Why Homeowners Fail To Modify Their Home Loan
Ever since the loan mod craze began a few years ago
, homeowners far and wide, rich and poor, have come out in droves to attempt a modification of their home loan. The success rate of homeowners attempting their own modification was a staggering sub 20%. Why such a low success rate?
First, we begin with the two groups on opposite ends of the spectrum, the haves and have-nots, they either possessed no hardship at all or a hardship too great to overcome. The former group, are the wants, they wanted to lower their payment, but could still afford their current payment. A bank viewing this modification request would simply decline on the basis that with little to no budgeting, this particular borrower could afford the payment. Simply put, the bank is not sympathetic to a borrower having to budget, if the numbers indicate that borrower can make their mortgage every month. The latter was the group that was bringing in little to no income, thus making any payment unaffordable. A bank looking an income situation (or lack of) of a jobless borrower, would determine that even with significant relief, this particular borrow can not afford the payment.
The haves and have-nots aside, why are borrowers so unsuccessful at modifying their home loan? The next answer would be the type of loan the borrower is in. The borrower needs to ask themselves the question, is their any room for relief in my loan? If a borrower is already in a 5.5% 30 year fix, there is no way to go too far down for some relief. Or say the borrower is having trouble making interest-only payments. The loan is scheduled to adjust at some point to amoritized payments, which usually results in a significant increase. If the borrower can only afford interest-only payments, that simply means they are in too much house. These borrowers are the casualties of the over-extended, stated income, irresponsible way of lending (and borrowing) that created the real estate bubble and subsequent collapse.
OK, the borrower has passed the first two tests, they fall in between a have and have-not, and their loan has some room for relief. Why cant THIS borrower get a modification? They probably could, if they follow two simple rules: 1. They package an attractive deal to the bank. 2. They continue to be persistent and organized with document submissions and phone calls.
Lets tackle the first rule; packaging an attractive deal to the bank. An attractive deal for the bank is one where the borrowers deficit is neither too high nor too low. A borrowers deficit or surplus should not be more then a few hundred dollars in either direction. To do this the borrower is going to have to budget properly to bring their monthly expenses closer to their monthly net income. In other words, the borrower either needs to add necessary (at least appear to be necessary expenses) or remove unnecessary expenses. The bank is going to contest large expenditures, such as: grocery bills more then $200 per person, unusually high utility bills, frivolous expenditures, and large car loans. The best financial form is the one that is submitted to the bank with a small surplus or deficit and only necessary expenses.
Now, the second rule; be persistent and organized. Most loan mod failures by banks were blamed on the borrowers not submitting proper documentation. And conversely, the borrowers blame their loan mod failure on the banks mishandling of documents. The fault more likely lies with the bank. It is important that the borrower keep a written record of each conversation they have and documents submitted. Simple notes will suffice, just enough to remember the conversation and the date. It is also very helpful to be able to tell a customer service rep what you sent them, and when you sent it. A borrower that calls the bank 5 times is likely to get 5 different answers, it is extremely helpful to be able to tell the rep, what you have been told in the past and by whom. Some reps will be helpful, others not so much. Sometimes it is just easier and more effective to call back and speak to someone else. When dealing with the helpful reps, remember, you catch more bees with honey. It is important to not be a pushover, but realize these reps are dealing with angry borrowers all day. The good reps will be more then willing to help a polite and concerned borrower. Remember, this process is completely frustrating, keeping organized and preparing for the frustration is the only way to make this process tolerable. The borrower should never count on the bank to be organized for them.
The secrets to a successful loan mod are really no secret. It is a long tiring process, which will not happen if left to the bank to complete. The borrower needs to call the bank at least 1-2 times a week. Even if the borrower gets the same answer, they should continue to call. The bank will advise that frequent calls are unnecessary and could delay the mod. Rest assured, they are very necessary and will do nothing to cause any delay.
by: Mark Korte
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