Wednesday, February 22, 2012



With bankruptcies and foreclosures at all time highs, and with interest rates at all time lows, Now is the time to get your mortgage loan modification. A mortgage loan modification is simply a change in the terms of your original loan papers.  As people have lost their jobs or taken jobs paying a lot less many people have fallen behind in their mortgages and are losing their homes to foreclosures.  The banks are now bending over backwards to stop this flood of foreclosures so they are offering ways to help you get back on track with your payments so they won't have to take back so many houses.

A modification is not a new loan but a change in terms of your original loan therefore you do not have to qualify for a new mortgage.  Your credit history is NOT a factor.  There is no closing costs or appraisals.  You simply have to ask for a loan modification package and fill it out.

These changes can be:

1.  The principal amount of your loan.  If your loan was for $200,000 and you are $10,000 behind on your mortgage the mortgage company can add that $10,000 to your balance of $200,000 and make your loan now $210,000.  This will bring you current with your payments and you start making payments on the $210,000.

2.  Extend the years to pay off your loan.   If you loan was for 30 years the mortgage company can increase it to 40 years to make your payments lower.

3.  Reduce your interest rate.  The mortgage company can reduce your interest rate to make your payments lower.  If you have a $200,000 loan at 7% your payments will be approximately $1330 per month.  If the interest rate was reduced to 3% your payments will now be $750 per month.  The mortgage company will usually ask that this reduction be for a limited time such as 3 years.  You can negotiate a fixed rate for the life of the loan.  Everything is negotiable.  FAQ FOLLOW


A CHAPTER 13 bankruptcy forces the mortgage company to stop all legal actions such as a foreclosure and allows you time to catch up your back mortgage and car payments and you may be able to pay your unsecured debt back at pennies on the dollar.

The CHAPTER 13 cannot modify your interest rate or terms on a 1st mortgage.  If you have a second mortgage and no equity in your home after the 1st mortgage  a chapter 13 may be able to avoid or do away with the 2nd mortgage making it an unsecured loan which may be paid back at pennies on the dollar.

The LOAN MODIFICATION allows you to take your back payments and roll into your existing mortgage.  You may be able to have your interest reduced or the years extended to lower your overall payments.  It has no effect on your other debt.

You would consider the CHAPTER 13 if you already have a low interest loan and a lot of other debt.  You may even be able to reduce your car payments.  Even after you file you may still be able to do a modification for your mortgage.

You would consider the  LOAN MODIFICATION if you do not have much other debt and there is no foreclosure pending and you want a lower interest rate on your mortgage.

AM I ELIGIBLE FOR A MODIFICATION? The major requirement is that you now have sufficient income to make your MODIFIED mortgage payments. If your original house payment was $1500 but you are only capable of making a $1000 payment you may qualify for a loan modification making your payments $1000 per month.  

IS MY INCOME A FACTOR?  You also must show that your modified payment is not more than 31% of your total income.  In other words if you have a $1000 mortgage payment you must earn at least $3100 per month. You are allowed to use all income including part time work such as cutting grass, baby sitting, income from a roommate, child support or contribution from family members. 

IS MY PRESENT CREDIT SCORE A FACTOR?  NO.  The modification is a change in the existing mortgage.  You are not trying to get a new loan.  You are only changing the terms of the original mortgage.

HOW LONG DOES IT TAKE?  3 years ago it would take 6 months to a year to get final approval.  2 years ago it would usually take 3 to 6 months and now we have seen approvals done within 30 days. Most of the mortgage companies are now realizing that it is in everyone's best interest to get these modifications done and they are really trying.  


By far the biggest reason is that people get frustrated with all of the paper work and the loss of the paper work by the mortgage company.  Everyday we hear stories about how the mortgage company lost the paper work or claim they never got it.  2 years ago I was fussing at a lady that was working a loan mod at Countrywide.  She almost started crying and said that she was sorry but her office received 100,000 new applications a month.  Bank of America and Wells Fargo are 10 times that size.  We tell our clients to make copies of everything.  If you have 2 fax numbers send it to both numbers and then mail a copy.  Call in a day or two to make sure they have it.  If they don't,  do not get mad or frustrated just send it again and keep following up.

The next reason is follow up.  Because the mortgage companies get so many applications you have to call and follow up on a regular basis.  Remember the mortgage company goes by the squeaky  wheel rule.  The wheel that makes the most noise gets the oil.  Call on a regular basis.

WHAT DO I DO IF I AM DENIED?  First find out why you were denied.  Did you not send in all of the paper work?  Were you missing a bank statement or tax return?  Did you not show enough income. I had a lady that said she told the mortgage company her husband lost his job and they had 5 kids.  Her payment was $1500 per month and her husband was only getting $2500 in unemployment.  She said please help me because I have 5 kids.  The mortgage company denied her application.  The mortgage company is not in business to "HELP" you.  They are trying to reduce their losses and if the modification does that then that may be a help for you.  You still have to meet their minimum requirements. 

This lady asked for another application.  This time she showed that she was getting social security for 3 of the kids,  she babysit 2 kids during the week, that her husband received cash money for repairing cars and that her brother was living with them paying rent.  She was now approved for a 3% mortgage and all of her back payments were included in her modified loan.  We have seen people apply 3 and 4 times.

DOES FILING FOR BANKRUPTCY AFFECT MY MODIFICATION? If you file a chapter 7 you are discharging your mortgage contract.  Some mortgage companies will say that there is no existing mortgage to modify if you do a chapter 7.   Try to get your modification first before you file.  If you must file first get a written statement from your mortgage company as to their policy.  You may be able to file a chapter 13 first to stop the creditors and then get your modification.  You may then convert to a chapter 7. 

A chapter 13 is a repayment plan and most of the mortgage companies will continue to work with you  on your modification.  We have clients on a regular basis that have had their loans modified and all of their back payments rolled into a new low interest loan.  After the modification you can then remove the mortgage arrears from the chapter 13 plan (reducing your monthly payments to the chapter 13 trustee) and stay in your chapter 13 for the rest of the creditors possibly paying pennies on the dollar or you can dismiss your chapter 13 entirely or you may be able to convert to a chapter 7 bankruptcy.

DO I NEED TO HIRE A LAWYER OR MODIFICATION COMPANY?   NO!!!   the application process is fairly simple and most people can do it on their own.

The application usually consists of:
1.  Hardship letter the mortgage company wants you to tell them what caused the problem and why you are behind on your payments and why this modification will solve those problems.  They want you to tell them why you will now be successful in making your payments.
2.  Financial paperwork such as tax returns, pay-stubs for two months and bank statements.
3.  Monthly income and expense statement showing how much money you have left over after necessary expenses that can go to pay your mortgage.

These requirements are basic and straightforward.  Even if were to hire someone they will still need for you to get this information.  Many of these companies charge up to $3000 and there is no guarantee.  All they are doing is getting the paper work together and submitting it on your behalf.  These companies have no power to force the mortgage company to do anything that you can not ask for yourself.   As I said earlier the biggest reason people do not get approved is frustration.  Be prepared to send and resend paperwork and follow-up on a frequent and consistent  schedule.  If you do get denied you can then hire someone to resubmit or start a new application process.

Remember that if you have hired someone for your modification this will not stop a pending Foreclosure on your home.  We have clients on a regular basis that are calling for an emergency bankruptcy because their foreclosure is tomorrow morning and the modification company was not able to work out anything with the mortgage company.

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