Preparing for the Loan Modification Process

Steps to a Successful Loan Modification:

1. Determine your eligibility status before contacting your lender
• You must have suffered a financial hardship that makes your current. mortgage payment at the current interest rate unaffordable.
• You must have steady income (other than unemployment benefits) for at least 3 months.
• Your income must be greater than your expenses (excluding your mortgage).
2. Have an action plan to overcome your crisis
• What is the outcome you are looking for?
• Determine the maximum amount you are prepared to put down on a monthly basis.
• Understand that the lender will be evaluating your ability to pay down your mortgage based on the amount equaling to 31% of your monthly gross income.
• Work on a hardship letter that would explain to your lender why you fell behind on your mortgage payment and how you are managing your crisis.
• If you have a negative budget, the lender will deny your loan modification based on your inability to afford a mortgage payment. In such cases, you have the following options:
• Short sale
• Deed-in-lieu
• Sell your property
• Bankruptcy
• If none of the options above are available to pursue, it is in your best interest to stop making payments and instead save up money until eventual foreclosure of the property.
3. Check if you qualify for HAMP/HARP or another Loan Modification program
• If your loan is owned by Fannie Mae or Freddie Mac, you may qualify for the Making Home Affordable Program.
• If your loan is not owned by either Fannie or Freddie, don’t be discouraged since you may still qualify for other loan modification programs.
4. Establish contact with the servicer or lender
• Refer to your mortgage statement for the contact information you can use to reach your lender. 
• Visiting your lender’s website is a good method to obtain loan modification documents and to learn how to apply for a loan modification.
• On your initial contact, you should be able to receive the information you need in order to get started on the loan modification application.
• Be prepared, some lenders might want to immediately review your income and expenses during initial contact.
5. Gather and send your documentation
• For the loan modification, lenders usually require that you submit the following:
• Application
• UBAF: Uniform Borrower Assistance Form (for Fannie Mae, Freddie Mac, FHA, VA or USDA - Rural Housing loans)
• RMA: Request for Mortgage Assistance Form (for loans outside of Fannie Mae, Freddie Mac, FHA, VA or USDA-Rural Housing loans)
• Dodd-Frank Certification
• Income verification (At least 2 most recent paystubs or Profit and Loss Statement)
• A hardship letter (Example 1, Example 2)
• At least Two most recent bank statements
• Most recent tax return
• IRS form 4506T (For currently employed and/or self-employed homeowners)
• IRS form 4506T-EZ (For unemployed/all other homeowners with no tax returns)
• If the lender agrees to your submission of a loan modification packet, take careful notes of what information they need from you.
• Take notes of the deadline set by the lender to receive this information and the next steps to take after your documents are submitted.
• Keep a record of every conversation, names of the reps, dates, etc.
• When sending physical documents, make sure to use either fax or certified mail so that you have confirmation of receipt of your documents by the lender.
6. Stay Active and be patient
• The lender will always ask you to submit the same or updated documents over and over again. It will be frustrating. Yet you have no choice since your lender has set procedures.
• The loan modification process is like running a marathon. It's tough. It's long. Yet you must make it past the finish line to accomplish your goal.
7. Conclusion
• If you follow the steps outlined above, you have already made great strides into obtaining a loan modification. Be sure to look out our future articles specifying all the other aspects of strategic default.