How to Prepare for a Loan Modification

When homeowner has missed their mortgage payments for more than 3 months, a notice of default is usually sent, and the foreclosure process begins. It’s important for homeowners to act as soon as they receive the notice of default. In most cases a homeowner has a great chance of saving their home through a loan modification, unless their financial hardship is permanent, where the likelihood of repaying their delinquencies is slim.

With the government’s goal to make mortgages affordable and sustainable, streamlined Loan Modification Programs are being designed to suit every financial situation of every homeowner. However, overwhelming numbers of homeowners are all seeking assistance at the same time, causing frustrations and delays to the process.

If you are one of these homeowners, you can avoid getting stuck in the traffic of delays by being fully prepared. Simply put, do your paperwork before you call your lender or housing counselor.

Here are a few frequently asked questions to help you be better prepared for your loan modification.

Q: What Documents Do I Need For a Loan Modification?

A: These are the documents you must have in your hands:

• Mortgage statement, agreement or contract.
• Recent statement of your monthly mortgage or condominium fees. This helps the loan servicer understand how much you are paying each month and how much you can afford.
• If applicable, gather documents for your other loans like, home equity lines and second or third mortgages.
• Tax documents, such as:
• recent job payroll stubs
• W-2 and most recent years tax return
• property tax bill (if considering monthly or yearly housing costs)
• profit-and-loss statement reference (for self-employed)
• Statements for other monthly expenses such as, active credit cards, car loans, student loans and other debts.
• Present a budget worksheet, outlaying your gross monthly income and monthly housing expenses including insurance and taxes. This way it will be easier to see how much you can actually manage to pay each month.

Q:  What Else do I Need for a Loan Modification?

A:  Freddie Mac has recommended homeowners should write a statement discussing the financial problems that are leading them to foreclosure, as honestly and openly as they could. This is often known as a hardship letter. You may refer to our page on how to write a hardship letter or view our free sample hardship letters, to get an idea of what needs to be included in your hardship letter. In addition, since loan modifications involve complex contracts and agreements, it is best to hire a trustworthy loan modification lawyer for guidance.

Q:  Is there anything we should watch for during the loan modification process?

A:  Be careful of mortgage-reduction scams that demand, up front fees. As a note of advice, do not sign any documents or agreements that seem shady to you. I always advise getting a second opinion prior to signing any documents. Here are a few warnings signs of loan modification scam:

• Aggressive and persuasive marketing techniques.
• Requests up front fee/s from you.
• Promises and guarantees that you will be saved from foreclosure.
• Others would propose buying your house and then selling it back to you.
• Asks you not to contact your lender.
• Fictitious claims of government connections.