Mortgage Video & Blogging Community

In Over Your Head?

After hearing another radio ad soliciting struggling homeowners to help them with their loan modifications, I just had to write something to educate people on how loan modifications work. By having the right information you can avoid loan modification companies and save thousands of dollars. Most loan modification companies take advantage of the fact that homeowners in, or on the verge of, foreclosure are vulnerable, scared and don’t know what to do. Many of them charge 3% or more of the loan amount. If you have a large loan amount this could be a lot of money, like $6000 for a $200,000 balance. On average a company will charge about $2000 to $2500.

I am writing to tell you that unless you don’t know your name, address, bank account information, who your employer is, why you’re having financial difficulty, or how to complete a form with this information, you don’t have to pay anyone to help you with a loan modification. These companies appeal to the emotions of people and make it seem like some big mystery and that they have some secret negotiating power with these banks. They don’t!

I would say every bank by now has a loan modification department set up within their bank and have established guidelines to determine if people qualify; these guidelines have been established by the Making Home Affordable Legislation. If you meet the following basic criteria you may qualify:

• You received your mortgage before January 1, 2009.
• Your monthly mortgage payment is more than 31% of your current monthly gross income.
• You can demonstrate a hardship which would include insufficient cash position to meet your mortgage payment obligations in the near future.

If you meet these criteria, then go to your bank’s website or call them to receive information of how to apply for a loan modification. Nearly every bank will have a downloadable package that has a checklist and the required forms you need. The list will likely include: bank statements, pay stubs, W2s, tax returns, homeowner insurance, mortgage statement, utility bill, and a hardship letter.

Once you have the package ready you can fax or mail it to the bank. I recommend faxing it to expedite the process. The underwriters will review your file to determine whether you qualify or not for the program. The process may take up to 120 days and you will first be required to make payments and submit documents during a trial period before having the loan permanently modified.

That’s all you have to do and now you see why you don’t have to pay Loan Modification companies big money for processing your paperwork. The helpful tool below, provided by the federal government outreach division, will ask you a series of questions to determine if you might qualify for a loan modification.