Mortgage Loan Modification: How the process works
by Lisa Phillips
December 2009
by Lisa Phillips
December 2009
Your lender may ask you for additional information but at least you can begin to complete your
loan modification package. Most loan modifications are handled by the loss mitigation
department. In some instances, where there has been a bankruptcy filed, the loan modification
will be initially handled by the legal department.
Remember, never take no for an answer. Be persistent, yet pleasant. Many, if not all, loan
modification negotiators are overworked and running on little patience. Your concern is keeping
your home and getting the loan restructured into something affordable and reasonable.
If you are having absolutely no luck with your negotiator, you may be able to speak with another
department. Inquire as to whether your lender has a Home Preservation Office, or any other
department that handles loan modifications.
During your negotiations make sure you ask for a principal reduction. Most, if not all, lenders will
tell you flat out they do not engage in principal reductions, ask anyway. It may be helpful to
research the current value of your home when requesting a principal reduction as part of
restructuring your loan.
Zillow.com is a real estate website that will give you a free estimate of your home’s value.
Electronicappraiser.com is a real estate website that will give you a more accurate appraisal for a
fee. Many times lenders will have special departments that handle more complicated loan
modifications or take over negotiations when communications break down between the customer
and negotiator. It is unfortunate but negotiators do not always have the interest of the customer
at hand. Sometimes they just want to clear their desks.
In some instances the negotiator will tell you the “investor” is not doing loan modifications. In this
case you may only be left with the choice of litigation. Some investors make money when a loan
is current and others make money when a loan is in default. The latter type of investor has no
incentive to engage in the loan modification process.
Attorneys who specialize in predatory lending and Truth-in-Lending Act violations can best
handle these matters. Oftentimes, once an attorney is involved, investors miraculously find
incentives to create affordable loan modification offers.
The Pros
Mortgage loan modification can reduce a mortgage payment, reduce interest rates, restructure
loan terms and offer the homeowner some much needed financial relief and peace of mind.
The Cons
Many loan modifications are just repayment plans in disguise. Lenders almost always capitalize
unpaid interest, fees and taxes. The loan is actually re-amortized. This means that for many
consumers loan modifications actually increase their monthly mortgage payment.
Few, if any, lenders actually engage in principal reduction, which would ultimately reduce the
homeowners mortgage payment along with amount owed on the home. With home prices falling
and no future projections on when or if they will rise again, homeowners are left with upside down
mortgages. Homeowners owe more than the house is worth. Principal reductions along with lower
interest rates would help remedy the issue of upside down mortgages.
Done fairly, loan modifications have the potential to provide economic relief and growth at the
same. Affordable mortgage payments help consumers get their finances back on track and get
people spending money again. It could be a win/win situation if lenders, banks and investors
could get past their greed.
loan modification package. Most loan modifications are handled by the loss mitigation
department. In some instances, where there has been a bankruptcy filed, the loan modification
will be initially handled by the legal department.
Remember, never take no for an answer. Be persistent, yet pleasant. Many, if not all, loan
modification negotiators are overworked and running on little patience. Your concern is keeping
your home and getting the loan restructured into something affordable and reasonable.
If you are having absolutely no luck with your negotiator, you may be able to speak with another
department. Inquire as to whether your lender has a Home Preservation Office, or any other
department that handles loan modifications.
During your negotiations make sure you ask for a principal reduction. Most, if not all, lenders will
tell you flat out they do not engage in principal reductions, ask anyway. It may be helpful to
research the current value of your home when requesting a principal reduction as part of
restructuring your loan.
Zillow.com is a real estate website that will give you a free estimate of your home’s value.
Electronicappraiser.com is a real estate website that will give you a more accurate appraisal for a
fee. Many times lenders will have special departments that handle more complicated loan
modifications or take over negotiations when communications break down between the customer
and negotiator. It is unfortunate but negotiators do not always have the interest of the customer
at hand. Sometimes they just want to clear their desks.
In some instances the negotiator will tell you the “investor” is not doing loan modifications. In this
case you may only be left with the choice of litigation. Some investors make money when a loan
is current and others make money when a loan is in default. The latter type of investor has no
incentive to engage in the loan modification process.
Attorneys who specialize in predatory lending and Truth-in-Lending Act violations can best
handle these matters. Oftentimes, once an attorney is involved, investors miraculously find
incentives to create affordable loan modification offers.
The Pros
Mortgage loan modification can reduce a mortgage payment, reduce interest rates, restructure
loan terms and offer the homeowner some much needed financial relief and peace of mind.
The Cons
Many loan modifications are just repayment plans in disguise. Lenders almost always capitalize
unpaid interest, fees and taxes. The loan is actually re-amortized. This means that for many
consumers loan modifications actually increase their monthly mortgage payment.
Few, if any, lenders actually engage in principal reduction, which would ultimately reduce the
homeowners mortgage payment along with amount owed on the home. With home prices falling
and no future projections on when or if they will rise again, homeowners are left with upside down
mortgages. Homeowners owe more than the house is worth. Principal reductions along with lower
interest rates would help remedy the issue of upside down mortgages.
Done fairly, loan modifications have the potential to provide economic relief and growth at the
same. Affordable mortgage payments help consumers get their finances back on track and get
people spending money again. It could be a win/win situation if lenders, banks and investors
could get past their greed.
A mortgage loan modification also referred to as a workout or
restructure plan permanently changes the terms of the original
mortgage note. The modification may include decreasing the
interest rate, re-amortizing the remaining balance, extending the
term of the loan and even principal loan reduction.
One of the biggest advantages of loan modification over other
foreclosure options is that the interest rate can be modified to lower
your monthly payment. Another advantage of mortgage loan
modification is that it stops late payment reporting to the credit
reporting agencies. It gives you a new start much like a refinance.
You may qualify if you have recovered from a financial setback.
When requesting a loan modification you will be required to provide
financial documentation along with a hardship letter stating the
cause of your short-term financial difficulties.
The hardship letter may include unexpected medical expenses or
loss of income and also how those circumstances have now
changed.
The Process
The first thing you want to do is to gather your financial information.
Though loan modifications vary from lender to lender, there is some
information similar to every loan modification:
1) Recent Paystubs and/or Proof of Income from all Sources (If self-
employed, Profit/Loss Statements)
2) Recent Tax Return
3) Recent Bank Statements, Savings and other Asset Information
4) Financial Statements detailing your income and expenses
5) Hardship Letter (See How to Write a Hardship Letter)
6) Mortgage Statement
7) Second Mortgage or Home Equity Loan/Line of Credit Information
8) Proof of Homeowner’s Insurance, if not included in escrow account
9) Property Tax Statement, if not included in escrow account
restructure plan permanently changes the terms of the original
mortgage note. The modification may include decreasing the
interest rate, re-amortizing the remaining balance, extending the
term of the loan and even principal loan reduction.
One of the biggest advantages of loan modification over other
foreclosure options is that the interest rate can be modified to lower
your monthly payment. Another advantage of mortgage loan
modification is that it stops late payment reporting to the credit
reporting agencies. It gives you a new start much like a refinance.
You may qualify if you have recovered from a financial setback.
When requesting a loan modification you will be required to provide
financial documentation along with a hardship letter stating the
cause of your short-term financial difficulties.
The hardship letter may include unexpected medical expenses or
loss of income and also how those circumstances have now
changed.
The Process
The first thing you want to do is to gather your financial information.
Though loan modifications vary from lender to lender, there is some
information similar to every loan modification:
1) Recent Paystubs and/or Proof of Income from all Sources (If self-
employed, Profit/Loss Statements)
2) Recent Tax Return
3) Recent Bank Statements, Savings and other Asset Information
4) Financial Statements detailing your income and expenses
5) Hardship Letter (See How to Write a Hardship Letter)
6) Mortgage Statement
7) Second Mortgage or Home Equity Loan/Line of Credit Information
8) Proof of Homeowner’s Insurance, if not included in escrow account
9) Property Tax Statement, if not included in escrow account
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Related Topics:
- FHA Mortgage Loans, Basic Features and Loan Limits
- The Benefits of Fixed Rate Mortgages
- VA Homes Loans
- Hard Money Mortgage Loans
- Adjustable Rate Mortgage Loans
- Interest only Mortgage Loans
- Benefits of making Bi-Weekly Mortgage Payments
- Options to Foreclosure
- Stop Foreclosure with Forbearance
- How to Request a Mortgage Loan Modification
- Downpayment Assistance Listed by State
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