If you can't afford your mortgage payments, getting a loan modification just might keep you out of foreclosure. Your eligibility for a modification is determined by the investor's set of guidelines—not everyone will qualify.
While it's mostly a numbers game that looks at your income, loan payment, and financial circumstances, you can help or hurt your chances of getting approved for a modification with your actions (or inaction) during the process. If you meet the program requirements and take all necessary steps, you'll get one.
Because your actions can be vitally important in getting your loan modified, it's essential that you to learn the do's and don'ts of the process.
- Apply for a modification as soon as possible. To qualify for a modification, you'll have to submit a complete “loss mitigation” application to your loan servicer. It's best to submit your application as soon as you know you'll have trouble making your payments or shortly after you fall behind. If you take several weeks or months to put your paperwork together, a foreclosure could start or continue, leaving you with less time to work out a foreclosure alternative.
- Send in all items the servicer requests. To get protection against dual tracking under federal and some state laws, you have to send your servicer a complete application. An application is complete once you've sent in everything that the servicer requested—like a financial worksheet, pay stubs, bank statements, information about your assets, tax returns, and a hardship statement. One of the main reasons that people often don't get approved for a modification is because they fail to send in every document that the servicer requests. The servicer won't make a decision your application until all of your items are in. If you leave out just one document—or send paperwork that's outdated—the servicer will likely deny your request for a modification.
- Be sure to include every page of each required item. When you send your paperwork to the servicer, don't omit any pages. For example, even if page three of your bank statement is blank, if the other pages say “Page 1 of 3” and “Page 2 of 3”, you need to send all three pages. Otherwise, the servicer will probably consider the document incomplete.
- Keep all correspondence you receive from the servicer. Be sure to retain all written communications you receive from the servicer, such as a confirmation letter that the servicer received your complete application or a letter telling you that certain items are missing. This information could be useful later on if you want to challenge a foreclosure by showing the servicer didn't comply with servicing laws. (To learn what to do, and what not to do, in a foreclosure, see Foreclosure Do's and Don'ts.)
- Learn about laws that protect you in the process. Servicers sometimes make mistakes when processing borrowers' modification applications. Find out about the federal and state laws that protect you in the loss mitigation process so you can enforce your rights if the servicer fails to abide by the law.
- Send illegible documents. When you send your paperwork to the servicer, be sure that all pages are legible. Otherwise, the servicer might deem them unacceptable and deny your application. Be aware that what you consider acceptable and what the servicer considers readable might be different. The servicer won't put in a lot of effort to decipher words or numbers that are potentially unclear. It's in your best interest to make it easy for the servicer to read the documents by submitting only clear, clean copies.
- Lose your cool if the process isn't perfectly smooth. Stay calm, even if you have to resubmit paperwork you already sent in. Resend whatever item the servicer asks for, and send it as soon as possible. If you get irritated with the servicer and insist that you already submitted all required documents rather than resending them, you'll only hurt yourself. Remember that your servicer is likely getting thousands of requests for modifications—don't give the staff an easy reason to turn down your request.
- Be afraid to get clarification. Be sure that you're clear on exactly what items you need to send in. The servicer might request two pay stubs assuming that covers one month of your income. But if you're paid weekly, bimonthly, or monthly, you might have to send in more or fewer pay stubs. If you need clarification, ask your point of contact. (Under federal law, in most cases, by the time you're 45 days' delinquent, the servicer has to assign a single person or a team to help you with the loss mitigation process.)
- Forget to put your name, loan number, and contact information on each page of every document you turn in. Normally, you get a few options for sending your documents to the servicer: by regular mail, overnight mail, fax, or secure email. Paperwork sometimes gets lost, so the best option is secure email. Whatever option you choose, be sure to put your identifying information on every page of each document. Otherwise, the servicer might misplace one page and think your application is incomplete. When possible, send all of your application documents at one time, which significantly reduces the opportunity for items to get lost.
- Assume everything is on track, even after you've sent in your complete application. After you send in your paperwork, remain in touch with the servicer. Call at least one time each week to check on the status of your application. Keep notes detailing when you called the servicer, who you talked to, and what you discussed. Also, be sure to ask if the servicer needs any updated documents or information from you.
To learn more about federal and state laws that protect homeowners in the loan modification process, talk to a lawyer. If the servicer violates any of the laws mentioned in this article or treats you unfairly, you might have a defense to a foreclosure, which could give you leverage in the modification process.
To get assistance with completing your application or to learn more about different loss mitigation options, consider talking a HUD-approved housing counselor. You should not, however, hire a loan modification company to assist you.