If you can no longer afford your mortgage payment, but you can afford a lower payment, and if you cannot lower your payment by refinancing, you should seek a modification of your loan contract. The steps involved in getting your loan modified are:
A. Establish that you would not be better off to refinance instead.
B. Deliver the information the servicer requires, in the form the servicer specifies.
C. Assure that the information you provide is correct.
D. Assure that the information you deliver does not get lost in the shuffle.
E. Determine whether you are eligible for special modification programs, which the servicer might overlook.
F. Follow-up as needed.
Modification or Refinance?
In general, borrowers should seek a refinance rather than a modification if they can refinance at a significantly lower rate at a reasonable cost. However, you can’t refinance advantageously if you are behind in your existing payments, have little or no equity in your property, or don’t qualify for a refinance for other reasons such as a low FICO score or inability to document adequate income. If you are still not sure, read Mortgage Modification or Refinance?
Delivering the Information the Servicer Wants
The single most important part of the process is to place in the hands of the servicer all the information about you that the servicer needs to make a decision. While this information is pretty much the same for all servicers, each has its own questionnaire form which they expect to be used.
To help you with this, I have compiled the information required by each of the major servicers, and indicate how to access their questionnaire, in Mortgage Servicer Information Requirements.
Assuring Accuracy
Having the right form is one thing, filling it out correctly is something else. A questionnaire with obvious errors may fall to the bottom of the pile, or it may lead the servicer to conclude that you do not qualify for a loan modification when, in fact, you do.
Filling out the servicer’s questionnaire form correctly is a challenge to some borrowers, but free help is readily available. One of the purposes of HOPE NOW, the alliance of servicers, investors and counseling agencies established last year to help borrowers in trouble, was to provide free counseling. Borrowers can call 1-888-995-HOPE, or they can find a HUD counselor in their state by going to http://www.hud.gov/local/index.cfm.
Assuring Delivery
Most servicers prefer to receive documents by fax, although some also provide mailing addresses. I am informed that fax is more reliable, and I show the fax number of each servicer providing one in Mortgage Servicer Information Requirements. A few servicers, including Chase and Wells Fargo, want borrowers to call them before submitting detailed data, and provide only telephone numbers. They evidently prefer to have their own staff participate with the borrower in compiling the information.
Protect Your Documents Against Getting Lost
The principal danger of delivering documents by fax is that they will get mixed up with those of other borrowers. To prevent that, place your name and mortgage account number at the top of every page you fax.
Include Your Eligibility For Special Programs
Borrowers who took subprime adjustable rate mortgages (ARMs) after January 1, 2005, which have interest rates scheduled to reset before July 31, 2010, may be eligible for a modification under the “Fast Track Solution” adopted voluntarily by servicers last year. Borrowers with housing expenses that exceed 31% of their gross before-tax income may be eligible for a modification under the Government’s recent Making Home Affordable (MHA) program.
If you have good reason to believe that you are eligible under either program, add a statement to that effect in your hardship letter, which is part of every servicer’s information requirements. To determine your eligibility, go to Eligibility Under Fast Track, and Eligibility Under MHA. Servicers are under a lot of pressure and they just might overlook it.
Follow-Up
The process of modifying mortgages is slow and error-prone. A firm that 2 years ago may have had 2 people modifying mortgages, today may have 200, most of them newly trained. Development of computer systems has lagged and much of the work is done manually. At this writing, most of the servicers had not yet incorporated the MHA program into their systems.
So you may need to nudge the servicer. You should follow up the request for modification to make sure the papers haven’t been lost and the case is in an active queue. If the servicer’s stated policy is to reply within 21 days, call them on day 21 if you haven’t heard. If they give you a quick denial on the grounds of ineligibility, which you believe is wrong, let them know it is wrong – in a nice way. Remember that getting a modification is not a negotiation, and you have no place else to go.
The bottom line is that many, perhaps most borrowers can handle it all themselves, perhaps with an assist here or there from a free counselor. If that describes you, proceed to Mortgage Servicer Information Requirements, find your servicer from the list, download the servicer’s questionnaire and begin the process.
If you don’t feel up to the task and really want someone to “take over” the process for you, go to How to Get Help Without Getting Scammed.