Loan Mod basics

“My option arm reset and, well, I was in big trouble. After using the LoanModication manual I was able to get my loan down to 2% for 5 years.  The manual walked me through every step of the transaction.

This section is designed to take you through some of the more basic questions surrounding loan workouts/modifications. 

LOAN MODIFICATION DEFINITION

A loan modification, in its simplest terms is a amendment to an existing mortgage usually applied toward notes where the borrower is either in default (or close to). The manual is designed to take you through the entire loan modification process from start to finish.

CAN I DO IT (MODIFY MY OWN LOAN)?

Yes. We’ve helped hundreds of folks negotiate their way out of this difficult situation. With a little bit of luck and I high degree of patience, you too can execute on a loan modification.

Hiring a loss mitigation specialist—usually a former real estate or mortgage broker—will cost a minimum of $1500 upfront. Depending on the complexity of your case, a specialist could cost twice as much with absolutely no guarantee of a positive outcome.

Truth be told, unfortunately this industry attracts a large amount of fraudsters and scammer. After reading this manual you should be prepared to handle this process from start to finish. If for some reason you decide to go with a loss mitigation firm follow the great Ronald Reagan and, “Trust but verify,” with actual customer feedback.

WHY ARE WE IN THIS SITUATION?

We’ve just experienced one the most profound credit and real estate bubbles of the past century. Since 1999 mortgage lenders and Wall Street investors took large financial risks lending money to overzealous borrowers in hotbed areas like Las Vegas, South Florida and Southern California.

The explosion in the availability of mortgage credit for low/moderate income families—those with credit scores below 650—led to the demise of one of the greatest bull markets in the history of real estate. In 2006 subprime lenders nationwide made loans totaling $640 billion.

The volume represents a twenty-fold increase since 1994 and a doubling since 2003. One in every five home loans originated in 2005 was a subprime loan, growing to nearly one in four through the first three quarters of 2006. The sector has $1.2 trillion of mortgages currently outstanding.

Other factors that led to the demise of the current housing market are as follows:

• Risky products (option ARMS, negative amortization loans, etc.)
• Loose qualifying standards and business practices
• Broker abuses and perverse incentives
• Investor speculation and ratings agencies risk pricing issues

One things clear: the euphoric business cycle created an environment where lenders took irrational risks in spite of mounting evidence that it would be nearly impossible for most home owners to continue making payments in the event their home values going down.

WHAT IS THE STATUS OF THE CURRENT HOUSING MARKET?

It’s hard to think of a price boom as big as what took place in the residential real estate market between 1999 and 2006, so it appears like we’re still quite far from a having reached the bottom of the market.

The good thing is that America isn’t one housing market, it actually many small markets. Many parts of the country did not experience huge price booms, and in other places prices will me more constant over the next five years.

The areas that will have the biggest price declines are probably those where the increases were the biggest and the fewer constraints on supply, like the desert region of the Southwest – places where, for some reason, prices soared above construction costs.

Given that it’s impossible to analyze your independent situation, you should be aware of the house values (comps) in your neighborhood. By asking people in your neighborhood if any homes have sold and for how much you will have a better case to benchmark your existing loan against. This data will be tremendously helpful in your loan modification process.

WILL THE LENDER NEGOTIATE WITH ME?

Lenders often claim that the costs surrounding foreclosure alone gives adequate incentive to avoid placing borrowers into unsustainable loans, but this has proved false. Lenders have taken as much risk as anyone in these turbulent times.

Until recently, lenders have reduced the risks of making bad loans by their ability to sell their mortgages to Wall Street firms, who in turn pool, package and sell securities to capital market investors worldwide. Lenders typically hold mortgages for only a brief period, when teaser rates are still in effect. After that, they are sold to the secondary market, leaving some lenders off the hook when foreclosures occur.

Still, today’s biggest firms such as Countrywide (now owned by Bank of America) and GMAC face dire situations. With huge amounts of people going late on their mortgage, lenders are now forced to find ways to keep people like you in their homes.

So, yes, lenders will negotiate with prepared and diligent homeowners because they have few options.

Believe it or not, most folks who go late on their mortgage never call, write and ostensibly drop off the face of the Earth. This notion alone play to the advantage of proactive folks willing to do the dirty work and contact the lender directly.

In fact, Countrywide, the nation’s largest lender said that it had performed more than 20,000 direct loan modifications in 2007. You can expect that number to spike dramatically in 2009 as many mortgages adjust.

LENDER OPTIONS

Mortgage lenders want to find simple ways to restructure loans—not because they are good people—but because it is in their own financial interest to do so. In most situations, lenders are often left with 3 options:

• Modify loan terms
• Short sale
• Default and subsequent foreclosure

Mortgage lenders do not profit from foreclosure situations. In fact,
If you are two or more months behind in your mortgage payments you may be encouraging the foreclosure process if the lender is not been given the opportunity to negotiate with you.

DOCUMENT PREPARATION

In order to effectively negotiate with your lender you must have the following documents in order:

• Financial worksheet (outline of your assets and monthly payments)
• Hardship letter (template enclosed in this manual pg. )
• 3 months bank statements
• Most recent 2 year tax returns
• Most recent pay stub
• Borrowers authorization (if you are receiving help from a third party negotiator)
• Any 2nd lien information (if applicable)
• Property tax or HOA information (if applicable)

Aggregate these documents and make sure you are able to find them quickly if necessary.

MENTAL PREPARATION

As you very well know, this is a highly stressful time. Too many good folks lose their composure and patience during this difficult period. Before ever picking up the phone you must sit down and realize this process takes time – sometimes even months.

Remember to approach this situation in a position of strength. Calling your lender gives you power; don’t forget this. The more people you talk to, the more you can document the calls, the better chance you have of finding someone that will listen to your case.

Here’s a few simple tips we advise you to follow:

• Find a quiet place within your residence to make the calls
• Do not use your cell phone (the average call will take more than 30 minutes)
• Attempt calls in off peak hours (avoid Mondays if possible)

It’s also quite relevant to understand the lender needs. Most lenders would rather work with a borrower to find a solution and avoid foreclosure. Foreclosures are expensive and usually result in a catastrophic financial loss to the holder(s) of the note.

Generally, the lender wants to see:

• The loan delinquency was due to circumstances beyond the borrower’s control (injury, illness, job loss or unexpected living expense increase), and
• You have a reasonable plan to regain financial security permanently and can be trusted to remain current on the mortgage going forward.