Loan Modifications: The Loan Workout Formula To Accelerate Your Modification

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The News is littered with horror stories of homeowners that have been taken for a red tape ride, paperwork is lost, or applications are dropped because a vital piece of paperwork that was never actually requested is missing, all while homes are ultimately and tragically lost.

What can be done to accelerate this process and avoid being a main character in one of these horror stories. The truth is that there are no magic solutions, in some cases loan modifications are simply not an option.

That said, lenders have come up with a kind of formula to speed up loan workouts. If you fit these standards you can get relatively quick help, if you don’t you must wait for the traditional case by case process. Unfortunately there are no guarantees and seemingly great candidates have also been abused by the system, but knowing the system lenders follow to fast track loan modifications can only help.

So what are the requirements?

1) Your loan must be at least 60 days past due. Some banks require at least 90 days. One of the reasons for this is that the bank needs to be sure you really can’t afford the loan. If you are struggling but can make the payments Banks are not going to want to throw money away at a loan modification.
This does not mean I am recommending you to not pay your mortgage payments. Every case is different and in some cases you have more leverage on your bank if you have a good record. Check out www.hud.gov to find out where your closest mortgage counseling office is to get personalized advice.

2) You need to prove you can’t pay your mortgage. Your expenses must exceed your income. Be ready with pertinent paperwork, you will be asked to prove this.

3) The loan modification must be a long term solution. That means the cost of the monthly payments must be under 38% of your monthly income.

4) You can’t be in bankruptcy.

5) A loan modification must be a good deal for the lender. That means that the cost of modifying your loan must be cheaper than what the lenders would lose if they went ahead and sold your home. For instance, if you live in an area where homes did not fall in price and there is a high demand of houses (not sure where that would be, but let’s imagine) then the lenders are very unlikely to accept your lower interest and reduced principal balance requests when they can simply foreclose on the mortgage and sell your home for the same price or even a potential profit.

6) You need to be able to prove that you can make the modified payments and that you will not default again.

Again, these requirements will not guarantee an approval but will increase your chances. The main point you need to get across to your bank or whoever the owner of your loan is, is that you are a good investment. That you are worth more money as a client than your home is worth with a foreclosure.