Sacramento Real Estate Views

Loan Modification Secrets! Keep Your Home!

If you’re like most homeowners in the Sacramento region, your home has lost significant value over the last 3 years.  Depending on which area of the region you live in, your home could have lost upwards of 30%, 40%, 50% or more of it’s value.

Regardless of how many homes have been foreclosed upon or sold short, the goal of most of these homeowners was to keep their homes.  Most didn’t want to lose their homes but it just made sense financially to either walk away, get a loan modification or sell short.

Unfortunately, around 95% of the time, loan modifications are denied.

If your home has lost so much value, in most cases, it just doesn’t make sense to keep what the banks call a “non performing asset”.  The chances that your home will be worth what you owe on it in the next 10 years is slim to none based on economic figures recently published by the economists at UCLA.

The California economy, if you live in the valley area, is in dire straits.  Even if our area began appreciating at 5% per year for the next ten years, those who are 50% underwater won’t see the value of their homes come up to what they owe.

It’s terrible but it’s where we are and where we will be for years to come.  The worst part is that

It’s not your fault.  You didn’t create this mess.

Why should you have to suffer financially for years to come to pay for industry greed?

That said, most people want to stay in their homes.  They have kids in school or family situations that need to stay intact and they think their situation is tolerable enough to stick it out and keep their lives as much to their routine as possible.

What is needed then is a way to make our homes more affordable even if it means we risk our financial future in the process.  It’s a dice roll but completely understandable.

The government put into place a program called HAMP that facilitates loan modifications to help struggling homeowners reduce their payments and stay in their homes. For details on Making Home Affordable, click here.  If seeking a loan modification, you should speak to your lender about this program.

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The SECRETS to a Successful Loan Modification

A mortgage loan modification could be the solution to get that lower monthly payment you need and keep you in your home.

There is a lot of information in the news about lenders offering loan workouts to struggling homeowners but the truth is that many of the borrowers who apply will be denied the modification they need to be able to stay in their home.

Why are some homeowners approved and receive a new affordable mortgage payment while others are denied?  The figures are that 95% of all loan modification requests are denied.  Of those approved, over 50% of them re default within the first year.

This is why the banks, at this point, are very particular about whom they approve regardless of the governments insistence to work things out with borrowers.

To become approved for a loan modification, you must know the process and what you need to give yourself the best shot at success.

Types of Loan Modifications Available

There are a few options for loan modifications.

Option 1 – The most popular is that the bank will reduce your interest rate, roll your late payments and fees into your loan (increasing your principal loan amount) then rework your mortgage into a standard 30 year fixed mortgage where you’re paying principal and interest. (if you aren’t already)

Unfortunately, this will put you more in debt to your lender over the long haul but should reduce your monthly payment to make staying in your home more affordable.  This isn’t a very good option long term but does work short term.

Option 2 – They may also reduce your payment for a period of time, say 5 years, in the hopes that your situation will change and you’ll be able to afford more down the road.  There could also be loan modifications for a period of time with a balloon payment after 5 to 10 years.

This isn’t a very good option for most in the Sacramento region.  Values won’t increase enough for most to be able to successfully pay their mortgage in full in 5 to 10 years.  At best it delays the foreclosure process 5 to 10 years.

The BEST Option – The best loan modification to get is a principal loan amount reduction.  This is what you want to push for.  This will give you a lower payment in the short term and more security for the long term.  It’s the optimal solution.

Unfortunately, although we have heard about this being granted in a few cases, most lenders will deny this immediately.  Getting a principal loan amount reduction is possible but not likely.

That said, you won’t know until you try.  Don’t accept no for an answer and push for this modification as it’s the only long term option that will work.  You know what you want, now go get it!

Here are 3 Secrets of the Loan Modification process that will help you to get approved which will reduce your monthly payment and help you stay in your home:

1) The Hardship Letter

While in the past, the only circumstances that loan modifications and short sales were approved were because there was an extreme hardship of the homeowner.  This isn’t necessarily the case any longer.  I’ve heard recently that being underwater on your mortgage is enough for a loan modification or short sale approval.

That said, you want to present your case convincingly and concisely.  A letter describing your situation needs to be very descriptive of your circumstances and what caused your financial hardship.  The main reason for requesting a loan modification is that your financial situation has changed dramatically and you can no longer afford your current payments.  You need help!

A well written hardship letter will help convince your lender that you’re truly under financial stress and need assistance or you’re going to risk losing your home to foreclosure.

Be concise and state your case dramatically but don’t over do it.  Your letter must be believable.

About Foreclosure: Your lender would prefer you don’t lose your home.  Foreclosure is costing banks millions.  If your loan modification doesn’t go through, consider selling your home short.  The bank is far more likely than ever before to approve a short sale vs. letting your home go to foreclosure.  Foreclosure costs the bank roughly $27,000 more than allowing a short sale.

2) Demonstrate You Can Afford a Reduced Payment

While in one case, the hardship letter, will be telling the lender that you cannot afford your current payment, you must demonstrate that you can afford a reduced payment going forward.  If you can further break this down into what you can afford, that’s even better.  It gives the bank something to work with toward your approval.

You’ll want to provide them with a laundry list of your financial documents to prove you have the income to afford a lower payment.

Here is a list of the documents they will want to see:

a)  Banks statements for the last 6 months

b)  A financial worksheet of all monthly expenses

c)  A copy of your homeowners insurance

d)  Your hardship letter

f)   Your most recent pay stubs

g)   2 years tax returns

h)  1099’s and/or W-2’s for the last 2 years

i)   Proof that you still live in the home by way of a current utility bill

j)   A 4506T – this is a form that gives permission to the bank to get your tax records directly from the IRS.

What is required will depend on the lender but this is a comprehensive list of what others  have needed in the past to substantiate a loan modification or a short sale.  The documentation is very similar.

Additionally, the bank will need to be updated as new documents become available.  They will need your most recent bank statements, pay stubs and even a current proof of occupancy. (utility bill of some sort)

3) The Loan Modification Application

A completed loan modification application must be completed with your package.  Each lender, at the moment, is overwhelmed with requests for loan modifications, short sales or foreclosures.  Like most businesses, they have too much volume for any one department to handle.  That’s why we have the foreclosure mess we have at the moment.

If your loan modification application is not clearly filled out or is incomplete, you’ll not get the response you need to complete the process in time to save your home from foreclosure if you’ve missed or are currently missing payments.

Remember, at the banks, the left and right hands are not talking to each other.  It is common to be working through a loan modification or a short sale while the foreclosure machine is getting ready to pull the rug out from underneath you and foreclose on your home.

This has happened to many people that I’ve spoken with and it’s a terrible situation.  Incomplete or inaccurate applications will not be entertained by the lender.  If your paperwork is accurate and complete, you will have a much higher chance at getting your loan modification approved or, at a minimum, getting a response from your lender.

Make it as easy for them as you possibly can. Stay in touch with them 2 to 3 times weekly to make sure they are on it.  The “squeaky wheel gets the grease”.

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Pitfalls to Watch Out For

#1 – Don’t let yourself fall through the cracks.  The cracks at your lender are more like a crevasse large enough for your home to fall through without touching anything on the way to the bottom of the statistical foreclosure pit.

Stay on them, call them everyday if you have to. If keeping your home is an absolute necessity, you have to stay on them.

#2 – If you’re applying for a loan modification without being late on your payments, you may run into delay after delay.

The loan modification process takes months and months anyway but think about it from your lenders point of view.  If you’re still making your mortgage payment, why would you approve a loan modification from that homeowner to get less money?

The banks are in business for themselves and will do whatever it takes to improve their own bottom line.  While there are some banks that will process loan modifications without you being late on your payments, most won’t or they will tell you they are working on it but are just getting as much money out of you they can.

That is their job.

A friend of mine had a loan with Bank of America.  He was current on his payments.  He filled out all of the paperwork for a loan modification and sent it in.  45 days later he received a letter saying that his loan had been sold to another lender.  Bank of America sold it, as he was current on his payments and had never missed, as they were afraid he would default on his mortgage.

This is what the banks do.  They are businesses and want to stay in business.

Please understand that we cannot advise you to miss your mortgage payment to give yourself a better chance at getting your loan modification approved.  Anyone who does is not being ethical in our opinion.

#3 – Don’t be fooled by a sweet talking grandmother type at the bank.  They are there to get as much information out of you as possible.

Many of the people working in the loan modification, loss mitigation or short sale departments are grandmother types or women.  They have been trained to speak nicely to the homeowners and tell them everything will be ok in hopes of getting as much information as possible.  The banks then use this information against you.

Be careful and mindful of what you say.  Don’t lie but don’t also give up the farm.  Be cautious.

Is a Loan Modification Your Best Option?  What if You Try and Fail?

It is our intent to provide you with the best methods we know of to help you stay in your home.  We know from experience what dealing with the banks can be like and the stress that ensues during this process.

The decision to either walk away from your home or sell short is a tough one.  But please consider the following:

#1 – The vast majority of loan modifications are denied.  The process takes months especially if you’ve not missed a payment.

#2 – If you’re greater the $50,000 underwater, your home could take years to be worth what you owe on it much less what it was worth at the height of the market.  This is a long term problem that will affect your financial future for years to come.

#3 – While you’re waiting for your loan modification to be approved, your home could be foreclosed upon and sold to a third party right out from underneath you.  Remember, the right and left hands at the bank aren’t talking to each other.  They are overwhelmed.

If you’re working on a loan modification and you’ve received a Notice of Default, you’re in trouble and could be foreclosed upon within 90 days.

Selling short is the answer to the stinging, long term affects of foreclosure.  The ramifications of selling short are a short term issue.  Keeping your home with almost no possibility of it being worth what you owe is a long term problem.

We are available for consultation should you have questions about your situation.  Again, although we do favor short sale as the most viable option to getting homeowners in our market back on their feet in the shortest possible time, we know that all situations are different.  We’re here to help.

We are available should you have questions about anything in the process of a loan modification, short sale or foreclosure.  If you would like to speak with us, please just fill out the form below and we’ll be in touch promptly.

We have been where you are.  We can help.

Thank you for your trust.

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