New York State law requires that anyone who charges an upfront fee to handle a loan modification be either a license attorney in the State of New York or a licensed mortgage broker in the State of New York.  There is a very good reason for this. New York State wants to make sure that you are receiving the best advice about your mortgage as possible. A loan modification is not always the best option for someone and an attorney can help you to determine what other options are available to you. A loan modification company only handles loan modifications and therefore, they are not in the business of telling you that they cannot get you a loan modification. 

There are no guarantees with a loan modification. The are many factors that are in play when a loan modification is submitted to a bank. The bank, your financials, the investor that holds your loan, the negotiator and many other factors will determine if your loan modification is approved. Further, if you do not qualify for the Making Homes Affordable Act, your lender has internal programs that you may qualify for and those internal programs change constantly.

There can be no guarantees. Anyone who offers you a guarantee is only setting you up for disappointment.

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3. Streamlined Refinance As An Alternative To A Loan Modification

Get in Front of It!

If you have the ability to foresee financial trouble, call your lender and get on a temporary modification or forbearance plan. You are not the first person to experience financial difficulties in your lenders portfolio and they have plans in place for short term help. You will need to document the problem and prove to the lender this is a real issue that will resolve in a short time, but they are typically willing to help.

Too Late

If you are already behind on your mortgage, the battle is more difficult but not altogether lost. Lenders do not want your home, they want your money! Therefore they are willing to help in most circumstances. The trick here is start as soon as possible, do not wait until the lender is calling you and begins the legal process. Try to be proactive and get a resolution. If you are unable to resolve the problem then you may need professional help to deal with the lender and try to help get things back on track. The further behind you are, the harder it is to get a resolution.

How it Works

Lenders work on a DTI (Debt To Income) ratio, this is your provable income verses your provable debt. The rent you get from the illegal garage apartment that you don’t claim on your taxes and the money you borrowed from Aunt Marie don’t count here. The further behind you are the more money you need to get out, plus you need fees, late payments, interest, principal and the all important but often overlooked escrow shortage.

Lenders will not help you unless you can afford to be helped. That means, if a lender has predetermined repayment plans and the longest plan adds more to the mortgage payment than you can afford then the repayment plan will not be offered to you. Lenders also feel like they are helping you, so if they offer a plan and you fail to make the payments they will not offer you a new one without extenuating circumstances.

Can’t afford repayment… Help

Next step is a loan modification or bankruptcy. Loan modifications offer a borrower the ability to rewrite the loan in terms that are affordable to the borrower and still give the lender some benefit of the mortgage. The Government Guidelines call for a lender to lower interest rates and extend the term of the loan so that the borrower is paying out 31% of their gross monthly income to mortgage payments. The issue here is that not all lenders are mandated to follow the guidelines and private modifications have been offered in many cases. These are typically shorter in duration and don’t offer the same relief, but some relief is better than none. Some investors will not offer modification terms and others require that the borrower be late before a modification may be offered. The Federal Guidelines specifically state that a borrower does not need to be late to obtain a loan modification and all participating lenders must abide by that rule.

Bankruptcy

There are two types of bankruptcy available to homeowners, Chapter 13 and Chapter 7. Homestead exemptions are different by state; however most states allow a debtor to keep their home if they do not have too much equity and can prove the ability to make the payments. The newest trend is the Bankruptcy Court’s willingness to move secured second mortgages and even portions of first mortgages from the secured creditor side to the unsecured creditor side. If a property has lost so much value that more is owed on the property than it is worth, then that portion that is no longer secured has beed seen by the Courts as unsecured and dischargeable debt.

Help is out there! It is not always easy to obtain and results vary. Professionals are available to help you meet the demands of this new and floundering economy but we are all wondering around in the dark a bit. Participating lenders are not obligated to help their borrowers unless forced to offer loan modification plans to their borrowers by the Government. However there is no rule that the banks have to make obtaining a modification easy. Delay, confusion and collection tactics are often used by lenders. It seems counter-intuitive for lenders to act they way they are acting because it is not profitable for a lender to own thousands of nonperforming loans or distressed properties. Although workout plans, temporary modifications, permanent modifications, and forbearance agreement are not ideal for the lender, it is good business sense to make some money than none at all.

Related Posts

1. How Long Does A Loan Modification Take?

2. Streamlined Refinance As An Alternative To A Loan Modification

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.

First

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.

Second

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.

Third

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.

Fourth

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.

Fifth

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.

Related Posts:

1.  How Long Does A Loan Modification Take?

2. Do I Need To Hire An Attorney To Do A Loan Modification?

3. The Top Five Loan Modification Myths!

Problem 1

The Making Homes Affordable Act  and the Guidelines set forth by President Obama make obtaining a loan modification difficult for those borrowers who are/were the victims of predatory lending practices and unsavory characters. The lending industry, for better or worse, put into effect lending programs that required little to no documentation of the borrowers ability to repay the loan. These loans were known as NINAs (No Income No Asset), SISAs (Stated Income Stated Asset) and combinations thereof. What this meant was that borrowers who had decent credit, could walk into a bank and say, ”I would like a loan to buy a house for $800,000.00 and I can afford it.” The bank would give the money as long as his credit was decent. The lenders here did not require proof of income, proof that the borrower could repay the loan, tax documents, etc. For those programs where documentation was required, lenders qualified borrower on an initial teaser mortgage payment that was affordable at the time, but became too burdensome once the teaser payment expired and real payments began.

However, if that borrower wants to modify his loan, he must prove that he can afford it and back up his proof with tax returns and additional information. The problem here is, many people who were put into these types loans are unable to prove their income, even though they actually make good money. The Hispanic community has been hit particularly hard by these issues. Many Hispanic clients are working off the books or partially off the books. The most egregious part of this is that it is not typically the workers fault that they are being paid in this fashion. Many employers, in order to avoid the required taxes and workers compensation simply choose to pay these particular people off the books and the workers are trapped as there is a line of people willing to take their place for the same or less pay in any fashion the employer sees fit. Although in the short term, this equals more money in your pocket, it turns out that under the modification guidelines the borrower must prove his income. Additionally, rental income and other contributions are discounted by the lender as income and any rent must also be reflected on tax returns to be counted as income. It is unfair for the lenders to put people into loans where they failed to do the initial due diligence and then require complete underwriting of a modification as full document loan.

Problem 2

Self employed borrowers really have a tough time. The issues here deal primarily with the volume of documentation required and the proof required to show the lender what the borrower’s income truly is. The main issue with self employed borrowers is the inability of the lender’s employees to grasp the finer details of the actual income verses reflected income. In many instances not only will the borrower need multiple, up to date profit and loss statements from an accountant at a cost of a few hundred dollars each, but also letters explaining the IRS tax code and that simply because the IRS allows certain deduction for each business, the actual cost incurred may not be as high as those reflected. Couple this with the uncertainty of the next month’s revenues and the ability to prove ongoing business and establish that the business will remain on going and it is an uphill battle.

Problem 3

Delay. Lenders’ are overwhelmed and do not have the ability to train their staff adequately. As an employee of a lender in the loss mitigation or customer service department, it is trial by fire and who cares how many files they destroy on the learning curve. It takes 90 days to get an initial answer on a loan modification and then an additional month or two for negotiations. Most borrowers do not feel that they have that kind of time. During the initial process and the negotiation process, the lender continues its foreclosure with papers and harassing phone calls continuing. Borrowers ger nervous and will agree to almost anything to make it stop and often do not get the best deal they can.

Problem 4

The process of loan modifications is extremely tedious and complicated. The lenders are not making it easy for borrowers to obtain loss mitigation services even if they are mandated to provide those services. There is no rule saying it must be easy. The lenders have created an extremely complicated maze that a borrower must work through in order to get to the review phase much less the negotiations.

Help

The government through the use of media such as television advertising, public service announcements, and required recordings played when a borrower calls a lender has managed to inform the public that assistance with a loan modification is free through certain government and non-profit organizations. While this is true, and the borrowers affected are typically suffering financial difficulties, the help available by these organizations is not very good. Many borrowers, after using one of the free modification services go to an attorney or other source for help. Even though the borrower is required to pay for the help they are receiving, the results are normally better and faster. Where a government or non-profit may be free, their staff are not attorneys, they are typically under trained and very overloaded with files. It is not possible for a person to handle 200 modification files and meet with borrowers in a way that produces results. If a borrower determines that they are willing to expend monies to get help with a loan modification, that borrower must be careful and do the proper research into the attorney or company thay are hiring for assistance. Scams are prevalent in the modification industry but honest, hard working people are out there and willing to help.

Conclusion

To go through all of the problems that plague this particular legislation would require a book and not a blog. As a borrower you must be informed about the options available to you, seek the advise and services of someone with experience and disregard all the myths surrounding loan modifications. Help is available and in most instances the benefits far outweigh the burden. Borrowers have the opportunity to save hundreds of thousands of dollars, keep their homes, and save their credit rating if they can wade through the quagmire that is loan modification.

The best answer that I can give you is that the best way to speed up the time to get a loan modification decision is to make sure that the information you give to the bank is complete. Everytime that the bank has to request a document from you adds more time to them making a decision.

When you send your information to the bank, make sure that you have signed everything and send them everything that they have requested. (Every bank has a different set of requirements for documents that they want to see).  To see the requirements from some of the major banks, such as, Bank of America, Chase, Citibank, and One West Bank, check out their websites.

If the bank does request additional documents from you, make sure you get them to the bank in the time frame that they require. If they tell you that you have 10 days to get them your most recent bank statement, that means you have 10 days until they remove your file from their system. Once your file is removed from the system, you will have to begin the process again.

Remember, that every bank’s time frames vary, but if you give them all of the information they need from the beginning, you will have a better chance of getting a loan modification quickly.

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1. Loan Modification With Banks Not Participating In The MHA Act

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If your mortgage is owned by a small lender or a non-participating lender or servicer such as Green Tree, or a federal credit union, or a local bank chances are that your lender is not participating in the MHA. Under these circumstances, modification of your current loan is still possible; however, the requirements and the lenders negotiations are different.

We are seeing a trend where large lenders bound by the terms of the MHA are selling off large portions of the nonperforming and slow performing loans to servicers and investors that are not subject to the MHA and therefore are not required to modify loans under that program. IndyMac Bank has sold what seems like all of their second mortgages to Green Tree  for what we can only infer to be this reason, although it may have some basis in their merger with One West Bank.

Major Differences

1. Under the MHA, lenders who offer a loan modification must reduce your monthly mortgage payment to 31% of you gross monthly income. Lenders who are non-participatory are not subject to the same regulations.

2. MHA Modifications must be for the entire term of the mortgage, however these other lenders are not required to make long term modifications. Many of the non-participatory lenders offer only short term solutions that stay in effect until the borrower’s hardship has passed. If the hardship affecting the borrower has not passed by the time appointed in the modification agreement, these lenders will typically extend the terms of the modification until such time as the borrower is able to resume normal payments, refinances, sells, or otherwise disposes of the mortgage.

3. Large lenders are overwhelmed with modification requests and papers get lost, the loss mitigation division is so large that you deal with a new representative every time you call, and they are unable to properly train the entire staff. Small lenders however, have a smaller depatments, one person is assigned to your loan in particular, papers are direct to your negotiator, and the modification typically takes less time with fewer missteps and errors.

4. Smaller lenders and investors typically give their customer service repesentatives and loss mitigation specialists much broader power than the large lenders do. This allows small lenders to expidite the modification process and to tailor each modification, forebearance or work out plan to the individual borrower’s needs unlike to cookie cutter approach mandated by the MHA and adopted by the large lenders.

Although your mortgage may be held by a non-participatory lender, there is still a good chance that a borrower can get a modification and some relief from the overpowering monthly mortgage bill. It is not as easy to predict the benefit the lender will offer or the terms of the loan modification but these lenders understand that reduced payments far exceed no payments at all and are typically willing to help borrowers with hardships. The loan modification waters remain murky regardless of the lender who hold the mortgage and note.

Related Posts:

1. Do I Need To Hire An Attorney To Do A Loan Modification?

2. The Top Five Loan Modification Myths!

3. Streamlined Refinance As An Alternative To A Loan Modification

However, I will be tell you that over 50% of our clients have tried to get a loan modification on their own and have been unsuccessful at doing so. The process can be overwhelming and daunting. The banks can be frustrating. Understanding the process of loan modifications and how the banks and laws work together is important, but you can definitely apply for a loan modification without an attorney.  

If you are going to hire someone to handle your loan modification, in New York state if they charge you an upfront fee, they must be an attorney licensed to practice in New York or a mortgage broker licensed in New York. Make sure that you do your research and hire someone who can help you meet your goals.

Try to modify your loan on your own. It is possible. If you do not want to do it yourself, hire an attorney. Hire an attorney who has experience in this area. Experience is key. You need someone with connections at the banks, knowledge of what the process is and the ability to make an educated decision as to whether or not you will even qualify. You want someone who can give you other options or help you make a decision about what to do next.

A loan modification may not be the best solution for you. However, you want to discuss all of your available options with someone who is qualified to help you make the right decision for you. A company that only handles loan modifications will not be qualified to discuss alternatives with you.

If you have an FHA (Federal Housing Authority) mortgage, there is some good news. It is almost always held by Fannie Mae or Freddie Mac, and therefore relatively easy to modify. However, if you are experiencing trouble modifying your mortgage, there is another alternative called a “Streamline Refinance.”

Streamlined refinances are very low cost, extremely fast and very effective. Although your FHA loan is owned by the governement, it is serviced by a lender, such as HomEq, AHMSI, or even Bank of America. Your current servicer, the company to whom you pay your mortgage payment every month, will have the information required to begin the process. FHA has also been known to take into consideration the decline in the housing market and adjust your amount owed accordingly.

Here are a few of the requirements to qualify for an FHA Streamline Refinance:

1. You must be current on your loan

2. You must have your loan for at least three months

3. Your credit score will be factored in

Myth 1: You need to be late on your mortgage.
Truth: You DO NOT need to be late to modify your existing loan.

In fact the Home Modification Program Guidelines of March 4, 2009 (HMP) reward lenders for doing modifications on loans that are not delinquent with higher incentives paid to the investors and servicing companies. There is also a section named “Reasonably Foreseeable Imminent Default” which mandates that participating lenders or servicers run the NPV test on those loans not yet in default but will be in default should they not be modified.

Myth 2: You need to hire a Loan Modification Company or Attorney.
Truth: You do not NEED to hire an attorney or company to help you do a loan modification.

As the borrower, you are capable of completing the loan modification on your own without paying for assistance. There are free services available to you, should you seek assistance they can be found at HUD.gov and a slew of other websites including most state Attorney General’s websites. If you decide to use a service outside the free services be sure that the service has the ability and experience to help you. Loan Modification scams are prevalent throughout the country. Many states have instituted laws mandating that only certain people and companies can charge a fee to assist in a loan modification. Typically, licensed mortgage brokers, bankers, real estate brokers and attorneys are allowed to collect fees to assist in loan modifications. In New York State, you must be licensed to practice before the New York State courts or be a licensed mortgage broker to be allowed to charge an upfront fee for your services. Be careful dealing with any company that is not located close to you. We suggest that you chose a company located relatively close to you with a brick and mortar office who can provide a reference or is a referral.

Myth 3: A loan modification is a quick process.
Truth: A typical loan modification can take anywhere from one to four months.

We see that most modifications are resolved in about 90 days; however, we have had a few that took less than a month and some have taken as long as six months. There is no real formula as to timing but you must stay in touch with the lender regularly, at least once every fourteen days.

Myth 4: Everyone will qualify for a loan modification.
Truth: Not everyone qualifies for a loan modification.

The criteria is relatively specific and under the HMP and Making Homes Affordable Act, you need to qualify. The HMP Guidelines state that the lender can use a variety of techniques to lower your monthly payment to where you would qualify under the terms of the program.

• Interest Rate: A lender may choose to lower your interest rate to as low as 2% and the lender may choose to fix that rate or create a stepped rate fixed loan where the rate would increase by one percent after 5 years and then again after one year to a maximum of 4% (the Freddie Mac limit at the time of the modification) for the remainder of the loan.
• Principle Forbearance: Lenders may forbear principle to qualify a borrower for a modification. A lender may remove a part of the principle balance and not collect interest or penalties on that portion of the principle. That portion of the principle would have to be repaid upon selling, refinancing or otherwise transferring ownership of the premises.
• Principle Reduction: Lenders may at their option reduce the amount of principle owed by a borrower. Lenders typically do not use this option regardless of the value of the premises and the amount owed to the lender.
• Term of the Loan: A lender may extend the term of the loan to a maximum of 40 years to spread payment out and make payments affordable.
• Combinations: Lenders typically use a combination of these options to maximize returns and make the mortgage affordable. A lender may reduce the interest, create a stepped fixed loan, and extend the time period for repayment to 40 years so that the payment will be affordable and the lender will still make some profit on the loan.

Myth 5: I have no options because I don’t qualify under the MHA or HMP programs.
Truth: You may qualify under programs specific to your bank.

Although a borrower may not qualify for a modification under the HMP or Making Homes Affordable Act, the lender may still modify your loan or loans. Many lenders have modification programs other than those put forth by the current Administration. Modifications are costly to the lenders and investors; however, they cost far less than foreclosures and lenders are therefore willing to modify your loan in the hopes that you will make payments and remain current. Each bank has different programs and guidelines, so you need to contact your bank or a qualified representative to help you determine what program is right for you.

More Loan Modification Truths