Are you BANKING on a Loan Modification to save your home?
Successful arrangement of a loan mod requires you to CONVINCE the lender that modification is MORE PROFITABLE, than the sale of your home. Loan mod is a financial decision, YOUR NEEDS are of no concern to the lender. Understanding how the game works and when to assert your legal rights is critical to SAVING your HOME. But what you don’t know, can hurt you.
This list of 7 tips can improve your chances of saving your home and buying more time:
- Do not pay anyone for loan modification services in advance (Its illegal for anyone, including a lawyer, to charge advance fees for processing, negotiating or arranging loan modification applications. A request for a loan mod is NOT a negotiation; if you receive a loan mod offer, it will likely be a “take it or leave it” situation. You do not need a lawyer to process a loan modification, but you will need a lawyer to monitor your lender’s legal compliance, delay the auction date and advocate your state and federal rights. Just fill out the application, document your income\expenses, explain your hardship, follow up and provide requested documents ON TIME. What happens next is key: does the lender proceed to violate your rights, wrongfully deny a permanent modification or try to pre-maturely sell your home? Ask Joe.)
- Do not assume that you have a legal right or any entitlement to a loan modification (Welcome to capitalism: you signed a contract wherein you promised to repay money lent for the purchase or refinance of your home and agreed your home could be involuntarily sold if you broke your word…regardless of WHY. The lender holds all the cards and is not likely to modify your loan unless it calculates that a hypothetical affordable modification is MORE PROFITABLE then forcing an immediate sale of your home, collecting the debt and investing elsewhere. The lender’s decision to modify is purely a business choice, not an entitlement program. If you are denied, ask Joe to figure out why and what can be done to save your home.)
- The government is no longer in the loan modification business, but the “NPV” test lives on (From 2009 to 2016, the U.S. Treasury managed the Home Affordable Modification Program (“HAMP”), which incentivized loan servicers to consider folks for modifications based on published guidelines. HAMP provided some logic to how loan servicers picked the winners and losers of the modification game based on hypothetical profitability measured by a “Net Present Value” (“NPV”) analysis. The HAMP program was not continued under the Trump administration. Most lenders still consider applications and offer proprietary loan mods, but only when it’s in their BEST FINANCIAL INTEREST (high NPV), not yours. While the proprietary guidelines are not published, the underwriters still measure what you can afford, your likelihood of re-default and your equity, to calculate NPV. Want to know your NPV? Ask Joe.)
- Loan servicers could not care less about you, your family or your hardships, it’s all about their profit (Loan servicers are the hired collectors of investors; in general servicers earn THREE TIMES the fees on a loan that is in default. Loan servicers have little incentive to process your application competently or urgently as they DO NOT OWN YOUR LOAN. Nor do loan servicers hand out better loan mods based upon the severity of your hardship. The decision to modify is purely financial; based on the comparison of the projected return on investment of the loan mod versus foreclosure and re-investment of proceeds. If you have substantial equity or breached a previous loan mod, lenders are more likely to FORCE A SALE to get rid of a risky borrower. To better understand your options, ask Joe)
- Know the range of your income “sweet spot” (Saving your home is all about income. Loan servicers use similar underwriting concepts when you apply for a traditional mortgage. It’s all about the RISK of YOU. Your income range needs to be provable, sustainable and sufficient to pay off the loan. Income cannot be too high or too low. As a baseline, “reverse engineer” a hypothetical, affordable loan mod that pays off the debt over 40-year period at a 2% interest rate. If you lack sufficient income to fund this scenario, you are highly likely to be denied. However, that does not mean you should not re-apply; if for no other reason then to buy time to change your financial circumstances. Need help? Ask Joe.)
- Know the range of the value of your home (After income, the lender’s assumed value of your home is another critical variable affecting the outcome of your loan mod application. If the lender over values your home, demand an appraisal. From the lender’s perspective, trusting that you will not default on a modification agreement is risky. The lender’s willingness to take on the risk depends on the alternative: foreclosure and re-investment in a more reliable borrower. Therefore, the value of your home is crucial to the lender’s decision to risk modification as is the interest rate that you can afford. If a more profitable investment of the money tied up in your home is available, lenders will pursue it. Need a broker opinion of value? ask Joe.)
- Read the fine print of any TRIAL or PERMANENT modification agreement (When a lender chooses to modify, they nearly always offer a TRIAL modification for a fixed period, at a fixed monthly payment and often require a down payment. The terms of the PERMANENT modification are not revealed until you complete the TRIAL. BEWARE; there is no guarantee that you will ever receive a PERMANENT modification under the same terms. Lenders engage in “bait and switch” tactics where they leave you in the TRIAL mod for an extended period or provide a PERMANENT mod that has a higher monthly payment or other unfavorable terms. Need the modification reviewed? Ask Joe.)
Consulting with a reputable foreclosure defense attorney should be your first move, but if you want to try to do it yourself or play lawyer, arm yourself with knowledge!