| I recently visited a popular online forum with information | | | | PACKAGE BEFORE YOU START NEGOTIATING |
| on loan modifications. Many of the people posting | | | | Before calling and giving all your information, ask for a |
| messages have adjustable subprime mortgages and | | | | written loan modification package from your lender. If |
| are now desperately seeking solutions to their | | | | they are willing to send you an application, you will see |
| increased payments. The titles of the posts include, "I | | | | what information they need and what their policies are. |
| am Scared" "What a Mess I Got Myself Into" and | | | | You will then have time to reflect on your answers |
| "What an Expensive Lesson I Just Learned - Never | | | | and not be pressured into answering over the |
| Again." As I read the posts, I thought of how the | | | | telephone. Additionally, when lenders have their own |
| passengers on the Titanic must have felt as the boat | | | | unique forms, any applications which are not submitted |
| that "could not sink" began to tilt downward into the | | | | on those forms will fall to the bottom of the pile and |
| cold water. | | | | face delay in processing. |
| The great help the lenders claim to be offering the | | | | 3. KEEP YOUR COOL |
| troubled borrower does not appear to be what the | | | | Keep in mind that you are dealing with a department |
| borrower is actually getting. When borrowers attempt | | | | staffed with people who are swamped with calls from |
| to modify their loans they are met with resistance | | | | irate borrowers, each with the same sad story. These |
| from poorly informed "loan modification departments." | | | | employees become callous to the plights of the |
| While help from the government seems promising, | | | | borrowers. Furthermore, their employer, the lender, |
| three weeks have gone by since President Bush | | | | changes the policies and procedures almost daily. In |
| announced steps at the Federal level to help | | | | addition, the employees are worried that they will lose |
| homeowners avoid foreclosure. The Federal | | | | their jobs when the lender makes additional job cuts. |
| Government has instituted plans to help an estimated | | | | They may be calling their own mortgage company's |
| 60,000 delinquent - though credit-worthy borrowers. | | | | loan modification department next week. You are |
| These borrowers will be able refinance into FHA | | | | stressed, and so is the person on the other end of the |
| insured loans. This aid will be available to people who | | | | telephone. |
| were steered into high cost loans with teasers rates. | | | | 4. DOCUMENT EVERY COMMUNICATION MADE |
| This may be great help for 60,000 people, but what | | | | Keep a log of every telephone call or letter made, and |
| about the other two million borrowers whose monthly | | | | every telephone call or letter received. Include emails |
| payments are about to rise over the next eighteen | | | | and faxes in your log. Make certain that your log |
| months? Our Federal Government's response leaves | | | | contains dates, times, names, and titles. This information |
| them out in the cold. | | | | may be necessary to document what has been |
| Using another analogy, I am reminded of the response | | | | promised by the lender. |
| to the Hurricane Katrina disaster. Slow and inadequate | | | | 5. CREATE AN ACCURATE AND DETAILED |
| is how the government responds. What we need to | | | | EXPENSE REPORT |
| see is a "financial triage department" in every lender's | | | | Lenders base their decisions on your monthly budget |
| office. In the immediate chaos of Katrina, nobody knew | | | | which includes your income and expenses. They are |
| what was going on. Now, many months later, policies | | | | not interested in your hardship story, only in learning |
| are still being written and rewritten. The situation is | | | | whether the hardship is over. They are interested in |
| similar with mortgage crisis. Federal Chairman Ben | | | | knowing exactly how you are going to make your |
| Bernanke cut the interest rate a half a point which | | | | monthly payments. They want to see a sensible, |
| some thought would cause all the mortgage investors | | | | realistic, and reasonable monthly budget. For example:a. |
| to change their loan modification policies. However, | | | | If you are applying for a rate modification, your lender |
| more and more lenders are filing bankruptcy, and the | | | | will want to see that you have a negative residual |
| ones that are staying in business are laying off | | | | income. This shows that you cannot afford a rate |
| employees by the thousands. Many lenders are also | | | | increase. You will also need to that you have |
| becoming defendants in lawsuits brought by their | | | | discharged all possible expenses that are considered |
| investors. | | | | "excess" or "luxury living." You must provide evidence |
| If you have found yourself facing a mortgage | | | | that you have done all you can to lower your monthly |
| payment you cannot afford, and are contemplating | | | | expenses. They do not want to see expenses for |
| asking your lender for a loan modification, you must | | | | multiple cell phones, premium cable television, designer |
| know the economic reality. Lenders and their investors | | | | clothes, or extravagant dining and entertainment |
| are only concerned with profitability. That is, they base | | | | expenses. They want to see that your car payment |
| their decisions solely on monetary return. They want to | | | | matches a frugal lifestyle, meaning you do not drive a |
| see that modifying the loan will be more profitable than | | | | new Hummer.b. A string applicant will have a monthly |
| foreclosing on the subject property. The lenders want | | | | budget with a residual income about 25% greater than |
| to know you can make the modified monthly payment | | | | the monthly mortgage payment. This means that if |
| without fail. | | | | your mortgage payment is $2,000 per month, you |
| Because the majority of borrowers who are faced | | | | have an income of $2,500. These numbers must be |
| with unaffordable payments are victims of teaser | | | | verified by your bank statement or other |
| rates becoming expired, the modified payment will be | | | | documentation.c. If you lose your source of income |
| higher than the teaser rate. This means that if the | | | | due to unemployment or medical reasons, the lender |
| borrower could barely afford the teaser payment, | | | | will want to know whether such loss is permanent or |
| there is little chance of paying a higher amount, no | | | | temporary. If temporary, the lender will need to be |
| matter how small the increase. For borrowers with the | | | | assured that your income will return in the near future. |
| ability to slash their living expenses, do without an extra | | | | A permanent loss of income will result in denial of your |
| automobile or cell phone, and come up with extra | | | | loan modification. |
| money for the mortgage payment, the lender may be | | | | 6. HAVE A GOOD FAITH DEPOSIT |
| willing to accept less than the full increase in payment. | | | | I saved this point for last, because most borrowers do |
| The borrowers with the ability to pay close to what | | | | not understand its importance, and I want to make |
| the lender requires are the ones most likely to get a | | | | sure that it gets attention. Imagine being the lender and |
| loan modification. | | | | a borrower who has missed several months of |
| All economic indicators project that for many subprime | | | | payments calls you. That borrower tells you that he |
| borrowers with adjustable rate mortgages, default will | | | | has not been able to make any payments because |
| eventually occur. Capitalistic wisdom should dictate that | | | | the adjustable rate kicked in and the payment was too |
| financial institutions will cut their losses now and not | | | | high. This borrower filled out all the application forms |
| want to be taken down in the spiral as real estate | | | | and has begged for a loan modification. The borrower |
| values plummet over the months to come. The lenders | | | | has explained that he can pay a certain amount, but |
| knew that the subprime loans were made to high risk | | | | not the whole amount. You immediately think to |
| borrowers, but they took the risk. Now that they are | | | | yourself, "Well then, why has this borrower not made |
| faced with defaults on their investments, they may be | | | | any payment at all?" More to the point, you wonder |
| willing to lose some profit to avoid further loss. | | | | what this borrower has done with the money he |
| For those who are pursuing a negotiation for loan | | | | would have used to make the mortgage payments |
| modification with their lender, here are my suggestions: | | | | had the rate not increased. Can you see the problem |
| 1. LEARN YOUR LENDER POLICIES | | | | here? This borrower better have the mortgage |
| Become knowledgeable and familiar with your lender's | | | | payments in his savings account and be ready to |
| loan modification policies. For rate modifications, know if | | | | tender that amount to the lender as a good faith |
| the lender will accept an application before the rate | | | | deposit. Failure to do so will likely result in a denial of |
| becomes adjustable or increases. Some lenders | | | | the loan modification. |
| require a borrower to be delinquent for at least three | | | | In summary, lenders will modify loans only if the |
| months before they even accept an application for | | | | borrower can convince them that it is in the lender's |
| loan modification. Lenders often have different policies | | | | best financial interest to do so. That is what they want |
| for borrowers who can no longer pay due to job loss | | | | to see. They want to be assured that, no matter what, |
| or health issues. | | | | you want to keep your home and will do everything |
| 2. GET YOUR LENDERS LOAN MODIFICATION | | | | you can to make your payments. |