The hottest buzz word in the industry right now is not short sales nor foreclosures. It's all about loan modifications. Lots of unscrupulous businesses are springing up that offer consumers help with their loan modifications, and they are charging home owners $3,000 and more to do what home owners can do for themselves.
To find your lender's loan modification requirements, click on the photo and you will find my article on About.com, which details major mortgage lender guidelines for loan modifications.
Nobody wants to admit it, but the lenders are making loan modifications seem confusing and difficult. Perhaps it's an effort to discourage applications? If you're considering a loan modification, the first thing you should do is pick up the phone and call your lender to find out if you qualify. If you do not qualify, and can no longer afford to make your monthly mortgage payments, then call a short-sale specialist and put your home on the market as a short sale. Many lenders are placing a 3- to 4-month moratorium on foreclosures, so this will give you extra time to get that home sold.
The criteria for a loan modification is tight. Many banks insist on the following qualifications:
- Existing loan origination date prior to Dec. 31, 2007
- Existing subprime loan (fixed or adjustable) or Option ARM
- Loan-to-value ratio above 75%
- Owner occupied as primary residence
- Employed homeowner
- Existing mortgage payments exceed 31% of gross monthly income.
However, if you qualify for a loan modification, you can assemble the paperwork the lender wants by putting together the following package:
- 2 years of W2's
- 2 years of tax returns
- Financial Statement that lists assets and liabilities
- Last 2 pay stubs
- Hardship letter
Don't pay a company to do this for you. Do it yourself.
If you are successful, a loan modification may give you:
- A lower mortgage balance.
- An interest rate between 2% and 4%.
- A loan term of 30 to 40 years.
- A low monthly mortgage payment.
- Elimination of negative amortization and / or a waiver of prepayment penalties and fees.
Remember, California short sale sellers, you have until December 31 to sell that home to avoid paying state taxes on debt forgiveness.
Happy Thanksgiving, everybody, and Happy Debt Forgiveness!
Photo: Big Stock Photo
The Short Sale, by Elizabeth Weintraub, coming from Archer Ellison in January 2009.
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Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available through bookstores everywhere and at Amazon.com.
Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.
The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
Elizabeth: I think you are right...banks are making this stuff more confusing and frustrating than it needs to be. I have a client stuck between short sale and loan modification. When we fax papers in for a short sale, the bank always gets them. When we send things in for his loan modification, they never get them.
I have dabbled in a few loan modifications to assist people with this process. And the banks, some don't want to assist them. The most difficult thing part of it, is to locate who really is owning your loan, not the service provider. I spent a whole week, going back and forth with a service provider trying to locate who had the mortgage. And then my friend decides to sell.
Hi Chris Ann: I've had Countrywide tell me that it won't even consider a short sale simultaneously with a loan modification because its computers can only classify the application in one category. (It's always the computer's fault, doncha know.)
But what few homeowners understand is if their loan is with Countrywide, they are going to be directed first to the HOPE for Homeowners program, which means they will be forced to share future appreciation with the government. If I were in their shoes, I'd do a short sale, rent for a while and then go buy a home that I can own 100% outright.
Hi Nancy, Some lenders will do the loan modification if they are the service provider. I believe IndyMac is one of them.
Elizabeth-- I have heard numbers quoted (I don't have the exact source...sorry) that 47 total loans have been closed from the HOPE for Homeowners program thus far, which was to have been for 450,000 loans; a total failure. Do those numbers seem about right to you? Having the same issue in my area--two lenders were dubbed "the" lenders to call and one of them had to quit answering her phone as she was getting 100s of calls per day and no one can possibly qualify with the criteria set by the government... Sad, but true.
Hi Lisa: I haven't heard of any that have closed. But I did read that numbers around 113, or maybe it was 117, of applications were submitted. That's a shame.
But if you know of a lender who has actually funded one of these programs, let me know. I can't seem to find any.
Elizabeth
I needed to see a smile so here I am. Hope more people can take part in the loan modifications.
I have buildings that have dropped in value 40% in a short time.
Looking to get out of snow soon.
Happy Thanksgiving to you!
Tom
Elizabeth, I have been considering adding "loan modifcations" to my services. I'm sure its not a complicated process but is time consuming. Being able to assist a homeowner who needs help is a good thing. And getting paid to do so is even better. But just like anything else it wouldn't be the best option for everyone.
I wish they hadn't made it so complicated--the average homeowner can't even decipher the requirements.
Elizabeth.... some great information... but in my honest opinion, you should clarify the very first part.... "The criteria for a loan modification is tight. Many banks insist on the following qualifications:"
These banks in most cases are those that are banks, bankers, lenders, or brokers that have access to such loans as the Hope for Homeowners program known at H$H or the FHA secure program. You can't do this on your own without the help of a lender outside of your current lien holder...in most cases. Yes, you can go to your current lien holder and ask them about this... but most will tell you to talk to someone that can do this for you.
But in regards to the other information that you talked about... I agree, speaking to your lien holder first, the servicer of your loan. They might be able to help you. And yes, there are many companies that just sprung up that charge $3,000 a pop, many of which can't guarantee anything, and it could be a lost of money. Most of these companies say that they are able to help most people, when in reality, it's the opposite. They just want you to commit your money upfront.. good post.
Hi Elizabeth...
We had Tom for dinner yesterday....actually we had turkey. lamb and pork..Tom was here...he speaks so well of you ! Wish there was a list of major lenders and their loan mod requirements...we are doing tons of shorts...best holiday wishes to you !
Some very good information -- I have had several people who did not "qualify" for a loan mod (and could not sell their home) -- I told them to call back and back tell the Bank if you don't find away to make this work you are going to have to take the house back... Amazingly it got "PUSHED" through - Remember the Bank has no desire to own another piece of property --
Thank you for the information. Loan modifications is a step in getting a bottom in our market.
Thanks for posting this, I am going to re-blog it later in the week for consumers in Ann Arbor, but not today as it needs to stay at the top of the features so more folks can find it, read it and email it.
They want to show they are trying to help with loan motiication but with the government they have to make it as difficult s possible. Thanks for the explanation.
Elizabeth - thanks for the clear and concise description of the process. If the lenders would have required the same level of due diligence in issuing the original loan there might not have been this issue with loan modifications.
Thanks for the great information. I wish more consumers had this knowledge.
Elizabeth, Thanks for the valuable information. As with everyone else, we are dealing with a lot of short sales and foreclosures, but I haven't heard much about loan modification. So thanks again.
Hey Tom: Just when ARE you planning to leave the snow? I keep listing all these great homes for you to buy in Sacramento! :)
Hi BB: I bet a lot of agents are thinking about adding loan modification services to their business plan if, for no other reason, than they will do almost the same amount of work on them as they would for a short sale and get paid more. Plus, some short sale transactions will undoubtedly end up on hiatus as home owners pursue this option themselves.
Hi Jeff: The primary lender who is working closest with HOPE for Homeowners right now is Countrywide, and that begins on Dec. 1.
Hey Sally: Isn't Tom the greatest! As for the list of major lenders and their loan modification requirements, you will find that list by clicking on my Homebuying.About.com Loan Modifications article, or the image in this blog. :)
It's already been swiped at least once by some loan modification company and copied to their site, so I've had to notify them that The New York Times legal department will be contacting them. It's OK -- people -- to reblog THIS blog -- but you CANNOT republish content from About.com.
Hi Jason: It helps to be tough. The banks are being tough. Home owners have to be just as tough back. It's astonishing what kind of action one gets at that point.
Hi Elizabeth,
This is an informative post - but quite frankly I am not crazy about these loan modifications.
Why are we rewarding somebody who has made a decision that has put them in a place where they need to do this - and we are ignoring the people who have made prudent financial decisions.
The government is still missing the bigger picture with all of these programs - until the excess supply of homes are absorbed homeowners will continue to experience downward pressure on home values.
Concise information--this blog should spread like wildfire!
Hi Elizabeth,
Countrywide does have a Loan Modification process that is quite easy for the borrower to complete. It is actually a Recast of the original loan at the same interest rate and term, so it works well for someone who closed on their next house while their previous house was on the market.
Rather than refinance the new home when the old house sells, they can apply the equity to new loan balance and for a $250.00 fee Countrywide will Recast the loan at new principal balance and original interest rate and due date resulting in a lower payment. It doesn't require title insurance, a survey, or an appraisal. It does require the new loan be current to do a Loan Modification - Recast.
They don't advertise this, but an experienced Countrywide broker should know about it and be able to give your client the address and phone number for the borrower to contact. If they don't give it to your clients email me and I will get it for you.
Kent Davis, Qualifying Broker
Elizabeth, the fees of up to $3,000 for loan modifications seem ludicrous and completely unjustified. Everyone is in it for the buck, but this is just a plain ripoff. Thanks for shedding a bright light for everyone in this area.
Congrats on your featured post Elizabeth and for shedding light on this important subject.
Hope you had a happy Thanksgiving!
Wow, thanks for the guidelines. I appreciate the details that you've provided for this process.
Good post! I just hope that the newly introduced FDIC loan modification program will truly help. H4H (Hope for Homeowners) and the FHA secure program has not started off as many predicited due to the lack of interest by the lending community.
Elizabeth: I would like to see more home owner qualify for the loan modification programs. We see to many loosing their homes these days.
Elizabeth,
It's good to see that more lenders are now willing to work with borrowers in distress. Frankly, doing it yourself isn't all that burdensome and can save big money.
Very informative well written post. Thank you for the information and I am sure a lot of people can use this to their benefit!
Thanks so much for this information. I am forwarding it to everyone that I think could use this type help.
Hi Mark: I don't see loan modifications as a way to reward slackers as much as a way to prevent further foreclosures from dragging down the prices of homes around them. With a loan modification, there is no transfer of title in the public records -- no record of the lower appraised value to affect others in the neighborhood.
Hi Elizabeth,
I agree with your idea of learning about Loan Modifications, there is a lot of money headed to the banks and sooner or later they are going to lend it so I sure want to be informed. I'm also dusting off my real estate contract skills and doing wraparounds on those cases that don't work for loan modification.
Hi Elizabeth - As we probably all know, the two most difficult parts are -
A lot of problems I see are home purchased (with 100% financing or minimum downpayments, stated income loanas) during the last couple of years, and with the house price going downwrds, the loan-to-value ratio above 75% is quite difficult to accomplish. Hence the problem for a lot of people.
Hi Sylvia: Actually, I think you are a little confused. The 100% financing on upside-down homes means the loan-to-value, in some cases, is as high as 200% of market value, which definitely exceeds 75%. I think you are looking at it as LESS than instead of MORE than. :)
HI, Elizabeth
Thank you for your thoughtful post. I would like to suggest that homeowners who are in trouble go the the website of The Home Owner's Preservation Society HTTP://www.995hope.org/ or call their toll- free 24/7 hotline 888-995-HOPETM . This is a non-profit organization with over 400 HUD certified counselors who will guide, evaluate and encourage so that homeowners will be knowledgeableand more self-reliant when they speak to their lenders about ways of avoiding foreclosure including loan modification. Homeowners in trouble need to be very wary of the number of schemers now offering loan modification services and looking for substantial upfront fees.
Thanks for your info I am seeing loads of modifications in our market. Most are for the same terms with all Fee,s and taxes added on. I have heard of balance write downs and better rates. How do you convince a lender to do the above?
This is a great and timely blog that could help so many people! It deserved the feature. Thanks for entertaining my daughter!
Thanks for the link, Sol. I like the fact that the service is free for homeowners!
Hi David: You show lenders the alternative and be firm about it.
Hi Barbara: It was our pleasure. Your daughter is lovely, witty and fun. It's always delightful to see her when she comes through Sacramento!
Wonderful post, Elizabeth. We're seeing a growing number of modifications up here, although it's mostly local lenders trying to keep folks in their homes...and a low REO inventory.
Elizabeth:
I believe that loan modifications are only deferring a short sale or foreclosure. Many people are looking at loan modifications as a way to hang on to their homes and I don't blame them; but for how long.
Unless lenders are also willing to adjust and forgive a big chunk of principal to reflect the new value, as I believe most lenders are not willing to do, what would preclude people that are upside down in their mortgages to eventually purchase the condo next door at a 40% discount?
By the way, I really respect your opinions displayed in Opinion.com
I meant About.com
Sorry