What Do You Do When Your Loan Modification Is Denied?

[davephx]

What Do You Do When Your Loan Modification Is Denied?
From Loan Modification Foundation 11/12/09

Most industry experts spend so much time telling homeowners how to get their loan modified, they don’t tell homeowners what to do when their application eventually gets denied by their mortgage lender. Unfortunately, about 80% of all applications get denied so it is obviously a large amount of homeowners that are getting overlooked.

These homeowners assume their situation is hopeless and promptly prepare for the worst case scenario. However, that is hardly the case but few homeowners know they still have options to try and keep their home.

First, if your application is denied by your mortgage lender, try to find out the reason why. At first, your lender might not tell you but call them 2,3,4 times (as many as it takes) until someone gives you insight. Just ask the customer service representative on the phone to read you what the notes in the system say about your application. Tell them no one is telling you why your application is denied and you want to know. The representative doesn’t have to tell you but there is always someone who will share this information with you but it might take calling them a few times and trying to pry it out of a few people.

Second, once you are given some reasons for the denial, you will review the application you sent to your lender. For example, you might have been told your income was too low, your debt to income ratio too high, etc. All of this is great info to get from your lender and you will review the application you sent to them to see where you can make changes. Yes, you can make as many changes to your application as it takes to receive an approval. Fortunately, in this regard, lenders are not very organized so they don’t keep track of the information you submitted (they will never admit this though). So if your debt to income ratio is too high, lower your grocery bill or gas expenses to reduce this ratio. Then you can resubmit your application. Again, you can do this as many times as it takes to get an approval. Sounds crazy but it is true. There is no limit to the amount of times you can submit a loan modification application. Just don’t make any changes to expenses that show up on your credit report. For example, if your car payment is $250 per month, you cannot change it to $175 because your lender will run your credit and see the actual payment. For credit cards, always just include the minimum amount that is required to be paid.

(Dave notes however one of the accepted reasons for hardship is excessive debt and if the back end debt ratio is over 55% all it means is you have to agree to credit counseling. This budget issue based on minimum payments required per credit report is not a HAMP requirement but it seems some servicers are using this to deny and the above comments make this even more a confusing concern. The intent of HAMP is to keep your home not to be sure you pay your credit card minimums.

I actually long ago purchased the HAMP Guide which they sell. It is quite comprehensive with lots of budgets. Although I really didn't learn anything new since I had read all the HAMP/Treasury/Fannie directives and found some of the information out of date if was a good guide for those not as familiar with HAMP. I have had a good e-mail discussion with the owner who is sincerely trying to be very helpful and while very opionated.. as I am... (doesn't like sites like loansafe for info). Regarding this confusing budget issues, in her materials she does note that under HAMP the 31% test seems to be more important than the budget with the credit card debt which was critical for pre HAMP modifications. But its still very unclear, my best observation is that the budget is a small part of the Net Present Value test. But there is nothing in the HAMP guidelines about a budget that has to include minimum payments on credit card debt.)

Now if your income is too low, there are a few things you can do. First, see if a family member in your household is willing to go on the loan modification application with you. This does’t mean they will go on the loan or title with you. It just means you are using their income to assist in qualifying for the modification. Some people have family members that contribute to the household expenses and you would be using their income to qualify for the modification. If you don’t have this option, then you can reduce your other expenses to lower your overall debt to income ratio which would help offset that you don’t make enough income.

If you are denied under the government’s modification programs (HAMP/Making Home Affordable, HOPE, etc) all is not lost. You just need to revise your application (based on feedback you received on why it was rejected) and resubmit to your lender. Then you will ask your lender to review your application for one of their other modifcation programs. Yes, all lenders have modification programs other than the ones implemented by the government. Lenders would prefer to give you a government program because there is financial incentive for them to do this but it’s not the only option. If you are rejected or denied under the government’s program, you just have to be persistent about letting your lender know you are experiencing a true financial hardship and you want to be reviewed for any other modification programs they offer. This applies if you make too little income or too much income and your overall monthly are expenses too high.

I’m a big fan of the late Randy Pausch and one of his sayings is that “brick walls are put up to see how bad we really want something.” In other words, you can achieve what you want but sometimes it’s going to test us and require a lot of persistence to get it done in order to break those walls down. As it applies to loan modifications, if a lender tells you no or denies your application, you just have to find out why, revise, and resubmit. Can the process be frustating, yes, but don’t lose sight of the goal which is to get your loan modified with a payment you can afford.

Source: What You Should Do If Served with a Foreclosure Notice?
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[Sunbeam]

Super great article. Thanks for posting. I love the quote by Randy Pausch!

[antomax]

Davephx
If I accept an in house modification can I apply for the HAMP modification afterwards or it's not possible, also is there a required time between the two modifications to apply for it?

[davephx]

Originally Posted by antomax

Davephx
If I accept an in house modification can I apply for the HAMP modification afterwards or it's not possible, also is there a required time between the two modifications to apply for it?

Good question I really don't know..... how soon you can try and be HAMPed.

I think the HAMP requires a year before can reapply if on HAMP or only can do once..both seem to be in the depths of my memory. For in house I assume it would be totally up to the servicer for another inhouse but...

But as far as I can tell or recall.... just because you have an inhouse doesn't mean you can't apply for HAMP.

[heidi79]

It's largely going to depend on the investor on the loan, but I think generally YES, you can apply for a HAMP once you've gotten an in-house modification. I know of 2 such cases, the families were approved for an in-house mod and about 3 months later applied for HAMP, they are both on trial payments at the moment.

[TSLFHA]

I tried do loan modificatoin my self and called lender and gave them some info finanical and monthly expense over the phone. But later on I decided give to loan modification company to handle my case instead of doing my self.

later on my loan modification company submitted my application to the lender.
within two week and Wells Fargo they denied.

later on we found out that because I give them the financial and monthly expense over the phone already before I decided to hired loan modification company to do my job.

when loan modification company submitted my application with my financial information to the lender. The lender denied, because two different financial information.

because I gave them already and my loan modification gave them again with different
info.

again...I don't know the lender loan modification guideline. if I know that I wouldn't give them my financial info at all. Just let the loan modification company handle everything for me instead.

now the government modification is denied. The loan modification company told me that I only have one shot for the government modification program.

I just want to ask you folks out there....can I resubmit for the government modification program again since my info and the loan modification company is different ?

or my loan modification company have to look for different modification program from the lender instead of governement modification program ?

note: my current mortgage is FHA loan already.

please advise.

thanks,
TSLFHA

[davephx]

You can apply again if the servicer will allow it. They key would be what part of the different financials caused the denial.

Hopefully the mod company knew the very differences between FHA-HAMP and regular HAMP. Here is the key rules if it might help figure out what may have done wrong:

FHA-HAMP

Is very different from regular HAMP in at least in these areas:

1) Must be delinquent at least 1 month but not more than 12 months.

2) There is no 2% interest rate - the interest rate is based on current rates unlike HAMPs 2% base. Current rate seems to be about 5.5+%. The rate is 200 basis points (2%) above the monthly average yield on the Treasury 10-year constant maturity rate which for 1/10 was 3.73%+2% = 5.73%. This is actually the maximum rate but probably what banks will use. Base rate at http://www.federalreserve.gov/releas...TCMNOM_Y10.txt

3) There is no 40 year extended term as with HAMP. 30 years max after "partial claim" defers part. The 30 years not 40 is because of the GNMA pool requirements.

4) Modification is done by a partial claim which defers the repayment of mortgage principal up to 30% through an interest-free subordinate mortgage that is not due until the first mortgage is paid of.

5) The back end debt/income ration can not exceed 55%. Unlike regular HAMP over 55% only requires agree to credit counseling.

Example from FHA-Mortgage Letter 2009-23 July 30, 2009:

Mortgagor had a reduction of income and is delinquent 3 full mortgage payments. The unpaid principal balance on the mortgage on the date of default is $150,000 and the monthly payment is $1,220 (consisting of P&I of $920 and escrows, including MIP, of $300). The financial analysis reveals that the mortgagor’s gross monthly income is $3,500 and the total monthly other recurring debt payments are $800.

In order to fulfill the 31% Front End Ratio requirement, the mortgagor(s) total monthly mortgage payment would have to be reduced to $1,085 ($3,500 x 31%). Therefore, P&I would have to be reduced to $785 ($1,085 total monthly mortgage payment less $300 escrow and MIP). Assuming that the loan modification will have an interest rate of 6% and a P&I of $785, the new mortgage amount would have to be $130,931, resulting in a principal reduction of $19,069 ($150,000 unpaid principal balance less $130,931). In this example, the mortgagor’s Back End ratio is 53.9% ($1,885/$3,500), which satisfies the 55% Back End Ratio limitation.

In this example, the maximum principal deferment is $41,340 (30% of $150,000, less the $3,660 delinquency, or $45,000 - $3,660). However, based on their gross income, mortgagor is eligible only for a principal deferment of $19,069 plus $3,660 arrearages (which would include any foreclosure costs incurred to that point, in accord with Mortgagee Letter 2008-21) for the total Partial Claim of $22,729.

FHA Insurance Pool Payment
Your lender may be able to work on your behalf to obtain a one-time payment from the FHA insurance pool. If the lender is successful with this, your mortgage will be brought up to date without you making the payments. You may qualify if you are delinquent on at least 4 months of payments but less than a year of payments. You have to show you will be able to pick up the payments in the future if the FHA can cover these missed payments in between. Your lender will do most of the paperwork for you, filing a claim with the FHA. You will only need to sign a promissory note to the FHA for the payment amount. You will have to repay this insurance payment, but you can do so without interest. You will also have until the mortgage matures or you sell the home to pay off this additional loan.

FHA Streamline Refi Option BUT HAVE TO BE CURRENT
No Appraisal needed but interest rate is about 6.25% without points and changes daily.
See FHA Streamline Direct, Mortgages Refinance Calculator for current rate options.

IN ADDITION there is the Hope for Homeowners Program with guidance issued 10/20/09.
But it's a refinance program with a maximum loan-to-value ratio of 90 or 96.5% and a more restrictive back end ratio of 43% or 50% so won't help much vs the FHA-HAMP.

Details at http://www.hud.gov/offices/adm/hudcl...es/09-43ml.doc

FHA-HAMP " There is no net present value (NPV) test for eligibility." pasted from a doc file with all the guidelines which is at
http://portal.hud.gov/pls/portal/url...4400144F9D3D85

[TSLFHA]

when they start doing foreclosure ? if you have FHA LOAN.
I heard that if your mortgage is FHA loan and if you late or behind mortgage for 3 months. The bank not going to proceed foreclosure until 12 month behind payment ?
because FHA LOAN guideline ?

please advise
TSLFHA

[gz9gjg]

davephx,

I notice you don't mention HAFA, which is supposed go into effect April 5, 2010 and is to be offered if HAMP is denied; or it a borrower is HAMP-eligible but indicates they do not want to stay in the home:

https://www.hmpadmin.com/portal/docs...date113009.pdf

https://www.hmpadmin.com/portal/docs...cer/sd0909.pdf

[davephx]

The reason I ignore it is that for myself I have zero interest whatsoever in a short sale or deed in lieu.. all I want is to keep my home. I have no interest in any option to lose my home.

And I do not care how underwater it is.

Others are more willing to move.