With so much information and mis-information out there, I thought that I would take the time to explain the loan modification process in-depth. There are so many steps to getting approved for a loan modification and any misstep in the process can result in your package being denied.
Many financial experts and advisors cannot figure out why the loan modification process doesn’t work. I am going to tell you why the process doesn’t work and why most people need to hire someone to help them obtain a loan modification.
The borrower must submit a financial package. The trick here is that you must send exactly what the lender requires and you must fit within exact guidelines. The problem is that the lender normally fails to inform the borrower of exactly what they need, what counts as income and what counts as expenses. For instance, many lenders count rent as income but only allocate a specific portion of the rent received. Some lenders count all the rent some 75%, others as little as 50% and yet other don’t allow rent at all. Many borrowers although collecting rental income do not claim that income on their taxes or have illegal apartments, does that rent still count? Depends on the lender. For a unified system there is a lot of wiggle room on the lenders side.
The borrower must send documents into the lender via facsimile or scan and the amount of paper required is astronomical. Many of the borrowers do not own a scanner or fax machine and are therefore unable to submit the documents without enlisting a service such as Kinkos or Staples and the money spent in faxing alone may be significant. After all of the faxing is done, there is a wait until the papers appear in the lenders system and they are often lost, misplaced or simply don’t arrive requiring a resubmission.
It is the borrower’s obligation to stay on top of the modification. Lenders rarely inform borrowers of missing documentation and after a short time simply delete the modification request due to an incomplete submission. The borrower must then start all over again. The real issue with this besides the time and expense is that it can take months for the lender to issue a letter to the borrower stating the modification was denied for lack of documentation. The lender will not inform the borrower what was missing and if the missing paper is one required by the lender but not specifically stated as required as mentioned earlier, the borrower’s package is once again denied and the borrower may never know what the issue is. With this in mind the borrower must call the lender all the time, a minimum of once a week during normal business hours in many cases and wait on hold for an hour just to get the wrong customer service representative on the phone. Most borrowers do not have the time, patience or ability to sit on hold for an hour while at work to deal with personal issues like this and could risk losing their job just to get a five second answer from their lender.
Problems! What does a borrower do if there is a problem, if his/her taxes are not correct, income is difficult to prove or if they are told they don’t qualify when they clearly do? Most borrowers give up. The lender knows the rules. Right? Wrong. Most customer service representatives do not know the law or the guidelines, they do what the computer tells them to do. In many instances the information entered into the computer is wrong or misapplied especially where contributions and rentals are concerned. Many borrowers live with relatives or a spouse who helps support the premises and contributions from those individuals are counted at 100% not reduced like rental income is. Little errors like this can be the difference between approval and denial but the typical borrower doesn’t have access to this type of information, doesn’t know what questions to ask, and doesn’t know how to make the corrections necessary to get through the system.
Updating the material the lender has for consideration and changes in circumstances can be a full time job. Many lenders require that the information they have in their system not be older than 30 days. This is interesting since it is the lender that is taking 90 days from the initial request to even consider the documents sent over. Lender will deny a modification request based on expired documentation and delete the request from system before they issue a letter to borrower requesting updated documents. The borrower is supposed to know that he/she is responsible for constantly updating the lender with pay stubs and bank statements as well as profit and loss statements in many instances and that failure to do so may jeopardize their ability to modify their mortgage.
In many instances, obtaining a loan modification is nearly impossible for a homeowner on their own. The “red tape” that is created by the banks can be overwhelming to a homeowner who has never applied for a loan modification before. Also, what one bank requires is different from another bank, so enlisiting the help of a friend or family member who has sucessfully obtained a loan modification is not always helpful.
The system is designed to make it difficult to obtain a loan modification but it is possible. There are hurdles to overcome but it is possible. Know what your bank requires or enlist the help of a licensed professional. Its your home and you should get to keep it.