This past Memorial Day weekend, as I drove through Edgewater, I counted no less than 13 road signs for loan modification services. That was just driving up Solomon’s Island Road through Edgewater. Time and again we see friends, family members and even ourselves running up against ever-falling housing values. The real estate market continues to be tough.
Although there are some signs of inventory reductions, those are temporary as Freddie Mac and Fannie Mae continue to hold back several million homes from the market.
My own research has shown that less than 30 percent of all requests for refinancing are accomplished now, not due to credit scores or even the unfair income calculations being imposed upon underwriters by the guideline writers. No, the single most recorded reason for refinance denials now is the appraisal valuations coming in well below estimated values.
Even with the 12 month extension of HARP (Home Affordable Refinance Program), whereby lenders, under certain conditions, are able to lend to borrowers whose loan balances are somewhat higher than the current market values, home values have dropped so significantly that even with the ability to borrow 125 percent of the current market value of one’s home, this is not enough. So, we have seen the increase of advertising for loan modification “specialists.”
Let me state, categorically, that most loan modification advertisers are scammers who are doing nothing that you are unable to do yourself with some hard work, dedication and thoughtfulness. While there are a few, ethical and legal loan modification specialists out there, most are simply profiting on the backs of those who are desperate.
In some cases, it can cost thousands of dollars, out of pocket, to hire a loan modification “expert” who will assist you in acquiring the documentation necessary to apply for a modification from your current mortgage servicer. There are those occasions where a consumer may not have the wherewithal to compile the required volumes of documentation to make a complete loan modification application. However, those circumstances are rare.
In my own office, we have assisted only two clients in obtaining loan modifications as they were incapable of completing the process on their own. The vast majority of our clients are entirely capable of handling the paperwork themselves. In some cases, there may be merely a matter of not having the time available to prepare the documentary evidences sufficiently or professionally enough to pass the muster of the loss mitigation negotiator at your bank.
Then it might be worth employing the assistance of a qualified specialist. However, most who are advertising loan modification services are not truly qualified. Furthermore, no loan modification specialist can ever guarantee success. At best, they can guarantee that they will perform the services they possibly can for the fees they charge. But they get paid whether they succeed or not. For the most part, the average consumer has as much chance of success as any “expert," since it is your own lender which makes the decision whether to modify or not modify the terms of your lending contract.
Make no mistake, this is exactly what you are asking your bank to do: modify the terms of an existing contract. You singed that contract. You entered into that contract willingly, with full knowledge of its consequences. Just because your circumstances may have changed, the bank is, in no way required to alter the contract. If they do so, it will be for economic reasons.
In other words, it must be in the bank’s better interest to modify your loan terms rather than have you go into default. An ethical and qualified loan modification specialist may have some tools at his or her disposal which makes demonstrating this reality to your bank easier or more effective. But, if you can provide the bank’s loss mitigation negotiator with clear, concise and convincing evidence that it is in the bank’s better financial interest to modify your loan, often you will be successful. But, there are no guarantees.
Your loan servicer will have a process and procedure they want you to follow. Often they will have a prepared package of information required, stacking order of the documentation and will require a “hardship” letter.
Make no mistake, this hardship letter is of vital importance. You must demonstrate a compelling and authentic reason that you need the modification. Merely wanting a lower payment will not suffice. Your hardship letter must provide the negotiator with the reasons you find yourself incapable of maintaining the current payments, but that you can make lower payments regularly and permanently. You must describe not only how you found yourself in this financial position, but also how you have resolved that circumstance such that you will be able to make the new payments. What steps have you taken to alter the circumstances and become financially stable.
Then, the negotiator will demand your tax returns, evidence of any income such as pay stubs, W2s, 1099s, and bank statements showing your assets. All this will go into their determination of your capacity to make payments. Again, you must remember that you have not right to a modification. You are asking a party to a contract into which you entered to alter that contract on your behalf. There must be reasonable certitude that the new terms will be able to be met by you.
Lastly, many banks are willing to consider modification requests. Some banks are easier to work with than others. Some have legal issues of which you may not be aware which preclude them from modifying contracts. However, if you find yourself in the unenviable position whereby such modification may be needed, there is hope in that you are probably perfectly capable of compiling the documentation needed to be successful.
If you are not confident that you can be successful on your own, then make sure that you contact only a competent, ethical expert who can help you to determine your true payment potential and to structure your modification request appropriately.