Loan modification is still the #1 best alternative to foreclosure. But getting one through requires some little-known information and strategy. You've got to know what the banks are looking for, and how to fill out the paperwork so you not only qualify for loan modification, but get in on those unheard of two and three percent interest rates that can make your monthly payment go down by as much as 40 - 50%!
Banks are allowing some pretty unbelievable workouts with unheard of low rates. Has there ever been a time when you got a 2% interest rate! That is happening everyday to some people. Will you ever have this opportunity to lock in these silly low rates again? Probably not, so take your loan modification paperwork VERY seriously and don't talk yourself out of your own modification.
If you're one of the millions who make up 1 in 7 homes in foreclosure or default, then what you're about to learn can stop your foreclosure and substantially reduce your monthly mortgage payment giving you the financial relief you need to stay afloat and stabilize your life with lower mortgage payments now and over the long run.
The main problem - and what stands between you and a modified lower monthly payment has been perfectly summed up in this recent Los Angeles Times article
Getting loans through the system to the modification finish line is tough for banks and loan servicers, says Douglas Potolsky, Chase Home Lending senior vice president. The main obstacle, he and other banks say, is borrowers who don't properly complete their paperwork.
The trick is to know how to fill out the darn paperwork so you don't talk yourself right out of your own modification!
90% of the loan modification requests are not going through because people fill out their paperwork to their DISADVANTAGE. They either disqualify themselves because they show they make too much, or too little, to afford the NEW modified payment that's the lower one that's based on the 2% to 4% rates that bank can give you in modification, but won't if your financials and other paperwork pieces qualify for this payment.
90% of the people who fill out the paperwork for loan modification do not know how the banks are looking at their numbers and story. Banks actually have a couple of formulas they work by when calculating your financials in relation to your hardship letter, pay stubs, checking account statements, and past 2 years of income tax returns. You must make all of these pieces jibe together for one consistent financial hardship story.
Basically this is how you want to fill out the main two pieces of paperwork for loan modification the hardship letter and financial worksheet:
1. Hardship letter: Be consistent and make sure the hardship story and the numbers you provide on your financial worksheet make one strong, consistent picture. In about 1 1 pages, make sure you give the following information in this sequence:
a. Include your loan number at the top
b. ASK for a loan modification in the first sentence
c. Make it evident that you are capable of earning consistent income, but right now, your hardship is making your mortgage - and life - unaffordable. Tell them you need help
d. Explain with emotion all of the reasons you're in hardship. Banks are especially looking for things like reduced or lost income from one or more household members, increased expenses that were unexpected or unavoidable, a medical problem that left you sick or disabled and from earning income, and/or caused increased expenses, etc.
e. ASK FOR WHAT YOU WANT ask for a low interest rate (2%-3%) for the first 5 years while you get back on your feet; and then ask that they stretch your loan term out to 40 years; and that the remaining 35 years be at 4% to 5%. Use an amortization calculator (search online) and calculate what your payment would be at 2%, 3%, 4%, and 5%. Tell them that you CAN afford payments based on a 2%, 3% right now, and that later, because of better work projections or opportunities or whatever reason that you can later afford a payment based on 4% or 5%. I always ask for 2% for the first 5 years and then 4% to 5% for the rest of a 40 year loan when I help people fill out their paperwork.
f. Close with a sentence or two that tells them you want to keep you and your family in your home (mention of kids if you have them helps) and that you want to avoid foreclosure and further damage to your credit.
2. Financial worksheet/Personal budget: Get this form from your bank. Your modification will go through faster and cleaner is you use the banks form instead of making your own Excel spreadsheet. One of the banks formulas I was telling you about comes into play when they review your financial worksheet. This is where most people blow their chances for getting a modification. The banks are looking to see that you can afford the new, modified payment the one based on 2% or 3% with about 0 to 0 left over. This is a fine line between showing that you don't make too much or too little to afford the modified payment. This is how you get to that balancing point:
a. For now, where you see the line to write in your monthly mortgage expense, do not put in your current payment. Put in the modified payment you're going after the one that you calculated with the amortization calculator at 2% (or 3%) or somewhere in between. This is a temporary placeholder for the purpose of getting the sum of this payment plus all your other monthly expenses minus your monthly income to come out to about 0 - 0 left over. Then, before you fax in this worksheet with your other paperwork, make sure you erase that lower mortgage payment that served as a placeholder to make all of your numbers jibe, fill in your actual, current mortgage payment. Or make a copy of the blank worksheet like I do then it's clean as a whistle.
b. Write in your income and all of your other expenses. The trick is using some of the categories that are not easily tracked like your monthly food, gas, and credit card payments that you can increase or decrease if you need to get your end balance to be at that 0 - 0 left over after Income minus Expenses. Realize that they will be cross-checking the numbers on your financial worksheet with your checking account statements (you submit the past two months checking and savings bank statements). Realize too that if you have a bunch of money (over ,000 or ,000 sitting in savings), that the bank will see this as a place you can pull from and pay them.
Most people don't understand what's behind the banks strategy and that they are indeed debt collectors! They want to make sure you can pay or they're not going to give you a new loan (modified loan). People don't realize what they should ask for, what to say ... and what not to say ... or how to talk to their bank to get the right story on record. Because they don't have this critical insight, many are losing out on the best loan modification opportunity of the century.
I help and counsel people through loan modification, and have an eBook that outlines steps to modification and virtually every other option you can take to avoid foreclosure in my book called, How to Survive Foreclosure or Avoid it Altogether.
Learn more at
How to Survive your Foreclosure or Avoid it Altogether