Loan Modification Assistance

Requesting assistance from a Lender should be a simple process. However, it is not. It has absolutely nothing to do with the Lender's concern as to the future performance of the home-owner if the mortgage payment is reduced. It has nothing to do with the Lender's understanding of the home-owners dilemma. Lenders carry absolutely no concern when it comes to assisting the home-owner with retaining their home. It is a simple mathematical equation that dictates the outcome.  

Foremost, many misunderstand who the actual Note holder is of the mortgage. During the past several years, mortgages were placed into 'securitized pools' which were then purchased by investors. These investors then receive interest income from their investment. It is similar to your placing a sum of money in a savings account with a Bank and the Bank then pays you monthly interest for doing so. It is the latter that years ago funded loans. A Bank would take in deposits and then lend out that money at a higher interest rate. So, if the Bank runs out of deposit monies, then they can no longer lend out money. This is where securitization was invented. Banks made loans and then 'sold' them to investors, who then received a promise of a certain interest rate return. This way, the Bank then would free up money that they could lend out again. Then the process is repeated over and over again. So , the bank really was no longer using their own money they took in as deposits, they used other peoples money. This process also explains why due diligence was no longer applied when approving a Borrower for a loan. It wasn't the Banks money that was being played with.  

The process noted above works great as long as we do not face an economic dilemma. However, when a economic dilemma is faced, the investor will still receive the interest that was promised by the Bank. As an example, a Borrower is currently paying on a mortgage at a 6% interest rate. The mortgage is in a securitized pool. The Borrower faces a hardship and requests assistance. The Bank reduces the interest rate to 2%. The difference between the 6% promised to the investor and the reduced interest rate of 2% now has to be paid out of the Banks pocket. The Bank now faces a loss by modifying the mortgage payment to 2%. If we assume a $100,000 mortgage balance and using the interest rates noted above, that means that the Bank needs to pay the investor $4000 per year out of their pocket. Multiply this by 100000 mortgage that are requesting similar assistance and you will understand why the Bank is very hesitant in providing assistance to home-owners.  

If the mortgage is actually owned by the Bank, then the process of requesting a reduced monthly mortgage payment is much easier as the Bank does not need to pay anyone else out of pocket.

Therefore, liquidation (i.e. foreclosure) is always a better financial option for the Bank as it will eliminate paying the investor out of pocket. Requesting a mortgage modification

KEEP IN MIND THAT YOU ARE RE-QUALIFYING AND RE-APPLYING WITH THE LENDER TO REMAIN A HOME-OWNER. DO NOT TAKE THIS FACT LIGHTLY.

Requesting a mortgage modification is a simple process. Compiling a package that provides the best chances of receiving a modification is more difficult. Lenders will always look for reasons not to provide a modification. Therefore, it is very important to you submit a request that not only provides all required documentation, but also irrefutable support for the modification request. Below follows an outline of how to request and negotiate a typical modification (keep in mind that all modification requests are unique);  

1. Complete and compile all required documentation (Lender financial worksheets, tax returns, paystubs, utility bills, detailed hardship reason). Keep in mind that most Lenders will have their own templates that they will apply when it comes to expenses (i.e. monthly grocery expenses for a family of four should not reflect $800 per month as this would not be reasonable).  

2. Submit the package to the Lender (some Lenders do require that the 'financials' are called in for pre-qualification prior to submitting the documentation. This can be a difficult process as Lenders will use this initial information to disqualify or qualify your requests. This is the most crucial event that triggers the Lenders consideration. "Do-over's" are difficult and therefore it is highly recommend that you are fully prepared. If this event is of concern to you, seek guidance from a qualified private party modification firm.  

3. Upon receipt of the modification request package, the Lender will review for completeness. If incomplete, you will receive communication regarding items that are missing and generally be given a small amount of time to respond to the Lender. If you do respond in time, then you will typically need to re-submit the entire modification request package.  

4. The Lender will review the package during a period of 30 to 60 days and provide you with an answer. Again, there are usually no "do-over's" so it is very important that you understand how to negotiate with the Lender.  

5. If approved, the Lender will typically place you on a 90-day trial period (you will also skip 1 month of payment) after which your modified terms will become effective permanently.  

Keep in mind that a mortgage modification is many cases is not a permanent solution. The Lender will not provide you with a strategy on how to be prepared for the ultimate increase in your monthly mortgage payment within 1 to 5 years. You also can count on the fact that you most likely will not receive a reduction in the mortgage amount that you owe (it is recommend that you seek assistance from a private party modification firm if this is what you are pursuing). Also, the documentation you will receive from the Lender is not always easy to understand and seeking professional assistance is again highly recommend to ensure that you are not waiving any rights and that you did in fact receive a mortgage modification that is within dictated guidelines.  

Requesting assistance from a Lender is free, but having a professional behind you is invaluable.