Mortgage modification can be a saving grace for many people, but others are thoroughly disappointed when a seemingly sure thing is denied to them. Lenders may appear to render assistance to all of their customers, but statistics indicate that the cry of homeowners for mortgage modification has fell on deaf ears. However, if you start the process well-informed and a few steps ahead, you have a much better chance for your mortgage modification request to be successful.
Reasons for Denial of Mortgage Modification Requests
- Ineligibility. The Federal National Mortgage Association (FNMA) cites several requirements for the eligibility of an applicant. One of them is that the loan should have originated before 1st January, 2009. The modification is allowed only once under the program. If it has been modified before, you are disqualified.
- Insufficient documentation. FNMA provides a list of all the documents that you should present along with your application forms. This includes your detailed credit report, all of your income sources, and a fully signed IRS 4506-T as proof of income. If you fail to provide all of the documents you will not qualify.
- Type of mortgage. Both fixed rate and adjustable mortgages qualify for modification but interest-only mortgages do not qualify. In an interest-only mortgage, you pay back the interest first within a given period of time after which you start paying the principal.
- Level of mortgage expense on the first lien. The FNMA has placed a special cap on the level of mortgage expense, given the household income. If it is already below 31% of your total household income, you will not qualify.
- Payment defaults. Some mortgagors are very strict with mortgage modifications. As a measure of ensuring that you will not land the firm in financial loss, they will look at your credit report to ensure that you have no default or missed payments. The presence of a late payment or missed payment in some cases will warrant a direct disqualification for mortgage modification.
Tips for Mortgage Modification Success
- Ask questions. Before striking a deal with the lender, know exactly what that mortgagor provides. There could be a misunderstanding in the deal that may lead to future problems. Mistakes can be avoided by asking questions to ensure clarity.
- Remain persistent. Many homeowners usually become frustrated when their mortgagor asks them to resubmit their documents once again. If you really need the mortgage modification, you should cooperate with the lender as much as possible and remain persistent throughout the process.
- Seek professional financial help. Are you an amateur in the mortgage modification process? If you are not mortgage savvy, it is better to seek professional help from a loan modification firm or an attorney. However, you should avoid revealing your private information such as credit card details to anyone except your lender. The firm or attorney should be approved by HUD. Do not pay any upfront fees.
- Know your lender. Knowing enough information about your selected mortgage modifier can help you to obtain a better modification. If you find out that the bank actually owns the loan then you stand a higher chance of enjoying more flexible terms. This you can do by directly asking the mortgagor or by visiting Fannie Mae and Freddie Mac online, then inputting your address to find out whether the loan is with Fannie Mae or Freddie Mac.
- Be very honest. Along with your application forms, the lender requires a significant amount of financial information about you. To streamline the process, give the lender all of the details that they require. Don’t fudge any numbers on the forms in order to make yourself eligible- that could catch up with you in the form of foreclosure. Some of the details that may be required of you include your monthly gross income, recent income tax return, savings, other assets, details of your first mortgage, account balances from your credit cards, minimum monthly payments due on all your credit cards and an explanation as to why your income has been reduced.
- Present an ideal financial hardship letter. This is a polite and detailed explanation about how you found yourself in a deep financial mess. The letter is very important because if your mortgage modification servicer is not convinced with your openness they will have questions as to how straightforward you will ever be. Do not leave any important point out. Be sure to include exact numbers and dates.
- Be realistic. Your job in the loan modification process ends once you submit all of the required paperwork. Then you will wait until you receive the interest rate offer. In case it is too high for you to repay, don’t sign the deal. Explain to the loan sales executive about the constraints on your budget so that you can manage repaying with relative ease. This is not desperation but realism.
- Document everything. Keep a record of everything discussed and determined each time you speak to a lender or receive some correspondence. The importance of having a track record of all these details is that you can use them to your defense when a foreclosure knocks at your door. You should also use only certified shipping companies so that some lenders won’t claim that they sent you some documents that you never received.
- Be flexible and patient. Don’t apply for a mortgage modification and be dead-set on how you expect the process to go. The whole process may take 30 to 90 days before approval. Even if you were told to wait for a call, if by the end of the agreed period there is no response, then you can courteously follow up to find out what the status is on the process. Patience pays at the end of the day.
- Proof of income. Lenders require all homeowners to provide proof of their income. This you should do not only by providing valid income documents but also a duly signed IRS Form 4506-T that allows the mortgage servicer to access your federal tax returns. In many institutions, this is the leading reason why many applicants are denied mortgage modifications. Learn more about the documentation process for mortgage loans.
Mortgage modification enables you to enjoy lower interest rates and manageable monthly repayments. If you have suffered a financial setback through injury, a natural disaster, divorce or any other misfortune, mortgage modification may provide the relief you are looking for to move forward positively with your finances.