Recently, as I am looking online and on sites like Twitter, I am seeing a trend of Do-It-Yourself (DIY) Loan Modification Tools and/or 3rd party representatives who charge a fee ($500-$3,000) to assist you in your loan modification process. I am almost certain that the number one question that you have on your mind is: should you trust the DIY loan modification tools or even a 3rd party to assist you in your modification?
I am going to share with you two personal stories that I think will help you answer the latter question. If you are struggling financially, many mortgage companies are inclined to work with you to help you stay in your home since the cost of liquidating a property could be 1 full year of no-interest payments, unpaid insurance, taxes, property maintenance once you vacate, loss of property value and then even the cost of hiring an REO agent, possibly even vandalism, winterization, attorney fees, etc, which are all expenses for a mortgage company.
First of all, what you should know is that I have had success helping clients modify their loans when they are one to two months behind on their payments. Let me be clear. I am not advocating that you should be late intentionally because that would be unethical. However, I have had clients that tried to modify their loan before being late and they were not successful. In fact, many went through the loan modification process albeit online and did not receive feedback or even a call back from their lender. Then, after one to two months of consecutive late payments, they were given the full attention that they deserved.
Second, you are well within your rights to modify your loan on your own. Here are the items that you need to prepare. Please note that some or all of the following items may be asked for.
- A hardship letter with three to five paragrahs that outlines or tells a story about what causes you to not make payments on time. Examples might include: loss of income from unemployment or change in job position, divorce, loss of a spouse’s income from unemployment, death, health, burden of taking care of extended family unexpectedly, change in interest rate, etc.
- Make a list of your monthly expenses: Food, clothing, car and insurance payments, telephone, credit cards, child support and/or alimony, gas or commuting expenses, entertainment and hobbies, HOA fees, taxes, mortgage, charities, tuition, medical, house maintenance, utilities and other miscellaneous expenses. If you are a small business owner, independent contractor or self-employed professional, you might need to provide a list of business expenses and/or an updated profit and loss statement.
- Provide a copy of two of your most recent bank statements and paychecks. Some banks may even ask for your 401k, 403b account amounts.
- Have handy your W2s or 1099s from the previous two years: 2008 and 2007.
- You will need to know the approximate value of your home, which is where someone like me comes in, ie, a Realtor. Realtors, in general, are more than happy to provide you with what we call a free market analysis for an opportunity to be considered to be your seller’s agent, assuming that you do not qualify for a loan modification. It is also possible that the mortgage company may order an appraisal.
- When you receive your first default notice (the notice that reminds you that you are late on your mortgage), call the 800 number that connects you to your bank/lender/mortgage company’s short sale, home retention or lost mitigation department. Ask to apply for a loan modification. Some of the information that I reported above may be collected over the phone at the time of your first call and you will have to follow up with a packet that comes to you in the mail. Expect to sign off on disclosure forms that say that what you are providing is true to the best of your knowledge. Some people might think that this cannot be done online but it can, depending on your lender. In fact, as I stated in the beginning of this post, I had success with clients who called as opposed to filling out the online forms.
Please understand that the first loan modification program available to you at this point is the Making Homes Affordable Plan. On their website, there is a quick tool that tells you if you are eligible. There is also a pdf file that tells you how to avoid loan modification scams. Both of the latter links are helpful since part of your loan modification should be research conducted by you.
Next, if you qualify for the making homes affordable plan, you can expect a significant reduction in your mortgage payment of which you are first put on a trial period. You must make the first three payments on time. If you do not, you have to reapply. If you are one to two months behind, you do not have to make your account current to start your new mortgage program. The program is subject to change with your income as this program is temporary and should help you adjust and possibly overcome your financial hardship.
The other type of loan modification that I have seen is one where there is principle debt forgiveness and new mortgage terms, similar to refinancing.
I had a client who received a loan modification on his primary residence where he owed approximately $270,000 on his home. He was given a new principle balance of $209,000 of which he had a escalating interest rate for the next five years: 5.25%, 5.5%, 5.75%, 6%, 6.25% and 6.5%, respectively. In his 6th year, he will have a fixed rate of 6.5%. At the end of 20 years, he will have a balloon payment of $209,000. I hope that you were following me on that last one. After 20 years of making payments, he will still owe $209,000 despite making payments for all of those years. It is likely that by the end of twenty years, assuming that he does not refinance before then, he will have to take out a new loan to make his balloon payment, a new 20 to 30 year loan.
Some people might be thinking that this is a bad deal and even though I agree, the client wanted to remain in his home and for all intents and purposes, I do not think that he understood what he was getting into. I met him after he did his loan modification.
This is where I do think that a 3rd-party company, which can advocate for you and get better terms, if at all possible, may come in handy. I have found a Do-It-Yourself Loan Modification website that I will endorse. Mind you, some DIY loan modification sites will advertise that they have forms and letters at your disposal, which can provide you with a model for what you need to say or write; that is why I advocate what is written above. Doing research before you apply is important. Remember, banks are in the business of making money and they are trying to recover as much money as possible. In fact, if you call your lender’s home retention or lost mitigation department, you will hear something like “We are attempting to collect a debt and any information provided will be used for those purposes.”
If you do not have your own representation, you are risking going to court to defend yourself without a lawyer. I recommend a DIY modification, but in case you want more information and before you spend $1,500-$3,000, there are three people with whom you need to speak:
1. An attorney and tax account to advise you on loan modification procedures or short sale tax consequences.
2. A Realtor, who can help you estimate the approximate value of your home.
3. Your Lender!
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Written By Audeliz Angie Perez: a full time real estate agent for Weichert, Realtors and Founder of njretoday.com. She can be reached via her website forsalebyangieperez, email at firstname.lastname@example.org or voicemail 973-388-7268.
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