Strategies to Prevent Loan Modification Denial:
As the borrower, you must be involved in the loan modification process at every stage of the process. The #1 reason for a loan modification denial is the lenders claiming that you did not send complete and accurate documentation in a timely fashion. You must keep detailed and organized records of all communications to and from the lender to prove you provided the lender with all of the documents required for a loan modification application. You must always keep in mind the following strategies to prevent a loan modification denial.
- You should be realistic about the outcome. The lender can offer a reduced payment by adjusting your interest rate, extending your loan term, and reducing or forbearing your principal balance. For example, under the Making Home Affordable Program (HAMP), you are automatically evaluated for a principal reduction if you owe significantly more than your home is worth. Also, the HAMP modification program includes interests rate reductions to as low as 2% for the first five years. However, if you do not qualify under HAMP guidelines, then the lender is not required to give you a principle reduction or reduce the interest rate to 2%.
- Loan modification programs, such as the Making Home Affordable Program (HAMP), use a gross income ratio to determine modified monthly mortgage payments. Normally, a modified monthly mortgage payment will be equal to or less than 31 percent of your monthly gross income.
- The financial information you provide on the application and worksheets must match the amounts that are stated in all your accompanying financial documents (e.g. tax returns, banks statements, profit and loss statements, W-2s, social security award letters, pension award letters, pay stubs).The lender will review your recent bank statements to determine your monthly gross income. The lender will review tax returns and bank deposits (e.g. rent deposits, pay check deposits, pension deposits, social security deposits, and cash deposits) to verify source and the accuracy of the amount of money deposited into your bank account.
- Review your loan modification application at least three (3) times before submitting to a lender. Missing information and or documents, such as an incomplete RMA form or failure to sign and send a Dodd-Frank affidavit, either because documents were not uploaded or sent completely to the servicer. Errors such as forgetting to include all pages of tax returns or bank statements (even if blank), leaving out certain financial information (other bank accounts, owned properties, sources of income), and not completing sections of the application will often lead to delays and rejection.
- Keep in close touch with the lender after submitting your application. Being engaged and involved can only work in your favor. Always return a lenders phone call during the loan modification process. You should contact your lender on a weekly basis to determine the status of your loan modification application.
- You should maintain a written log of each phone call with a lender’s representative. You should write done the name of the representative, the representative’s identifying number,and a brief description of the call.
- Make sure they have all necessary documentation, and provide anything they need as fast as possible.
- Lenders will close files if they don’t get information and documentation, so being responsive is essential.