Get ahead of the slow-moving loan-mod train
If you’re a homeowner who was laid off recently, if you even think there’s a chance your job might be eliminated, or if you are still working but having a difficult time making ends meet, the best thing you can do for yourself and your family is to determine whether you are eligible for mortgage relief.
Here’s how to get started:
* Eligibility. Familiarize yourself with the Obama administration’s Making Home Affordable Program. You can read up on the program at www.makinghomeaffordable.gov.
The key to eligibility is your “front end” debt-to-income ratio. The total of your principal, interest, taxes, insurance and homeowners association dues must be greater than 31% of your gross household income.
If it is, you should be eligible for a loan modification. But you’ll have to call your lender or servicer -- the company that collects the payments on behalf of the loan’s owner -- to determine if it is participating in the White House program. Supposedly, servicers handling some 80% of all mortgages are taking part.
If you are eligible, it is possible to obtain a loan modification even if you are still current on your house payments. But if you are not eligible for the Making Home Affordable Program -- that is, your income is too high -- you still may be eligible for a more traditional solution, such as forbearance for a few months until you get back on your feet.
Unfortunately, said David Bartels, president of U.S. Home Loan Advocates, a Westlake Village company that offers mortgage-modification services, your lender-servicer probably won’t deal with you until you are in default or in imminent danger of defaulting. Default is different from delinquent. You are not in default until you miss three consecutive payments.
Under the Obama plan, your loan’s interest rate will be reduced in 0.125% increments until your payment reaches the 31% debt-to-income target. If the rate drops to 2% and you still haven’t hit the target, the term of your loan will be increased in 10-month increments until the goal is met. If the term reaches 480 months and still no success, the servicer will start reducing your principal.
But Bartels cautions that lenders will consider other factors apart from your housing debt-to-income ratio. Also on the table will be your total debt to income, cash flow and the equity you have in your property at its current value. All of these things “must line up and meet the bank’s requirements to obtain a modification,” he says.
* Once you have a feel for your options, find out if your servicer is a participant in the administration’s program. You can check various websites, but many charge for the assistance, so it is best to call your lender directly to confirm its involvement.
Your lender should send a package of documents for you to complete and return. But don’t wait -- it could take several weeks to receive the package -- to gather the paperwork that will be required to support your request. There are at least two dozen forms to fill out, so start assembling them now:
-- Your most recent mortgage statement.
-- Pay stubs for the previous two months.
-- At least two consecutive checking-account statements.
-- Your latest tax return -- 2008 (if you have not yet filed for 2009).
-- An itemized list of your expenses.
-- Utility bills for the most recent month.
-- A “hardship” letter explaining why you need help.
Marcia Griffin, president of HomeFree-USA, a Hyattsville, Md., firm that specializes in homeownership counseling and foreclosure intervention, said the all-important letter must answer these key questions:
Why are you having difficulty paying your mortgage? What are you doing to remain current or bring the loan current? How long have you lived in your home? Do you want to keep your home? What do you want your lender to do?
* The best way to succeed is by submitting a properly completed application with all the required supporting documentation, so prepare your package carefully.
You must show that you will struggle to make your current payment but will be able to make a lower, more affordable one. Don’t fib to make it seem as if your situation is worse than it really is, though. For example, if you show negative cash flow, your application will be denied, period.
“Getting a loan modified has nothing to do with being a good negotiator,” says Bartels, whose company, unlike many of those that have been chastised by the Federal Trade Commission, charges no upfront fees. “The bank is going to make a decision based on the math. If the bank will make more money by modifying versus foreclosing, it will modify it.”
* Before you return the package, make sure that your name and loan number is on every single page, and make copies of each and every document.
Michael Young, vice chairman of the Mortgage Bankers Assn., says that 99% of the packages returned to servicers are either missing documents or contain mistakes. But Bartels and many borrowers who have been trying to get their loans modified for months maintain that lenders lose their paperwork with shocking regularity.
Call the bank two weeks after you’ve returned the package to make sure that it has been received. If it hasn’t, send another. “It is not unusual to have to submit the package multiple times,” Bartels warns.
* You must be your own advocate. That means calling every two weeks or so to find out the status of your application. Don’t wait for the bank to call you. Each time you speak with someone, write down the person’s name, phone number and extension, company identification number, the day and time you spoke and your recollection of what was said.
It will take most lenders 60 days after they receive a completed package to make a decision, and you most likely will have to submit updated information as the process moves slowly along. So keep calling until you receive a decision.
Distributed by United Feature Syndicate.