Modifying a loan? Four things you need to know
We've received several emails from sources in our Public Insight Network about the nightmare that has been the loan modification process (ProPublica has also been tracking these frustrations). People can try to seek a loan modification from their lender if they are having trouble meeting their mortgage payments because of loss of income, change in interest rates or other reasons.
It took Raghav Singh of Northfield many months -- and many letters, phone calls and visits -- to complete a loan modification.
At the height of his frustration with his bank, he called Congressman John Kline's office seeking guidance and was referred to Lutheran Social Services.
Raghav is glad he did.
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"In one phone call, one of their counselors was able to tell me more about what to do and how to do it than in months of effort and attempts to talk with people," at this bank, he said.
The bank had rejected Raghav's earlier application, but after taking the advice of his counselor, the bank finally accepted his application and modified the loan.
Joanne Gilbertson, a certified credit and housing counselor at Lutheran Social Services based in Duluth. shared some of the tips that Raghav and others have benefited from:
1) Talk to someone neutral: Before you start the loan modification process, talk to someone who doesn't have a vested interest in the outcome (i.e banker, realtor). There are counselors available for free through places like Lutheran Social Services or the Home Ownership Preservation Foundation. They'll be able to tell you what your options are based on your situation (this could be the Home Affordable Modification Program, traditional modification, forbearance or a county assistance program). If you want to look at a modification, a counselor will probably be able to tell you before you even apply whether or not you'll be approved because...
2) It's all about numbers: Under the federal Home Affordable Modification Program, your monthly mortgage payment, including property taxes, insurance and interest, should be 31 percent of your gross monthly income. If your income is too low -- if your only source of income is unemployment, for example -- you will be denied. So depending on your situation, taking in a roommate or getting a part-time job might make all the difference.
3) Talk to the right department: Once you start talking to your bank, make sure you're talking to the loss mitigation department and not customer service or collections.
4) Follow-up weekly: Check in with the loss mitigation representative weekly to make sure your application doesn't slip through the cracks. If your application is missing a form or piece of information you may be able to catch it before your entire application is denied.
If you're ineligible for a modification here are a couple other things to keep in mind:
1) A short sale is not necessarily better than foreclosure: They'll have the same effect on your credit score and a short sale requires you to find a buyer. A foreclosure could give you more time to find a new place to live.
2) Stay ahead of the sheriff sale: You can file an affidavit to postpone the sheriff sale by five months. The trade-off is that this will shorten the redemption period to five weeks, as opposed to six months. This trade-off is not bad, since the only way to keep your home once it's in redemption is to pay off the entire loan in full.
Have you gone through a loan modification? What tips do you have for people considering their options? Leave yours in the comments or email me here.
Image by Hannah Webster via Flickr