Business & Commercial Listings Sales Guide

What is a loan modification?

It is the act of adjusting (modifying) the terms of an existing mortgage in an effort to make one’s monthly payment more affordable. The savings or reduction in the monthly payment comes from either a reduction in the interest rate, an extension of the term of the loan or a combination of the two. There are however more complex scenarios which are beyond the scope of this article.

Lenders will modify a mortgage if a client’s file is properly underwritten, a legitimate hardship is documented, financial claims are substantiated, and the lender has an incentive to cooperate. Not everyone qualifies for a loan modification, and in the interest of time for everyone involved, modification consultants should prequalify all potential clients.

If a loan is delinquent, and there are past due amounts, late fees, legal fees etc., they can either be waived or added to the principle balance depending on the result of the negotiation. Loan Modifications can be performed on second homes, investment properties, and commercial properties.

What are a lender’s incentives to modify a loan?
Lenders are not in the business of owning real estate. Many homes are upside down and have significantly more owed on them than what current market values will fetch. If they were to foreclose an immediate loss in the ten of thousands or hundreds of thousands are very real. This does not include legal fees incurred in the foreclosure process, the loss of interest income in the interim, remarketing costs, trash out expenses, or aggressive REO pricing. There are articles detailing how some lenders adhering to federal program guidelines are receiving reimbursements from the government to keep people in their homes. Institutions want to have their assets performing again which means helping the borrower start making payments again.

The loan modification environment is rapidly evolving and lenders are adapting to a multitude of new issues confronting them. This contributes to a lot of here say and misinformation surrounding modifications. Generalizations are difficult due to the myriad of individual lender guidelines and borrower hardships, which makes the categorization of statements by product type, lender, hardship etc. difficult. For example, a national lender was not modifying negative amortization loans just two months ago, now they are. Borrowers under Chapter 13 protection were unable to have their mortgages modified. Now they can. Some lenders have begun to adhere to the Making Homes Affordable Program and now using those guidelines to underwrite their modifications, while others have not.

Listed are a few common, loan modification myths: a borrower needs to be delinquent to qualify for a loan modification, principle reductions are common, the foreclosure process is stopped while the modification is being processed, and all lenders are participating in federal programs or do offer loan modifications. The subject property has to be a borrower’s primary residence.

Loan modifications are not like refinances. Fico scores are not even a factor. Valuation and loan to value is of little importance. The driver behind the modification process is the ability to pay not the current payment but the proposed, lower payment. Interest rates are not shopped among different lenders. The loan is modified in place with the current lender and there usually are no closing costs. Third party modification fees can not be built into the balance of the loan.

What are the potential implications on ones credit? As long as mortgage late payments are being noted and that information is being submitted to the credit bureaus, the borrower’s credit will be affected accordingly. A modification in mortgage terms will have no affect on ones credit score, just like a change on the rate or terms of a credit card wouldn’t be noted. Any principle reductions or other actions requiring the issuance of IRS form 1099 may result in a taxable event. Questions surrounding these issues should be referred to a tax consultant.

When is the best time to apply for a loan modification?
One does not need to be delinquent before relief can be sought. The sooner a modification is applied for and granted the better. Modifications can take anywhere form four weeks to more than three months to be granted depending on the lender’s processing time. Information can be relayed almost instantaneously, but the file load of a lender, acceptable processing times, and internal file priority are what dictate the turnaround time. Time lines vary from lender to lender and priorities are assigned based on different criteria. For anyone debating whether or not to use the last of their savings to stay current, please note a lender’s tact will be the same today as it will be in several months after one has exhausted all financial resources and lines of credit. It is good to have the means and the option to hire professional help and have a financial cushion during the modification process rather than waiting for the lender to foreclose or modify on their own accord.

Potential benefits of a mortgage modification vary depending on a borrower’s individual situation. Saving ones home from foreclosure and preserving credit are two of the biggest motivators. The modification should make financial sense; meaning the savings should justify the cost of the service. There are other benefits to the loan modification such as reorganizing balances in arrears, having fees & penalties waived; having a forbearance period granted which allows one additional time to build reserves before an initial payment is made. Non monetary benefits of using a third party loan modification company include: expertise, accountability, and the accompanying peace of mind knowing you are in the most competent hands possible. Files have a record of progress, what is currently transpiring, and what the next action will be. It is not like the waiting game, or feeling of being in limbo so many clients experience dealing direct with their lenders or the dead ends of call centers.

How does one qualify for a loan modification?

Lenders look primarily at a few key factors when deciding how to structure a loan modification.

One of the fundamental ratios to be considered is the Housing Debt to Income Ratio. This is calculated adding the expenses of the first mortgage, property taxes, and insurance and dividing it by the borrower’s gross income (PIT&I/Gross Income). Another key factor is the hardship leading to the default or impending default. Hardships can be temporary or permanent. The nature of the hardship will often dictate the terms of the modification. A modification can be granted for set period i.e. five years, a full thirty or forty year term or even a more exotic step up program where the loan starts at a low rate of 3% for five years, 3.5% for another five years then capped at 4.5% for the remaining term of the loan. Files need to be properly prepared from an underwriting perspective. Ideally a borrower will be taken from a net negative cash flow each month to a net positive cash flow each month. This financial divide is bridged through a savings in interest expense by lowering the interest rate on the loan and/or extending the term of the loan.

What does the loan modification process typically entail?

A complete client file needs to be compiled and should include a hardship letter, financial statement, income documentation, tax returns, mortgage statement(s), and other bills to substantiate the claims made in the hardship letter and financial statement. A properly underwritten modification proposal will be predicated on the documentation listed above.
The modifying party will obtain third party authorization on the account with one’s lender. Once a file is complete, it is submitted to the lender’s loss mitigation department to be assigned to a negotiator. Negotiation on the modification takes place at this stage. The lender investor approval on the new modified loan terms will be obtained. The lender will prepare loan modification documents. This process can take anywhere from four weeks to more than three months. Every modification is different and some may require multiple submissions or attempts. Postponing foreclosure sale dates are common, once a third party modification company is on file and the loss mitigation department is aware a modification is pending.

What is a Forensic Audit? This term sounds very specialized and empirical in nature, but the fact of the matter is it refers to a fairly simple, basic process. Generally speaking, it is the process of reviewing a loan’s closing documents for any legal violations. If any violations are found they can be cause to rescind a loan all together or used as negotiation leverage to have a lender modify the terms of a loan. This service is sold individually or can be part of a legal assisted loan modification.

Why hire a third party advocate or use Loan Modification Company?
Borrowers can apply directly to a lender for a loan modification just like one can cut their own hair, change the brakes on their car or defend themselves in court. Results can vary greatly and professional help is the only way to assure the best possible outcome. Like any high stakes situation, whether it be hiring a top notch lawyer for legal defense, the best surgeon for a medical procedure or a mortgage professional to salvage your single largest investment and family’s home, it is crucial to hire the right person or group of people to perform the task. Lenders typically are not acting in the bet interest of the borrower in the loan modification process. They are creditors looking to collect on a debt. Borrowers going direct to their lenders should be aware of the following:
Forbearance agreements and repayment plans can have one paying more in the short term, which does nothing to assist someone experiencing an existing hardship. Furthermore, if the hardship is tied to a high housing cost the likelihood of future default is very high and the cause needs to be addressed through a modification of the loan’s terms. Often proactive borrowers are told they do not qualify and are left to their own means to find a solution to the problem. What do they do? Typically go online and start looking for help. Unfortunately, this is where they have to sift through hundreds of modification companies with a full spectrum of legitimacy to look for third party assistance.

How to select a loan modification company: There is a lot of well warranted skepticism surrounding the legitimacy of many loan modification companies. Who ever you decide to do business with should be registered with the Better Business Bureau, their state’s Department of Real Estate, and be a member of their national trade association the NLMAA (National Loan Modification Association of America). Refund policies should be included in any services agreement.

Our company is fully registered, doesn’t have a single complaint logged, and has multiple, complimentary client testimonials on our website.
Our sales staff consists of seasoned loan officers and real estate professionals not telephone sales reps in a boiler room. We offer an in house legal team, council, underwriters, and processors. We are closely held, none of the work is farmed out, and we offer full accountability, peace of mind to our clients, and a 100% refund if a modification is not granted.

Our Goals:
• Legal Assisted Loan Modification
• Lower your current rate into an affordable fixed rate.
• Take any past due amounts and late fees and either have them forgiven or add them on to the principal balance and spread out over the term of the loan.

Justin Meloni
Ph: 888.276.4777 Ext. 305
Fx: 858.454.5599
Email: Jmeloni@USMortgagebailout.com
USMortgageBailout.com