Written by Mechel Glass
June 6, 2011
Avoiding Foreclosure: Learning How the Application Process Works Can Help Homeowners Get Their Mortgage Loan Modified Mechel Glass, CredAbility.org Many homeowners seeking a loan modification to lower their monthly mortgage payments and avoid foreclosure continue to find the application process a complex web. Unfortunately, they…
Avoiding Foreclosure: Learning How the Application Process Works Can Help Homeowners Get Their Mortgage Loan Modified
Mechel Glass, CredAbility.org
Many homeowners seeking a loan modification to lower their monthly mortgage payments and avoid foreclosure continue to find the application process a complex web. Unfortunately, they often give up before their application is ever reviewed by their mortgage company.
Certified housing counselors for CredAbility, a national nonprofit credit counseling and education agency, speak daily with hundreds of homeowners seeking solutions to keep their homes. We have several tips for homeowners to help improve the chances their application is reviewed as quickly as possible.
First, before you approach the mortgage company, I recommend any homeowner speak with their other creditors. Try to arrange reduced payments to your car loans, credit card payments, student loan payments and a second mortgage or line of credit payments. Obtaining a lower payment on these loans will free up cash to help balance your monthly budget. These actions will go a long way in achieving a loan modification.
Next, here are CredAbility’s recommendations for any homeowner:
Speak With a Nonprofit Housing Counselor to Understand Investor Rules for Your Loan. Every homeowner’s mortgage loan is different, so don’t rely on information you may have heard from your neighbor or your sister-in-law, even if they received a loan modification. For example, if your 30-year, fixed interest rate loan is owned by one investor, and your neighbor’s is owned by another investor, the rules governing a loan modification may be quite different. A certified counselor at a nonprofit credit counseling agency can help you find the investor who owns your mortgage and determine your options.
Submit All Documents That Prove Your Current Income. Income verification is critical, but homeowners sometimes don’t provide their mortgage company with recent documents. If you lost a job in April, don’t provide pay stubs from January. In addition to recent pay stubs and other traditional income sources, homeowners should also provide a document called a “contribution letter.” This letter explains the source of any household income not easily verified. For example, a servicer will want to know the total household income of a married couple, even if only one person’s name is on the loan. The letter could also include income verifying you have a roommate that pays rent.
Submit Current Bank Statements. Recent bank statements allow your mortgage company to verify your income and expenses. This information enables the mortgage company to see your monthly expenses for food, utilities and other expenses and determine whether you will have enough money to make your mortgage payment.
Mail Your Documents to the Mortgage Company. Many people prefer to send all of their documents by fax or scan their documents and send them via email. However, postal mail is usually more reliable, especially if it’s addressed to the person you spoke with at the mortgage company. Faxes often get lost.
Label Each Page With Your Name and Loan Number. One of the most common complaints among homeowners is that the mortgage company loses their documents. You can help your own cause by writing your name and loan number on each page of every document.
Fully Explain Any Recent or Unique Income Changes. For example, a bank deposit may show various one-time transactions, such as an asset sale, cash gifts from family members or a bonus. Unless you explain this one-time increase in income, the servicer may not understand it and use this information to deny your loan modification.
Include a Timeline in Your Hardship Letter. Every application for a loan modification must include a “hardship letter” to explain the reasons for your request. But the letter must have specific dates explaining when an income loss has occurred. If your spouse lost her job on July 15 and your family income will decrease by $3,000 beginning in August, your letter needs to provide these details.
Call Your Mortgage Company Every Week. Many homeowners work extremely hard to submit all of their paperwork to the servicer – and then wait for weeks before picking up the telephone to call them about the status of their application. This is a mistake for several reasons: the person handling your application may quit; the application may be transferred to another person; the company may need more information. You get the picture.
Take a look at fellow blogger Ilyce Glink’s post with more tools for homeowners struggling with a loan modification.
Mechel Glass is the Director of Education for CredAbility. In this position, she is responsible for developing the curriculum and educational materials for online classes including webinars, podcasts, videos and listen-on-demand classes. She is responsible for managing the agency’s community outreach programs and staff, including financial education specialists in a 14-county area throughout metro Atlanta and north Georgia. She also manages the development and reporting of education partnerships online for the agency.
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