How it Works
Loan modification & loan workout options
Why your lender will agree to modify your loan?
Do you qualify for a Loan Modification?
2 Things Lenders Want to Know
What you MUST avoid is …
Your Legal Rights

Definition
A loan modification is a process when the lender modifies your current mortgage terms because of a hardship to make your loan payments more affordable. Loan modification has become the solution of choice for people facing unaffordable mortgages and foreclosures. Loan modifications typically involve a rate reduction and fixing the rate for a certain amount of time, reduction in the principal balance, or an extension of the length of the term of the loan. In some cases a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default or foreclosure


How it Works
If you are one of the millions of American homeowners who want to stop foreclosure, it may just be the solution you’re looking for. The first thought most people have is to refinance their high interest rate mortgage. During normal times this would be the correct answer, although it's always painful to pay the associated fees with doing the refinance. In today's market this formula does not work, between the drop in real estate value and the tightening of credit you cannot recreate your past deal. Our team of attorneys, loss mitigation specialists, mortgage professionals, real estate brokers, and appraisers will work to alter the terms of your mortgage to fit a workable solution between you and your lender so it's a win-win for all parties involved. A typical loan modification application can take anywhere from 30 to 180 days to complete.

   1. Initial Consultation
Please call us at your earliest convenience. During our initial conversation we will tell you if a loan modification is right choice for you.  If you are experiencing a financial hardship, unable to make your current mortgage payments, and want to stay in your home, please call us to see if we can help you.

   2. Getting Financial Documents
After our initial consultation you need to provide us with the following documents:

• Proof of income (this could include W2’s, recent pay stubs, rental agreements or bank statements)
• Hardship letter (explain what happened that made you fall behind)
• Most recent mortgage statement
• 4 months of the most recent bank statements
• 2008 w2’s
• Tax returns for 2007 & 2008, the first 2 pages only, form 1040
• Monthly Expense Sheet (all expenses even if you are not paying them: including utilities, food, mortgage payments)

        View Document Checklist

Please find examples of hardships that lenders consider during the loan modification process:

• Adjustable Rate Mortgage Reset- monthly mortgage payments are going up
• Illness and Medical Expenses
• Loss of Job
• Divorce, Separation and Other Legal Expenses
• Reduced Income
• Failed Business
• Job Relocation
• Death of Spouse or Co-Borrower
• Incarceration
• Military Duty
• Damage to Property (natural disaster or unnatural)

Your documents will be reviewed and analyzed before we submit a negotiation package to your lender.

   3. Negotiating with the Lender
Your attorney will begin negotiations shortly after sending your application. We will negotiate aggressively until the bank makes an offer that suits your financial capacity, and this agreement is approved by the homeowner. Remember, like any other transaction, it has its challenges. If you are not the right candidate, even the best loan modification attorney cannot guarantee the results you want.

   4. Approval Letter
If we are successful, the lender will send you a final modification documents for your approval.  Please make sure that you have at least 2 months of payments saved before your modification is approved to begin on your new payment schedule.

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Loan modification & loan workout options
There are as many variations on a Loan Workout as there are homeowners. But there are certain distinctions between the most often used retention options. Here is a brief summary of some of the options:

Forbearance
One of the most common options offered by the lender when a Notice of Default has been filed. A formal, written agreement between the borrower and the lender, the lender then agrees to temporarily cease any legal action. You are allowed to delay or reduce your payments for a short period, with the understanding that within a predetermined period of time you will bring your account current. For example, if you are 3 payments in arrears, then those 3 payments would be spread out over the next 6-12 months and added to your regular monthly payment. This option is the most beneficial to the lender, but may not solve the long term problem for the homeowner.

Special Forbearance (FHA Type I & II loans)
A special forbearance is an option when you have suffered a short term financial hardship and your loan is over 90 days delinquent. A Special Forbearance offers the option of a longer repayment plan than is usually available-up to 24 months. Type II can be used when an unemployed borrower provides the proof of future employment.

Partial Claim (FHA mortgages only)
If you have an FHA loan, and the home is your principle residence, you may qualify for this one time payment from the FHA Insurance Fund. You must be at least 4 months but no more than 12 months delinquent and able to begin making full mortgage payments. You must have resolved the issue that caused you to become delinquent. The borrower will sign a promissory note with HUD for the delinquent amount and a lien will be placed on the property. The account will be brought current immediately. The note will be interest free and no payments will be due until the home is sold or the mortgage paid off. If you are in Foreclosure or Bankruptcy, you may still qualify for a Partial Claim.

Loan Modification
This is usually the most beneficial option for the homeowner. The lender agrees to re-negotiate the terms of the original note to a more affordable plan so you can stay in your home. The most commonly accepted modification relates to the interest rate. The lender will agree to lower the interest rate, either temporarily, or better still, permanently so your monthly payment is reduced. Lenders have been reducing rates down to as low as 2%-you can negotiate to obtain the lowest rate for the longest period of time the lender will agree to. Other programs offer a 5 year freeze on the initial low interest rate to prevent payment shock. Another option is a lower interest rate with an interest only option for 10 years to allow time for financial recovery. Keep in mind that some lenders are restricted to how much they can lower your rate based on their investor’s criteria.

A term modification
involves extending the repayment period of your loan. For example, if you have had a 30 year loan for 6 years, the lender can re-write the note to a new 30 or 40 year term. This type of modification is almost always offered as a permanent modification to your loan. This can also be used in conjunction with an interest rate reduction to optimize your monthly payment savings.

Principal Forbearance
is sometimes available to borrowers who have realized a significant loss of equity due to declining markets or usually to holders of Pay Option Arm loans. These loans have a high risk of default and feature negative amortization payment options. Banks are anxious to re-write these loans into low, fixed rate programs and eliminate any further negative amortization. A portion of the loan balance is deferred for a pre determined period of time or until the home is sold or refinanced. The new modified payment is calculated on the revised loan balance, usually set at 90% of the homes current market value. Principal forbearance is designed to help homeowners recover lost equity while affording a lower monthly payment. We are seeing more lenders willing to forgive principle when the value of the home has declined significantly. This option is the lender’s least favorite, and is almost always offered with the second mortgage placed on the property (second trust deed). Considering the substantial decline in many housing markets across the nation, the loan in second position probably has very little chance of ever being paid off should the home go into foreclosure. There simply is not enough value to cover all the liens against the property. The lenders realize this and figure something is better than nothing. Some lenders have knocked off as much as 50% of the second mortgage’s (trust deed’s) balance.

Many Loan Modifications consist of a combination of all of the options shown above. A new loan with a lower, fixed rate and extended term will most likely result in a payment you can afford. The most successful Loan Modification is one that benefits you and works for the lender too. The goal is to negotiate a new loan with terms that result in an affordable monthly payment so your family can stay in your home.

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Why your lender will agree to modify your loan?
We all know the first order of business for any bank is to make money. But let’s face it, with the current state of home mortgages and the housing market in general, banks are faced with not only losing millions of dollars, but with the high foreclosure rates, they risk being declared insolvent by the Federal Government.

The last thing a bank wants is to take your home in foreclosure. Your house then becomes a non performing asset and is a negative on their books. Many banks are experiencing serious default problems, with overwhelming delinquencies and pending foreclosures. The Federal Reserve requires lenders to maintain $8.00 in reserve for every $1.00 tied up in an REO (real estate owned-foreclosure). So, for every million dollars in REO’s on their books, the bank cannot lend $8,000,000 in new loans. No new loans mean no new profit. Usually, a much more attractive option is for the lender to re-negotiate your current loan to an affordable payment. You and your family get to stay in your home and the bank looks great on paper.

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Do you qualify for a Loan Modification?
Qualifying for a Loan Modification is a lot like what you went thru to qualify for the loan to begin with. Except, it is backwards. Now you want to show that certain circumstances have occurred which prevent you from being able to abide by the terms of the original loan. Therefore, even though you cannot afford the old payments, you can afford the new, lower payments and it would be beneficial to the lender to modify your loan.

Each lender has its own policies, but the general requirement is that you have a job and be able to prove your financial hardship. This tells your lender two things: first, that falling behind wasn’t entirely your fault, and second, that modifying your loan can really help you back on your feet. If you’re still unstable or have no reason to request mortgage assistance, our loss mitigation department will not be able to help much.
A well thought out Hardship Letter along with accurate and complete financial statements will convince the lender to accept your loan modification proposal.

There are certain circumstances that the lender will consider as acceptable hardships. Here are some of them:
• Adjustable Rate Mortgage reset- Payment shock
• Death of spouse or co borrower
• Divorce or separation
• Failed business
• Injury/Illness/Medical bills
• Job relocation
• Military duty
• Loss of Job
• Reduced income
• Incarceration

You will notice that loss of equity due to the downturn in the housing market is not listed. The lender does not ask to share in your appreciation when the market is booming, and they do not expect you to bail out when the market is bad.

If you can afford the monthly payment, but choose to stop making payments because the house is no longer worth what you owe, a loan modification is not a likely option for you. You should never lie to your lender. You should, however, try to present your case in the best possible light so the lender realizes their best option is to help you stay in your home.

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2 Things Lenders Want to Know
Every lender is looking for two things when they decide to approve or deny your Loan Modification Application. First, if they agree to modify your loan and lower your payments, can you reasonably afford to stay in the home and maintain those payments? Is it in their best financial interest to do the modification? This is why your Financial Statement is so important.

Your Proposed Statement should clearly document that if given the lower payment Modification, you can afford to make that payment on an ongoing basis. Just like when you got the loan originally, they are looking at your debt to income ratio. Many lenders are looking to see that a homeowner has disposable income left over after all of the monthly bills and obligations have been paid of somewhere between $200-$400. This assures the bank that the borrower is not at risk for re-default after the loan modification has been granted.

Second, your equity value will also affect your lender’s decision. If you have enough equity to cover foreclosure expenses and deferred interest, foreclosure may actually be cheaper for your bank. However, equity is determined by the value of your property, which your lender can easily overestimate. Do some research beforehand to see how much your home is really worth, so we can present some proof to your lender.

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What you MUST avoid is …
If you have faced a hardship and have fallen behind on your mortgage payments, chances are that you have not made a payment for anywhere from 30 days to many months. Assuming you still have income coming in, you should be saving any extra money you can. When the lender reviews your situation and sees that you have not made any payments for months, they will almost always ask for a Good Faith Deposit to accept the negotiation. This may represent some of the missed payments or other fees assessed to your loan. It is imperative that you save as much money as you can now during this process. If you are not making house payments, do not spend that money. The ability to pay a Good Faith Deposit may be the difference between getting your Loan Modification accepted and having it denied.

Finally, you need to disclose all of your debt, income and assets. Your lender will pull your credit report and compare what is reported to what you have indicated on the statements. Undisclosed information that is discovered later by your bank could result in denial.

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Your Legal Rights
American homeowners have certain rights related to home lending and the laws enacted to protect those rights can be used for your benefit and protection. Lenders take these regulations very seriously, and they can be subjected to severe penalties if found to be in violation.

If the lender is still not convinced to agree to the Loan Modification terms you need, our legal department will investigate POTENTIAL STATUTORY VIOLATIONS such as Truth-In-Lending Act ("TILA"), Home Ownership Equity Protection Act ("HOEPA"), Real Estate Settlement Procedures Act ("RESPA"), Regulation Z, or State Law. We review your loan documents (the papers you signed when you applied for the loan and the papers you signed when you closed the loan). We investigate whether the information and calculations provided in those documents was accurate, truthful, and met the requirements of the applicable federal and state statutes.

Here are some BIG GUNS we can use to press your case with the lender (it is not meant to be construed as legal advice in any way and is for informational purposes only):

TILA – Truth in Lending Act (or REG Z)
If your loan was originated within the last 3 years and is on your principle residence, you may have grounds to rescind the loan for violations of the Truth in Lending Act. This law must be followed and failure to do so can result in significant damages to the lender. It is estimated that approximately half of all TILA’s have violations. The aggrieved borrower does not have to prove they were defrauded or misled, or even that they had actual damages. The simple fact that the disclosure was defective gives the borrower the right to rescind the loan and deprives the lender of the right to interest on the loan.

RESPA-Real Estate Settlement & Procedures Act
This is another powerful law that you can use with the lender to gain leverage and get their attention. This law dictates that borrowers should receive disclosures at various times during the loan process that spell out the costs of the loan and to whom they are paid. Many loans have one or more RESPA violations when brought under scrutiny.

Using RESPA to fight exorbitant fees & penalties
Lenders often add on fees for penalties and services that are not documented or explained. When you become delinquent on your loan, the lender just keeps piling on all kinds of fees on a daily basis. Many borrowers are so anxious to settle their account that they do not even question these fees. The fact is that under RESPA, the lender must account for all fees and document their validity. If your lender will not give us a full accounting of all the fees accrued against your loan, we can file a complaint with RESPA. This is called a Qualified Written Request and is your right under the law.