Failed loan mod? Try again

Flickr photo by hans.gerwitz.

Q: I worked with an attorney and applied for a loan modification. After about six months of making no payments, the bank gave me a three-month trial modification with a lower payment under the Making Home Affordable program.

I made all three payments on time, and have continued to make the reduced payment for the four months since the trial modification ended. I have called the bank dozens of times over the last four months, and they kept saying that the modification was still being reviewed.

I just got a letter in the mail saying that the modification was declined because my "income documentation was insufficient"! What do I do now?

A: You are experiencing what literally millions of other American homeowners are currently going through: the drawn-out suspense of waiting to get a loan modification, and the letdown when it doesn't happen as you were led to expect it would.

While the Making Home Affordable Plan was promising at the outset, unfortunately it has not yet manifested the projected results. Many borrowers are having their permanent modifications rejected after successfully completing their trial modifications.

Some think a conspiracy is afoot; the banks point to problems with borrower documentation. Either way, there are a number of steps you can take to resubmit your modification application and stack the decks in favor of its success.

Mindset Management

Outrage, overwhelm, the fear of losing your home, and the accompanying panic-based paralysis: all of these are normal and even appropriate emotional reactions to have in your situation.

So many modification applicants become frustrated at the process of being asked to submit and resubmit the same documents over and over again, which is a very common issue, or feel that the modification they seek is simply not in the cards for them.

I have personally witnessed the approval of modifications well over a year after documents have been submitted and resubmitted, and after wrangling with loss mitigation staffers and even flat-out denials. If you need your loan modified in order to keep your house (which you very well might, if you missed six monthly payments), gear up emotionally to resubmit your application and don't give up -- not yet.

Part of the problem here is that when the Making Home Affordable program was introduced, the expectation was created that loan modification would be transformed into a much kinder, simpler and easier-to-navigate process. That, unfortunately, has just not been the case.

Consider the last 10 months of your process as your education and initiation into what loan modification really entails. Then, decide not to be daunted and move forward. Expect glitches, snafus and repeated requests for the same documentation.

Keep a detailed communication log with notes of the individual you speak to every time you call (including their name and operator number, if they have one), the material discussed in each conversation, and what deliverables you owe them or they owe you, and by when. Staying organized, calm and all the way on top of all the details is the name of this game.

Need-to-Knows

The Home Affordable Modification Program was set up for easy access to get into the program. While banks ask for all your financial documentation up front, many review only the hardship letter and authorization to request tax returns from the Internal Revenue Service before putting borrowers in the trial modification program.

The modification application is not fully underwritten until a borrower successfully completes the trial modification and is in queue for the permanent modification. ...CONTINUED

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