Loan Modification and the Credit Score

When homeowners apply for a loan modification they are often concerned about their credit score. Looking at it logically, since modification does not add debt to the individual then credit score should not decrease. In fact, since the debt may decrease the credit score might even increase and start to get better. Once the payments are being made on a consistent basis the credit of course will gradually increase on a regular basis.

This is however the best case scenario because sometimes logic doesn’t always pertain to these matters. A lot of the influence on the credit score relies on the lender and how they report the modification to the credit bureau. Many lenders will actually report the mortgage as being paid less than the amount that was owed so it has a negative influence on the credit. If the home in already started in the foreclosure process then the credit score will have already decreased. This being said, modification does have the least amount of negative influence on the credit score out of foreclosure, bankruptcy, and the short sale.

The credit score is not the only thing that a homeowner has to watch for, at least not directly. Any amounts that were forgiven from the mortgage have to be put on the taxes as it is taxable. The amount that will be owed in taxes is still much less than the original amount forgiven, but some individuals do not realize this and end up in trouble with the IRS which then has a negative effect on the credit score.

It is important to find out how the lender will report any modification to the government so that the borrower can react to it appropriately. While credit scores go down easily they are not so simple to bring back up so a person needs to know what to expect.

Making the Loan Modification Process Faster

There are tens of thousands of individuals who are still waiting to hear back from the lenders concerning their loan modification application. They have made repeated phone calls only to discover that all of the documents haven’t been submitted or that a part of the application has been filled in wrong. These mistakes cost time which causes stress amongst other things. There are some methods of making this process go a bit faster for those who don’t wish to wait as long as everyone else. These steps should be taken right at the very beginning of the process.

When the borrower starts to collect the documents, there should be extra copies made of everything. Any communication that is kept with the lender should be noted. Even copies of the actual application should be made into duplicates because lenders do lose these items. When they are lost they cause huge delays and this can be prevented by having extra copies all ready to resubmit.

Creating a financial worksheet even if the lender has their own to use is of benefit because the borrower has everything organized in terms of the numbers involved. Lenders may insist on using their own sheets but at least the numbers will be ready to copy. This being said, having gone through the numbers already, the borrower will also know the information about their circumstances to a higher degree.

To make the financial sheet a better one and to have supporting evidence, all the bills concerning the home, utilities, debts, basic expenses and anything else relevant to the finances ought to be kept as well. This makes the financial sheet more accurate and will offer proof to any lender that requires it.

Even by doing these simple things, the modification process can be made simpler and thus move along faster. Since time is everything in this matter, these are very important to keep in mind.

Five Basic Rules for Loan Modification Application

There are many details to consider when applying for a loan modification but there are five basic rules that when heeded can make the whole process go a lot smoother. Much of this takes into account mistakes that others have made while applying when loans were being given out between 2001 and 2008 because this was the height of the times for these mortgages that are now giving so much trouble.

The first rule is to know and understand the basic rights of the borrower. There is a bit of reading that might go into this and a professional can assist in finding these rules, but in knowing them, there is a lot to be discovered about a person’s current mortgage. More than three quarters of the mortgages that were signed between 2001 and 2008 have violations in them written by the lender. Knowing these violations and bringing them into light gives a lot of leverage to obtain a good loan modification.

The second rule is not to wait too long before applying. Some lenders will consider a modification before a person defaults on the loan while others will not. Even in the case when the lender does not, a borrower should still gather the necessary documents and start the process as soon as they realize that they need the modification.

Another basic rule which depends solely on the situation of the individual is hiring assistance. There are loan modification companies that offer free advice and it is highly recommended to see a professional for consultation especially in the case that the person has no previous experience with such things.

The fourth and fifth rules work together. A person is advised against filing bankruptcy unless they have to because a person loses much more than their home by doing so but at the same time they are urged to have another solution to turn to in case the modification doesn’t work out.

Loan Modifications on Second Mortgages and Investment Properties

The Federal loan modification program has been a great help to those families suffering from bad economical times. Many individuals have received the reduction of principle, decrease in interest rates, and a lengthened amortization. There is one thing that all of these individuals have in common – they all fit the requirements which means that the mortgage was their first one, and it was on their primary residence. Unfortunately for those people who are struggling with second mortgages or with mortgages on investment properties, they are not eligible for this program.

There is some good news for these property owners because these are only eligibility requirements for that particular program. There are lenders who will modify other types of mortgages such as the second mortgage or those taken out on investment properties. These lenders still want to see their money like any other financial institute and are generally willing to negotiate.

One aspect that a person should inquire about pertaining to the loan modification process is whether or not they need a third party assistant. There are lenders that require this in order for them to even consider reviewing the application. They have their reasons for this, one being that they prefer to deal with professional advisors or lawyers due to the level of negotiations and other particular details. There are benefits for the homeowner in hiring a professional because modifications for these types of mortgages can be more difficult to obtain because there has been money borrowed in the past and they may just wish to let it go as a loss for the borrower.

Individuals who have been experiencing difficulty in paying their mortgages, whether they are second mortgages or they are on investment properties are urged to contact their lender concerning the requirements for this type of modification. The faster that the property owner knows the rules then the faster they can act.

Keeping Track of All Loan Modification Communication

Loan modifications take a few months to process and because there are so many papers involved and so many meetings and appointments to keep, it is important to keep track of all of this. Not only that, but there are phone calls to make concerning progress that have to be done.

It is assumed all too often that the lender is keeping track of all of the documents and all of the communication and to a certain extent they are doing that. However, they have thousands of customers and clients to take care of and it is easy to forget to call someone about a missing document and these documents do end up being misplaced at times. It is the responsibility of the homeowner to keep in contact with the lender every week or so to ask about the process and if there is anything else that is needed to help the process go smoother.

With all of this communication, it is advised that a homeowner log all of the dates and times of the communication as well as what has been said. This is to keep track of the schedule and the details of everything as a reminder if anything is needed and to ensure that the lender and the negotiations are being worked out on time. Lenders have three months to respond to the modification application and if they don’t it can be used in obtaining a better modification.

It doesn’t take too much extra to take these notes and track progress. The notes should be kept in the same place or in the same notebook so that they are all organized and they should be written according to date because in this way if a person ever needs to check back on something it will be easier to locate. It might not seem that important at the beginning but as the process continues, the homeowner will eventually realize that it is.

Compare Loan Modification Companies before Making the Choice

There are countless numbers of loan modification companies that exist to help individuals with their loan modification application and negotiations. Within these companies there are multiple differences even amongst those that are affiliated with each other. This means that an individual really ought to compare the companies before making the choice of who to have working for them.

The types of staff members that the companies have change depending on the services that they provide. Some of them only staff financial advisors and counselors whereas others have attorneys on staff. Various companies will also hire an attorney from another firm to assist in these matters. There are law firms that can be hired but they don’t necessarily only involve themselves with loan modifications so it is necessary to inquire as to their experience in the field.

Other differences within the companies include the services that they offer including whether or not they help to write up the paperwork, submit the documents, and how much they are willing to negotiate. The prices of the services are generally based on their services and their expertise. Those companies with attorneys are more expensive than those without. This being said, there are advising companies and other sorts of loan modification firms that charge a large amount of money but don’t do the work so it is always important to check up on the company and look at their success rate before hiring.

Looking at the success rate of the company is a part of the background check that is recommended to always be completed. Their background, credentials, work history, and complaints history should be investigated first even if the individual is limited on time. It can save a lot of heartache and hassle when it comes time to have the work done and pay the bill.

Getting Ready for Loan Modification

When an individual is getting ready to apply for loan modification there are a number of tasks to complete and they aren’t just related to the actual paperwork. A person has to be prepared to know what to expect which takes some research. It takes time to resolve these issues with the lender and in fact they have three months to respond to the modification package that has been sent into the lender. This time can be very stressful because the individual isn’t aware of what is happening, although it does help to contact the lender every week or so to find out.

Getting the papers ready to submit is something that should be taken quite seriously. Even if one paper is missing it can ruin the whole application. This can be prevented by reading the materials included with the loan modification instructions given by the lender. Once the papers have been prepared, it is essential to contact the lender three or four days after to ask if they have received it. When they have received it then they have three months to respond.

The three months, if they do indeed take that long, can be the most difficult three months or the best three months and it all depends on the attitude taken by the homeowner. The foreclosure process is stalled during this time so there are no payments taken while the lender is reviewing the application. Although this time may be stressful it can also be a relief.

Although timing is everything with finances and with loan modification, there should always be the right amount of time for preparation no matter if it for doing the paperwork, researching or even psychologically preparing oneself. It can be a tough process in terms of stress and gathering documents but in the case that a good modification is signed then it has been time well spent.

Using Forensic Audits in the Client’s Favor

Forensic audits occur when a professional such as an attorney looks through loan papers to find mistakes or violations. This can be requested by the borrower to give them leverage when they want a modification. Between 2001 and 2008, over three quarters of the loans that were made had violations in them that were actually considered to be part of predatory lending. When the borrowers of these loans went to receive a modification, in the cases that they weren’t aware of the violations, they weren’t necessarily given a good modification if they were given one at all. For those individuals that went into the loan modification process knowing about a violation, they did very well with the negotiations and even received a large reduction in the principle.

Banks usually do their own audits now – at least the ones that are more concerned about violations – but sometimes there are terms that can be caught. Anyone who has had a loan especially between 2001 and 2008 that need help with their loans and are looking to a modification as the solution may want to consider having a forensic audit completed on their file. If there is a mistake caught, even if it is an accidental one, it can be used to the client’s benefit. If not then the client is still able to apply for a modification they just won’t have as much leverage against the lender.

There is software available that can perform these audits but it is still recommended to have a person complete it because there is nothing better than the human eye for catching such mistakes. Fees vary for these services and one does have to be careful with whom they hire but when they hire the right person, that leverage that they really need may just be found.

Timing is Everything with Loan Modifications

Finances are something that shouldn’t be taken lightly at times when the family is in serious trouble with making mortgage payments. Timing is very important and when the payments aren’t made on time or are missed for three months, the foreclosure process is started. This can be ceased through an application for modification but even this takes the right timing as well.

Technically, in many cases, a person can apply for modification before they default but it is more difficult to obtain one. If the modification already hasn’t been applied for, it should be as soon as possible after the notice of default has been received. This being said, it is very important to write the proposal correctly and have all of the required documents to accompany it. Calling the lender to let them know of the intention is the first step. The individual has to talk to the loss mitigation officer about this and there will be an interview to complete. Once the loan modification proposal has been sent in, the bank has three months to respond during which time the foreclosure process is delayed.

The client needs to keep in constant communication with the lender during this time to make sure that the bank has all of the documents and to see if there is anything else needed. It also helps to reduce stress because the borrower will know what is going on each step of the way.

Once the applicant is accepted for the trial period of modification, the payments have to be made on time and at the end of the trial, they must be up to date with their payments or they will not be given the permanent agreement. This is the same for the permanent program – payments must be made on time.

At every step of the way with mortgages and modification, timing is always crucial. For anyone considering this approach to their loan modifications, they are urged to be on time with everything.

Simplified Guidelines for the Home Affordable Modification Program

When word spread around concerning the Affordable Home loan Modification Program there was a lot of excitement. It meant hope for millions of families who had succumbed to a deteriorating economy. This hope for some was devastated because of the guidelines that weren’t heavily publicized until July of 2009 that many still didn’t understand. While these individuals may have been eligible, the lack of understanding, not just from their part but on the part of the professionals, stood in their way of getting this much needed relief.

The guidelines, for those who don’t know, specify that an applicant can only owe certain amounts on their principle loan depending on the amount of units that their home consists of. The modification can also only be for a first mortgage – not for second mortgages – and it has to be on the primary residence of the applicant. It cannot be for an investment property.

As for the requirements regarding the monthly payments, the payment has to exceed 31% of the gross monthly income because the modification reduces it to under that percentage. For the budget sheet, the net income of the home has to be more than the expenses or the application will be denied. This is due to the fact that the lender can’t believe a person will make even the modified payments when they can’t afford the basic living expenses.

Modifications are created to assist individuals who are struggling with their finances but they have to be able to prove that they can make the modified payments without defaulting. It might be difficult but there are tens of thousands of families or more who have proven that already. With some adjustments on the application for those who need it, and the paperwork to back up all of the statements, homeowners can receive these modifications but they must first understand what is required of them so that they can give the lender exactly what they want to see.