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Cheat Sheet

Loan Modification For Dummies

From Loan Modification For Dummies by Ralph R. Roberts, Lois Maljak, Joe Kraynak

When you receive a home foreclosure notice, your first instinct may be to panic. Instead, take a deep breath and contact your mortgage lender to discuss modifying your loan. Ask for a loan modification application and consider hiring an expert with related financial experience to help you put it all together.

Loan Modification Questions to Ask Your Mortgage Lender

When seeking a loan modification, you first contact your mortgage lender or servicer (who collects and processes your monthly mortgage payments). To increase your chances of modifying your mortgage, ask plenty of questions, including the following:

  • What workout solutions are you currently offering distressed homeowners?

  • What are your loan modification eligibility requirements?

  • How do I obtain a loan modification application package?

  • How long will it take you to process my application?

  • How long does the entire modification process take?

  • When can I expect to hear back from someone?

  • What should I do if I continue to receive late payment notices?

  • Does my applying for a loan modification stop any foreclosure proceedings?

  • Are you participating in President Obama’s Making Home Affordable modification plan?

  • Whom do I call (name or employee ID number and phone number with extension) to get a status update on my modification?

Applying for a Mortgage Loan Modification: Documentation Checklist

If you’re worried about home foreclosure, obtain a loan modification application packet from your mortgage lender and provide everything your lender requests. Most lenders require the following before considering your request to modify your mortgage:

  • Brief cover letter, along with a complete list of what’s included in your application

  • Hardship letter

  • Current financial statement

  • Projected financial statement

  • Home valuation (estimate of property value from an appraiser or other real estate professional in accordance with the laws of your state)

  • Proof of hardship (birth certificate, death certificate, medical bills, divorce papers, or bankruptcy papers, for example)

  • Federal tax returns (for the last two years)

  • W-2s (for the last two years)

  • Pay stubs (for the last four pay periods)

  • Bank statements (for the last four periods)

Questions to Ask a Mortgage Loan Modification Expert

When facing home foreclosure, you may want to discuss your options with a loan modification expert. Screen candidates carefully to make sure they have what it takes to successfully modify your mortgage. Always ask the following questions:

  • Are you licensed or certified, and if so, in which profession?

  • How long have you been in business?

  • How long have you been doing loan modifications?

  • How many loan modifications have you handled?

  • Of the total number of cases you’ve taken on, how many resulted in an affordable loan modification?

  • How many successful modifications have you negotiated with my lender?

  • How many clients have you turned away?

  • Who’s going to negotiate on my behalf?

  • Are you an attorney? Will I meet with an attorney?

  • How many hours does an attorney spend on my file?

  • How much do you charge?

  • Do I have to pay upfront?

  • What’s your refund policy?

  • If I reject the lender’s offer because it isn’t affordable or reasonable, do I get a refund?

  • I’m also considering Company XYZ; are you familiar with them?

Five Traps to Avoid When Modifying Your Mortgage Loan

When your mortgage lender presents an offer in response to your request for a loan modification, step carefully through the minefield to avoid these common traps:

  • Take-it-or-leave-it traps, such as “pay the past-due penalties now or roll them over into the balance,” when the lender has a third option of dropping the penalties.

  • Additional legal protections for the lender, such as requiring that in the event the lender loses the original loan documents, you must assist the lender in reproducing them.

  • Time bombs, like step-rate increases that are too steep or too frequent to adjust to or balloon payments that come due before you have time to prepare for them.

  • A loan modification that results in a payment you can’t really afford or that makes your budget so tight you’re one major car repair or medical expense away from default.

  • An interest rate that can automatically adjust based on an index over which you have no control.

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