 3. Banks are nearly as lost as the rest of us.
The simple truth is that even when lenders want to modify a loan it is not a smooth road because they are not used to dealing with this volume of modifications. Banks are already understaffed due to the recession and their mitigation departments are in no better shape. Add to this under-information about government programs, lost paperwork, changing fax and telephone numbers and you start to see why it is so difficult to process a loan modification.
Problem 4.The NPV test
The NPV test stands for Net present value. This test compares the money a loan is likely to generate if it is modified (and the borrower keeps the house and pays the mortgage at the modified rate) and what it is likely to generate if the modification is not carried out. The logic behind this test is not bad. Making loan modifications a profitable exercise for banks is good news, if you make it profitable your chances of making it happen grow exponentially.
However the actual formula to calculate the Net present value is according to many commentators unrealistic and allows lenders to shelve loans they should modify.
Problem 4. Banks often benefit from delinquency.
Banks often are not the actual lenders behind a loan but take on the job of loan servicers. Loan servicers collect payments and deal with borrowers but don’t own the mortgage. Loan servicers profit from delinquent borrowers and the late fees and higher interest rates they generate.
Many go as far as saying the loan modification trials are simply a trap loan servicers use to get three more monthly payments from borrowers that are beyond help and would not pay otherwise.
The problems that borrowers face when trying to work out their loan modification are pretty scary, our next post will deal on how we can face these problems and increase our chances of loan modification success.
Loan Modifications Short Guide To Success Part 2 – The GuideLoan Modifications are not providing the help American homeowners need. Of the millions of troubled borrowers only a small percentage qualify for a loan modification trial and most of the lucky ones get stranded in the way.
Before we get into the practicalities of how to find your way through the maze of loan modifications it is worth spending a few words on the top reason why loan modifications are not working: They Don’t Address the Real Problem.
The real problem is unemployment and the Credit Crisis.
The fastest growing demographic for loan modification are prime mortgages. These are good mortgages, bought by borrowers with high credit scores that can’t pay their mortgage because of the increasing rate in unemployment. Unemployed borrowers struggle to get a loan modification because you can only qualify if you can prove you have nine months of unemployment benefits lined up. Most unemployed borrowers are unlikely to fulfill this requirement.
The other big reason loan modifications might not work for you is that your mortgage might be the least of your credit problems, you might be overstretched on your car loan, credit card loan, and other personal loans. Many commentators feel the government is trying to deal with a Mortgage Crisis when what they should be dealing with is the broader Credit Crisis.
First Step. Get the Information You Need.
Visit the government’s official website at
www.makinghomeaffordable.gov . There you can find:
1) The current sponsored program the Government is touting.
2) Useful forms to help you compile the information you need to supply to lenders.
3) Find the closest government paid advisor that can provide you with personalized guidance.
Second Step. Decide what you can pay, and be realistic about it.
There is such a thing as a BAD LOAN MODIFICATION. After months of wasted time and resources some borrowers end up with a loan modification they still can’t pay.
You need to figure out what you can truly afford to pay on your mortgage every month. The government guideline is 31% of your monthly income but that might not work for you. Get some real figures together. How much do you spend on housing costs? What is your income, or average income if you’re self employed or work on commission. Put all this on paper, your lender will want a look at it.
Third Step. Tell the lender, giving you a loan modification is worth their effort.
Lenders are not charitable organizations. They lend for a profit not out of kindness. However if you can convince them that giving you a break is in their interest, that you are worth more as a borrower with a modified loan than as a foreclosure you are half way there. Explain the reason you are struggling to pay, illness, untimely death and losing your job are the reasons most likely to work.
Fourth Step. Put it in writing.
Send a written request for a loan modification. Make it short and to the point, one page should be enough, provide all the information you compiled in the earlier steps, why you need the loan modification, why it is a good investment for the bank, etc… Send all correspondence with your lender through certificate mail with return receipt requested, there are too many horror stories of lost forms.
Fifth Step. Call your lender.
Good idea to start with your loan servicer, the place you bought your mortgage from. Write down the name of everyone you talk to. Only talk to people who can help you and make decisions on your mortgage like officers in the mitigation department of your loan servicer. It is a good idea to send you letter with all your information to the person you have talked to over the phone.
Sixth Step. Be patient, follow up.
Unfortunately loan modifications can take as long as nine months (sometimes more) after you file in your application. So make a pain of yourself and follow up on the progress of your modification with calls, emails and faxes. Don’t underestimate the power of persistence, some officers might work faster just not to have to talk to you again on the phone.
Seventh Step. Get Help from the Professionals.
If you are not satisfied with how you are being treated contact the OCC. The OCC regulates all national banks. You can find a complaint form at www.occ.treas.gov/customer.htm
If you are having trouble working through any of the previous steps, like contacting your mitigation department, visit HOPENOW.org or call 888.995.HOPE and they will help you out.
You can also visit www.hug.gov for help in finding free certified housing counselors and www.loansafe.org for troubled borrower’s resources.