What is loan modification, and should I attempt it?

Before you decide to attempt a loan modification…
call 619-929-1413 or write td@tomdunlap.com for some no-cost advice.

A Loan Modification occurs when the bank modifies or changes the terms of your loan.

The most common modification is a temporary reduction in the interest rate and resulting payment.

As a result of massive Internet advertising and a variety of confusing news stories, many borrowers have a mistaken belief that a loan modification also is likely to include a big reduction in the amount owed. This is possible, but not likely. Statistics show that it happens in only 17.1% of all loan modifications.

Loan modifications sound good – but for many homeowners the attempt at modification has led to disappointment and greater financial loss.

When the Treasury launched the HAMP (Home Affordable Modification Program) in March 2009, they projected aid to up to 4 million homeowners within a few short months. However, as of January 2013, only about one million permanent modifications had been granted under the HAMP program. Overall, it has not been a huge success, nor has it benefited many homeowners. *

Proprietary modification programs implemented by mortgage servicers have produced slightly better results.

Due to confusion, poor record keeping, non-communication between bank employees, and lack of commitment on the part of loan servicers, some homeowners have found themselves in foreclosure while they thought they were working on a loan modification. Meanwhile, they’ve paid thousands in temporary modification payments.

Another reason for this failure is non-compliance by the loan servicers and a complete lack of enforcement by the government. The truth is that the financial incentive offered by the government for modifying a loan is far less than the financial incentive presented by foreclosure. The result has been thousands of preventable foreclosures.

Congressional panels and committees have put pressure on the Treasury to crack down on HAMP servicers who aren’t doing enough, and HAMP payments have been withheld from some of our largest banks.* But the abuse goes on.

If you’ve attempted a loan modification and failed, you need a “different than normal” approach to a short sale.Call 619-929-1413 or write td@tomdunlap.com to ask why. We’ll be glad to explain.

If “legitimate” programs weren’t bad enough, San Diego homeowners in distress also need to beware of Loan Modification scams.

Legitimate loan modification does not entail an up-front payment. Companies that promise to help you get a loan modification in exchange for a hefty up-front payment are simply scammers. If you’re contacted by such a company, run the other way.

They cannot and will not do anything that you cannot do for yourself.

*** NOTE: If you are facing imminent foreclosure, you might need professional assistance. Contact a trusted attorney. If a foreclosure is pending, you first need to make sure that the left hand tells the right hand to cancel it while the loan modification is in review.

Do it Yourself Loan Modification for San Diego Homeowners in Distress

THE FIRST STEP: Call the bank that has financed your home loan. Prepare to sit on hold for some time (45-60 minutes) and be transferred more than two or three times. Once you get the “right” person on the line, ask for the Loan Modification package and then ask them to list current programs that they offer.

Ask: “What should I know specifically about how your department works?”
Keep your requests simple and kill them with kindness.

THE SECOND STEP: Once you’ve received the Loan Modification package, READ and RE-READ it. Never assume that what you get in the mail is what you were promised.

THE THIRD STEP: Complete the package thoroughly.
Focus on this issue: WHAT CAN YOU AFFORD? The bank will judge what they think. If you cannot afford their basic bottom line, then you are wasting their time and yours.

The bank looks at debt to income (DTI) ratio — 80% of your net income (after taxes) divided by gross expenses, including monthly housing payment. That is THE trick: you must be able to afford what the modification might be OR you could burn a bridge.

Why? Because loan modification requires that you show you can afford the payments. Qualification for a short sale requires that you show you cannot afford the payments.

If you choose to follow the route of a DIY Loan Modification, keep in mind that you will basically be paying on one loan while the other balance sits frozen until you sell the property. If you eventually decide to sell, you will still have to pay the lender back.

Let’s say that you sell your home two years from now. If the value of your property has not gone up, you are back to square one looking at a short sale. And, two years from now, the climate for short sale approvals might not be so friendly.

THE FOURTH STEP: Before you submit the package, make a copy for yourself and make sure that the pages are in order.

THE FIFTH STEP: Cookie-cutter guidelines are issued that allow low-level employees to approve certain packages.

However, you need to take action and follow up on your case throughout the process. If you are asked to submit anything else in writing, do so within 48 hours to keep the file moving. Follow up with your point of contact every 10 business days. If you have not received a final decision after 30 days, escalate your case to the next level.

THE FINAL STEP: Once you’ve received an approval for your loan modification, you should receive initial paperwork. All should be well within 90 days. If not, something is wrong. Call the bank.

If you are a distressed San Diego homeowner and you aren’t sure if loan modification is the answer for you, call 619-929-1413 or write td@tomdunlap.com to arrange a no-obligation consultation and learn your options.

We’ll help you determine whether or not the bank would consider you for a modification and we’ll explain your other alternatives.
*References: Jon Pryor on Newswire Dec. 7, 2011

Leslie Berkman in The Press Enterprise Jan 14, 2012

Please note that the information provided on this San Diego short sale page is generic, academic information used for general information purposes and may not be construed as or relied upon as a promise for a specific outcome.

This site provides information about real estate, law, income taxes and credit scores as relates to borrowers in distress, short sales and similar situations. The site is designed to help users safely cope with their own needs. Information is not the same as advice — the application of law or regulations to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer, tax adviser or other specialist if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. The models in photographs accompanying the testimonials on this website are used for illustrative purposes and are not a personal endorsement.