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Loan Modification Lessons Learned

I am not a banker, I have never worked at a bank or as a financial advisor, nor have I had any schooling in these areas. That being said, I seem to have become somewhat of an "expert" in this area having tried to get my loan modified three times. I have learned many things that first time loan modification applicant may find helpful. Here's a little background information.

The first time we applied for a modification, they wanted us to undergo a forbearance. This is a plan that does not guarantee a modification but helps you to pay off outstanding debt by reducing your mortgage payment so you can apply the additional money you would be paying to your mortgage company to pay down other debt. I did not want to do that because I was leery about having the $5,482.97 needed at the end of the plan arrangement and chose not to agree to their plan because a modification was not guaranteed and my bank has pulled a whole lot of stunts on me in the past that caused me not to trust them or their motives.

The next two times I prequalified for the federal loan modification and went through the entire process twice, getting disqualified in the end because they took into consideration the fact that we get a couple of bonuses a year and added that into our monthly income.

I'm going to make one final attempt at a regular bank backed loan modification with my bank since that seems to be my only option. Why try again? I have learned some lessons from the first few times that may help me to get a non-federal loan modification.

Now, for the tips you were searching for.

If you are trying to get a federal loan modification, I just want to make sure you are clear on the point that keeps hanging us up. The 31% of income that your home payment should not exceed is taken on a before tax basis, so do the math yourself before bothering to attempt it. It also only includes p&i, property tax, and insurance no other expenses. Even if you meet all of the other qualifications this one will get you thrown out of the program.

My other loan modification tips are good for any type of loan modification you may be seeking.

Loan modifications create a bad payment history for you with your bank as well. Here's how: you pay less than the payment agreed to on a time table set up for you by your bank. They hold the funds you send them (on time according to your agreement) in a non-interest bearing account and only apply payments once they are enough to pay the original loan amount. If refinancing may have been an option for you before attempting a loan modification, it probably won't be by the time you are done. Believe me, I've asked. I also can not get rid of my escrow account because of that same problem.

In general they want you to update your income and expenses every month. Even if they don't ask, you should keep them updated anyway. If you don't, they may call and try to update your information over the phone. Guesstimates will get your prequalification thrown out because your statements are not in keeping with the facts that they discover. They research the stuff and catch you on anything they can so they don't actually "have" to give you a modification.

Keep meticulous records. I started keeping all of the letter and communications I have gotten from the bank because it not only helps me to keep track of what happened when, but it has also helped me when they tried to claim I didn't pay the proper amount for my payment. I was able to come up with proof of how much they asked me for even though their records may have stated otherwise. This means keeping copies of letters, paperwork, fax transmission confirmations, and documentation that you send to them as well. It does become quite a lot of paperwork to keep track of, but it gives peace of mind that even though it may take a while to find the information I'm looking for, I'll have it.

Get the name of every person that you speak to at the bank, record major points of discussions with each person, as well as the date and time of the conversation. Every time you are transferred to a different department, get the new person's name. This may seem like tedious work, but it can help to save you many headaches in the future. Unfortunately I did not do this at the beginning which is what caused my lack of trust in my bank. They do not always document all parts of your discussion in their records and if you can't even come up with a name then they won't believe anything you say even if you've been a good customer of their for over 20 years with a spotless payment record.

Even though the bank says they want you to have a balanced budget, with a little bit of money left over each month, be careful. This doesn't mean to lie about your finances or anything, I refuse to be dishonest to get the help I need. I cut all of the corners I possibly could before seeking help from my bank and I was "only" short by about $40 per month according to my records, so apparently I just need to cut a few more expenses and don't need a modification. They don't seem to understand that employer sponsored health care has this thing called an open enrollment period which prevents us from changing our coverage whenever we "want" to.

I hope I have provided you some helpful information and insights. If you are looking for a loan modification I want to with you the best of luck with your process.

Thank you for stopping by to chat with me. Please leave me a message, I'd love to hear your thoughts!Cindy


Barbee' said...

I am so sorry you have had all these bad experiences. Surely, they will end at some point, and things will become happier for you. You could be a really helpful adviser about these things.

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