Editor’s note: This is Part 1 of a two-part series. Read Part 2.
In recent weeks, I have been inundated with letters from mortgage borrowers who, for any number of reasons, can no longer afford their mortgage payment, though they could afford a lower payment. They seek help on getting their mortgages modified.
I have written several articles on modifications, but, as one letter writer put it, these provide "background but are not specific enough to really help." Ouch! In this article I attempt to make amends by laying out the steps in 1-2-3 order. Because the process is tedious, I have placed some of the boring details on my Web site. The second article in the series discusses where to go to get help, if help is needed.
The steps involved in getting your loan modified are: 1) establish that you would not be better off to refinance instead; 2) deliver the information the servicer requires, in the form the servicer specifies; 3) assure that the information you provide is correct; 4) assure that the information you deliver does not get lost in the shuffle; 5) determine whether you are eligible for special modification programs, which the servicer might overlook; and 6) nudge the servicer as needed.
Modification or Refinance? In general, borrowers should seek a refinance rather than a modification if they can refinance at a significantly lower rate at a reasonable cost. However, you can’t refinance advantageously if you are behind in your existing payments, have little or no equity in your property, or don’t qualify for a refinance for other reasons such as a low FICO score or inability to document adequate income. If you are still not sure, read Mortgage Modification or Refinance? on my Web site.
Delivering the Information the Servicer Wants: The single most important part of the process is to place in the hands of the servicer all the information about you that the servicer needs to make a decision. While this information is pretty much the same for all servicers, each has its own questionnaire form that it expects to be used.
To help you with this, I have compiled the information required by each of the major servicers, and indicate how to access their questionnaire, in Mortgage Servicer Information on my Web site.
Assuring Accuracy: Having the right form is one thing, but filling it out correctly is something else. A questionnaire with obvious errors may fall to the bottom of the pile, or it may lead the servicer to conclude that you do not qualify for a loan modification when, in fact, you do. Being accurate is a challenge for some borrowers because most questionnaires are not borrower-friendly. But there is plenty of help available, as I’ll discuss next week.
Assuring Delivery: Most servicers prefer to receive documents by fax, although some also provide mailing addresses. I am informed that fax is more reliable, and I show the fax number of each servicer providing one. A few servicers, including Chase and Wells Fargo, want borrowers to call them before submitting detailed data, and provide only telephone numbers. They evidently prefer to have their own staff participate with the borrower in compiling the information. …CONTINUED
Protect Your Documents Against Getting Lost: The principal danger of delivering documents by fax is that they will get mixed up with those of other borrowers. To prevent that, place your name and mortgage account number at the top of every page you fax.
Include Your Eligibility For Special Programs: Borrowers who took subprime adjustable-rate mortgages (ARMs) after Jan. 1, 2005, that have interest rates scheduled to reset before July 31, 2010, may be eligible for a modification under the "Fast Track Solution" adopted voluntarily by servicers last year. Borrowers with housing expenses that exceed 31 percent of their gross before-tax income may be eligible for a modification under the government’s recent Making Home Affordable (MHA) program.
If you have good reason to believe that you are eligible under either program, add a statement to that effect in your hardship letter. (You can determine your eligibility at Eligibility Under Fast Track and Eligibility Under MHA on my Web site.) Servicers are under a lot of pressure and they just might overlook it.
Nudge the Servicer: The process of modifying mortgages is slow and error-prone. A firm that two years ago may have had two people modifying mortgages today may have 200, most of them newly trained. Development of computer systems has lagged and much of the work is done manually. At this writing, most of the servicers had not yet incorporated the MHA program into their systems.
So you may need to nudge. If the servicer’s stated policy is to reply within 21 days, call them on day 21 if you haven’t heard. If they give you a quick denial on the grounds of ineligibility, which you believe is wrong, let them know it is wrong — in a nice way. Remember that getting a modification is not a negotiation, and you have no place else to go.
Next week: Where to go, and where not to go, if you need help.
The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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