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TABLE OF CONTENTS Introduction .................................................................................................................................................... page 4
Part I: I Can’t Make My payments! What Are My Options?......................................... page 5
Chapter One: Losing Your Home ..................................................................................................... page 6 1) Foreclosure 2) Deed-in-Lieu of Foreclosure 3) Short Sale Chapter Two: Keeping Your Home .................................................................................................. page 9 1) Refinancing • The “Normal” Refinance • The Home Affordability Refinance Program (HARP) 2) Repayment Plan 3) Special Forbearance 4) Veterans Administration Loan Modification 5) FHA Loan option: “Partial Claims” 6) Loan Modification
Part II: Understanding Loan Modifications .................................................................. page 12 Chapter One: What Is A Loan Modification? ............................................................................... page 12 Chapter Two: How Do I qualify? ................................................................................................... page 12 1) Loan Modification Checklist 2) Hardship Checklist 3) Debt to Income (DTI) Ratio
Chapter Three: When Can I Begin the Process? .......................................................................... page 14 1) Foreclosure Timetable 2) The Best Time to Negotiate with the Lender Chapter Four: The Different Kinds of Loan Modifications ......................................................... page 20 1) Lowering the Monthly Interest Rate 2) Lengthening Amortization 3) Lowering Principal 4) Lowering Late Fees or Penalties 5) The Home Affordability Modification Program (HAMP) www.LoanModsByOwner.com
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Part III: The Loan Modification Process ....................................................................... page 25 Chapter One: The Do-It-Yourself Guide ....................................................................................... page 25 Step 1: Contacting the Lender Step 2: Developing your Proposal Step 3: Negotiating with the Lender Step 4: What to Do if You Are Denied Chapter Two: Hiring Someone Else to Modify Your Loan .......................................................... page 39 1) Loan Modification Firms 2) Common Scams to Avoid 3) Asking the Right Questions
Part IV: Glossary of Terms .............................................................................................. page 43 Part V: Example Forms and Scripts ............................................................................... page 47 1. Example Financial Worksheet – Freddie Mac 2. Script to Speak with Your Lender
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The Secrets The Loan Mod Companies Don’t Want You To Know
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INTRODUCTION If you are reading this book, chances are you, like millions of other Americans, have fallen onto hard times. Making your current mortgage payment every month is an overwhelming ordeal. Scraping the money together may at times even seem impossible. You fear the worst and dread the future. You might have asked yourself, what would I do if my house went into foreclosure? Where would I go? What would happen to my credit? My possessions? How would I take care of my family? How would I tell my boss? What would others think of me? If you have worried about these questions, have no fear. This eBook is designed to let you know that THERE IS HOPE and YOU HAVE OPTIONS! As a homeowner, armed with the right information and a healthy amount of determination, it is possible for you to modify your loan, lower your payments, and stay in your current home. Though there are many loan modification firms out there willing to help you (some better than others), many of them cost thousands of dollars, and you may be short on cash already. Why not try getting a loan modification yourself? After all, you’re the homeowner, and you have a partnership with the bank. Always remember that they, as much as you, do NOT want to see a foreclosure. They’d rather renegotiate the terms of the loan and have you paying less money than take a bigger loss on their investment.
This eBook will give you the tools and information necessary to initiate the loan modification process. design a proposal yourself. talk to the bank representatives to maximize the amount you can save. know where to turn when you need outside assistance. The process may seem daunting, but you will be empowered with the knowledge provided in the book to make good choices, avoid scams, and negotiate a house payment you can sustain and live with. You want to go from being overwhelmed and underwater, constantly stressing about your mortgage payment, to in charge of your money and your life, right? So what are you waiting for? Let’s get started!
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Part II: UNDERSTANDING LOAN MODIFICATIONS Chapter One: What is a Loan Modification? When you first purchased your home, or when you refinanced it, you signed many documents to obtain your loan, including a document called a “note.” The note is your promise to pay the bank for the loan they gave you, and it includes all the terms of that loan (interest rate, when payments are due, etc.). Now, because of a change in circumstances, you’re struggling to repay the loan on the terms originally agreed to in the original note. Now it’s time to ask the bank to make a change to, or to “modify” the terms of your note so that you can stay in your home and pay back the money you borrowed. Depending on how you negotiate and what your financial circumstances are, the bank may lower your interest rate, lower your payments, move any past due amount to the end of the loan and allow you to repay the loan over a longer period of time (“change the amortization”), or take other steps to help make sure you can make the payments. When you and the bank agree to the new terms of your loan, they send you a document that you sign, and that document changes certain sections of your original note.
Chapter Two: How Do I Qualify? You need to verify a few things before you can qualify for a loan modification. Along with meeting the criteria in the checklist below, you must also have suffered some sort of hardship that you can document in the “Hardship Letter” explaining why you need a modification of the note’s terms (more about how to write this letter later). In addition to these things, you need to calculate your Debt-to-Income ratio (DTI—we’ll explain this in a page or two) before and after the proposed modification to make sure the bank will accept the basic terms of the new agreement. Keep in mind that your lender has to accept lost income—the final agreement has to be a mitigation of both your circumstances and their losses.
1) Loan Modification Checklist Do you meet the following conditions? If you can answer yes to most of these questions, then you have met the first part of the qualification requirements for someone who is a good candidate for a Loan Modification. • You have been current and made payments on-time before the problems which have driven you to this situation. • Your Loan is older than one year. • You show income for any other properties that you own. • You owe significantly more than the property is worth. • You only have one mortgage on the subject property. www.LoanModsByOwner.com
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• You did not lie to your lender when you applied for your loan. • Your interest rate is about to adjust to a level that you cannot afford OR your income has dropped so your fixed rate mortgage is now a significantly higher proportion of your income than it was when you took out the loan.
2) The Hardship Checklist Here is a list of hardships which get approved. Any one or combination of these hardships will satisfy the second part of the qualification requirements for someone who is a good candidate for a Loan Modification. • • • • • • • • • • • • • • • •
Death/Illness of one or more of those who signed the mortgage note. Death of a Family Member. Marital Difficulties. Property Problems. Reduction of Income. Excessive Obligations. Employment Transfer. Unemployment. Inability to Rent. Inability to Sell. Military Service. Business Failure. Reduction of Income. Fraud. Payment Adjustment. Payment Dispute.
3) Calculating Your Debt-to-Income Ratio When lenders make a decision as to whether or not to offer you a loan modification, they look at your “Debt-To-Income Ratio.” This is calculated by taking your total expenses and dividing it by your gross income (if your spouse works, you add both incomes) and multiplying this answer by 100: Total Monthly Debt Expenses Gross Monthly Income
x 100 = Debt-to-Income Ratio
Expenses would include minimum payments on credit cards, car payments, store credit cards, your mortgage payment, property taxes and insurance. Do not include bills for such things as utilities, groceries, cable TV and telephone. If you arrive at a figure which is above 50%, then you have met the third part of the qualification requirements for a loan modification.
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The Secrets The Loan Mod Companies Don’t Want You To Know 4) Plugging in your desired payment
The last part of the qualification is to replace your old payment with your desired Payment and recalculate your Debt-to-Income ratio. Before they agree on a loan modification, the lender needs make sure that you can honor the agreement. You must show that after all the monthly debt payments, including the proposed mortgage payment (what you would like your payment to be), the property tax and insurance are at a level you can still afford. Lenders hate completing a whole loan modification application only to find that the borrower will default because the new payment is still too high. If your new calculations end up above 50%, you have to rethink your figures because you may not qualify for a loan modification.
Chapter Three: When Can I Begin the Process? There are better times than others to begin negotiations with the bank. They will not negotiate a loan modification with a person who is on time with their payments because that person is not a risk for them. The closer you get to foreclosure, however, the more likely the bank will want to work with you to stay in your house (so they can cut their losses). This does not mean that if you have the money you should miss a payment; lying to the bank is a surefire way to shoot yourself in the foot when it comes time to negotiate the terms. They want to help someone who needs the help so that both they and you can come out on the other side with losses mitigated. So what happens during the foreclosure process, and when should you start contacting the lender? First of all, keep in mind that the actual process varies from lender to lender, different states have different rules regarding foreclosure deadlines, and there is no industry-wide timetable for foreclosure. Always remember that this is a slow process. You are not going to get kicked to the curb two months after missing a payment, especially with the volume of work streaming through bank offices in today’s crisis. Some banks are so busy that they haven’t even processed Notice of Default’s from two months prior.
***A Quick Word about NOD (“Notice of Default”)
Technically, a Notice-of-Default (i.e. when a borrower breaks the terms of the loan documents by missing a payment) can be filed anytime a payment is past due (except in California). This does not mean that any lender is going to file a NOD immediately. In today’s market the earliest that lenders are filing a NOD is generally after 90 to 120 days of receiving no payments. Once a NOD is filed with the county recorder’s office in the county in which the property is located, the homeowner still has ample time to respond. After NOD is filed a homeowner should check with their state’s laws on how long they have to fix the default. Many states give the borrowers three months’ grace period to pay up or solve the problem another way before deciding to foreclose. Approximately 21 days after the grace period is up, the lender will set an auction date for the home to be sold to the highest bidder. If the bids exceed the balance, any and all fees and commissions paid will revert to the homeowner. In today’s market getting money from equity is wishful thinking. Again, it typically takes 90 to 120 days for a lender to file a NOD after continued delinquency on payments. The table below shows the amount of time between the bank filing a Notice-of-Default and when foreclosure on the house happens, approximated for each state. These estimates are very fluid, depending on the lender and the area of the state where the property is www.LoanModsByOwner.com
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located. For example, in Central Florida right now, some lenders are taking longer than a year from the default to foreclosure.
Amount of Time between NOD and Foreclosure, by State* State
Period
State
Period
Alabama
3 months
Missouri
3 months
Alaska
4 months
Montana
6 months
Arkansas
3 months
Nebraska
4 months
Arizona
3 months
Nevada
4 months
California
4 months
New Hampshire
3 months
Colorado
5 months
New Jersey
9 months
Connecticut
6 months
New Mexico
5 months
Delaware
7 months
New York
+10 months
District of C.
4 months
North Carolina
4 months
Florida
6 months
North Dakota
4 months
Georgia
3 months
Ohio
8 months
Idaho
8 months
Oregon
5 months
Illinois
7 months
Pennsylvania
8 months
Indiana
7 months
Rhode Island
3 months
Iowa
7 months
South Carolina
6 months
Kansas
4 months
South Dakota
4 months
Kentucky
7 months
Tennessee
3 months
Louisiana
6 months
Texas
2 months
Maine
8 months
Utah
5 months
Maryland
5 months
Vermont
9 months
Massachusetts
5 months
Virginia
4 months
Michigan
3 months
Washington
5 months
Minnesota
4 months
West Virginia
4 months
Mississippi
4 months
Wisconsin
9 months
Wyoming
3months
*This information is deemed accurate, but is not steadfast for each state.
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Think Like the Bank! A General Foreclosure Timetable
When beginning the foreclosure process, even after missing one payment, it is beneficial to think like the bank. Their processing of the situation and the amount of work they have in their loss mitigation department dictate everything: how fast they are going to foreclose, how willing they are to work with you on a loan modification, even how nice they’ll be on the phone (it sounds silly, but it’s important—sometimes the phone conversations during the process can get stressful, even downright nasty). Here is a general timetable that tells you what to expect from banks when you miss a payment. Every bank is different, but the goal of this is to give you a better outline about when you should begin the loan modification negotiations. On time to 30 Days Late In general, a bank is not going to modify a homeowner’s loan if the homeowner is not late because the borrower can make the payments and has a consistent payment history to prove it. Banks believe a borrower who has built their credit for years and years will do what it takes to make the payment in order to maintain that credit rating. The only way a borrower may get a loan modification when he or she is on time is if there is a predatory lending violation in his or her loan documents. The violation must be identified first. It follows with attorney fees and penalties. Banks do not want to go to litigation with a borrower at anytime. 30 to 90 Days Late When you have missed even one payment, you should contact the lender and begin to get a feel for how they operate. Ask for the “loss mitigation department” and gather the specific information you need about the lender: what documents do they require to get a loan modification? How long do you have before they file the NOD?, etc. The more payments you miss, the more negotiation “fire power” you have with the lender, but that doesn’t mean you should wait until three or four missed payments until you contact the bank. During this time, expect MANY consistent and aggressive phone calls and letters from the bank trying to get a payment. Do not let this scare or intimidate you. The collections department of the lender will be acting independently from the loss mitigation department and trying to collect their debt. When they call, inform them that you are working with a different department and thank them for their concern. Also, the bank will usually send out a letter saying that the borrower is in default of the loan. This is not the same as having an NOD filed. Again, the borrower is technically in default on the first day they are late, but a Notice of Default has not been issued. This is a scare tactic that makes uninformed borrowers think that they are in NOD and should pay immediately or lose their home. They should remember that even if NOD had been filed, which it has not, no one is getting thrown out on the street without warning. The 30-90 day late window marks the beginning of the negotiation period where many lenders will call a borrower and find out what is going on. They are hoping the problem is short term and that they can force you into a forbearance agreement (with either a temporary suspension of payments or interest rate reduction). This will allow the borrower to save money over the months with no payments and pay off other debt. The unpaid debt builds up and must be paid after the forbearance period is over through a repayment plan. www.LoanModsByOwner.com
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Part III: THE LOAN MODIFICATION PROCESS So you’ve decided that you want to go through with the loan modification process. The components of the application are relatively simple, but it takes some time and patience to get the pieces together and go back and forth through negotiations with the lender. The question of doing the process yourself is much like the question of whether you should do your own taxes or not. You want to save the money doing it yourself (which can be a lot), but you have to ask yourself if you have the time, energy, and persistence to finish the process. It can be frustrating, but the thousands of dollars you save can be worth it in the end, especially since you are experiencing the pinch already. The first section of part three will give you a break-down of how to conduct the loan modification process yourself. The second part will give you the resources you need to find a professional to help you at any point during the process, and how to avoid scams.
Chapter One: The Do-It-Yourself Guide to Loan Modification To view the rest of the guide, you can purchase it at: http://LoanModsbyOwner.com You will receive step by step instructions you need to negotiate a loan modification with your lender. You will also gain access to checklists, forms and scripts that are helpful to negotiate your own Loan Modification. Good Luck! We wish you the best and look forward to helping you.
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