How to get a loan modification and tips to avoid foreclosure

 A modification success story (AP  Photo/Ed Zurga)

I received a very welcome comment to my post
on Loan Modifications and the HOPE program. The commenter agreed that banks are not moving fast enough, but he/she also included a link  to a website that has some great information, and suggestions about how to push your bank to process your request for a modification. Did you know there is a schedule you should follow for the best results?

This site also has information on what to do if you are facing foreclosure. Is it possible to stall the process? Yes it is. It is even possible to stop the foreclosure altogether, sometimes. As is usually the case with a legal battle, and you should never lose sight of the fact that modifications and foreclosures are definitely legal battles, you have to be your own best advocate. You need to be aggressive (not rude, but persistent) and assertive in dealing with bank representatives. Remember the old adage “the squeaky wheel gets the grease?” The same holds true when you are dealing with modification, collection, and foreclosure departments (loss mitigation departments) at your lender’s offices. The bigger banks are reporting that they are receiving thousands of modification requests a day!

You also need to keep in mind that regardless of how persistent you are, you have to qualify for a loan modification. The lender will require that you send in documentation to prove that if your loan is modified, you will be able to make your monthly payments on time, every month. This documentation will be very much like what is required to qualify for the loan in the first place, such as:
• w-2 forms for the last 2 years
• current paystubs
• current bank statements
• it is likely the lender will get an up to date credit report on you (Your credit score is not the primary point of the credit report. If you are already delinquent in making your mortgage payments, your score will not be great, but the lender does need to see how much debt you have, who you owe, and what your total monthly obligations are, relative to your income.)
You may be asked for additional information, such as a monthly budget. In my experience, this budget is very detailed, so get your records together with full details of your spending patterns.

Beware of loan modification companies proclaiming that they can get your loan modified for you. While there are legitimate modification companies out there, I’m sure you’re aware that “modification” companies appeared out of nowhere when the housing crisis began. Unfortunately, there were no regulations of these businesses, and many, have proven to be scams with a few people making a lot of money on the backs of those who could least afford to lose it. Fortunately, attorney generals in many states are closing down and prosecuting the owners of these businesses.

If you find yourself in the process of a modification request or foreclosure proceedings, or if you think you might qualify for a modification but have not yet applied, please take a look at the link above. Please remember that while banks are now doing modifications because they are pretty much required to do so, the modifications agreements that you might receive may not be what you were anticipating.

In almost all cases, most lenders are offering "trial" modifications at the outset.  This is a 3 month trial period with reduced payments.  IF you make all three payments as agreed, your modification will proceed from there.  Unless you specifically request it, you are unlikely to get anything in writing about your "trial" modification.  To better protect yourself, I suggest you get the terms of your trial in writing from your lender. 

You should also be aware that most lenders are reporting modified payments as "partial payments" or "settled" payments to credit bureaus, so these modifications almost always hurt your credit, though not as much as a foreclosure would hurt. 

I have heard that frequently your lenders do not get back to you after the three month trial period, and most people just continue with the trial payment amount, with the banks accepting those continued payments.  You should make every effort to get the final terms of your modification in writing as quickly as possible after your trial period to make sure you don't get lost in the shuffle. 

Other articles you should read about this process include:

FDIC is trying to get banks to offer payment forbearance for the unemployed

Is foreclosure looming in your future?  What you need to know

New Oregon law just passed to assist home owners facing foreclosure

The law takes on big banks, investment banks and rating agencies to protect home owners

I wish you all the best as you navigate this process. 

Best regards,

Shelby