Q: I applied for a loan modification at the very beginning of the year. It’s almost the end of the year, and I still don’t have an answer from the bank. I haven’t been making the mortgage payment this whole time, but I haven’t received any sort of notice of default or foreclosure. The bank keeps telling me to wait, and saying that the "investor" who owns my loan is taking up to six months to make a final decision on loan modification applications. Could this possibly be true? I want to get back on good footing and I feel like I should be doing something. Any advice?
A: You’re right to feel like you should be doing something — you should be paying your mortgage! OK, so that’s a seriously oversimplified view; let’s get down to brass tacks.
You’re clearly aware that every month the chasm between you and getting current on your mortgage grows wider and more difficult to span. Hopefully, you’ve been a wise steward of the income you would normally allocate to your mortgage payment. I’ve seen people save these funds; I’ve seen others use them to pay down their other bills; and I’ve seen still others literally arrive at the end of a yearlong stint of making no mortgage payments with no savings and nothing else to show for it.
I’ve known a number of people who get to the end of a long loan modification process only to have their lender decide that if, after many months of nonpayment, the borrower did not have the funds at their disposal to make 1-3 months’ worth of mortgage payments as a good faith deposit on their modification, that indicates that they probably cannot afford to keep the home in any event. The borrowers who have saved their money can say with assurance to their lender at that juncture: Make that initial payment a condition of my loan modification, and I’ll take care of it right away. The borrowers who haven’t saved any money are hard-pressed to make a case that they can, in fact, afford the home, if they haven’t been able to save even a single month’s mortgage payment after months and months of nonpayment.
By way of surprise prevention, I would encourage you to make sure you are tucking away as much cash as possible. Yes — your lender will ask for your updated asset account statements and will see those funds there. While that might have been a no-no in earlier schools of loan modification thought, the reality is that it might also convince your lender that you can actually afford to be a homeowner. And if your lender doesn’t approve your application for a significant modification, it will give you the cushion to either bring down your arrearage or negotiate for time to get current. You might need it.
I know of people who have received an answer on their loan modification in two weeks. I also know of borrowers like you who are still, after eight months, waiting for an answer on their application. As you probably know by now, many mortgages originated before 2006 were sold in packages to investors like pension funds, foreign banks and even individuals. If your mortgage company is only servicing your loan for an investor like this, your loan modification application process could very well legitimately take as long as the investor takes to get to your file.
For about the last 18 months or so, the advice on how to "fix" your broken adjustable-rate mortgage (ARM) in a market where declining values rendered refinancing infeasible has changed, oh, about every 10 minutes. There definitely was a time when the prevailing school of thought was that falling behind on your mortgage was the best way to "motivate" your mortgage lender or servicer to modify your loan. …CONTINUED
What no one could or did realize at the time was that, in fact, there were no hard, fast rules for what you could do to guarantee that you’d get a modification. The guidelines varied from lender to lender, from investor to investor, and from month to month with the result that what worked for some blew up for others. This is still the case, despite governmental efforts to standardize loan modification guidelines.
As an unfortunate result, there are as many different loan modification experiences and paths as there are borrower/lender/servicer combinations. No one can tell you what’s normal or not, because normal simply doesn’t exist in the world of loan modifications. And, honestly, what is normal doesn’t matter — all that matters is this one home, this one lender/servicer and your one modification process.
I don’t want to be negative about your situation. The length of time your application has been in consideration is neither a positive nor a negative indication about the eventual outcome of your modification. However, most lenders are now funneling the vast majority of their modifications into the guidelines of the Making Home Affordable plan. Under that plan, to date, roughly 500,000 three-month trial modifications have been granted. If you meet the guidelines, it’s very likely you could eventually be offered a trial modification plan, which might cause you to expect that you’ll eventually be granted a permanent loan modification.
Sounds great, huh? Well, the problem is that fewer than 2,000 permanent modifications have been granted under the program. I’m seeing it myself every single day — borrowers who have paid every single payment in accordance with their trial modification are not offered permanent modifications but, rather, find themselves right back in default status at the end of their trial modification. Accordingly, my advice these days is to use the time you have to cut back elsewhere, get a side job or start a side business — do whatever you can to save up as much cash as necessary, in case you find yourself in a few months face to face with a notice to get current or prepare to get out.
1. We’re talking about your house here — prepare yourself as much as you can for the worst-case scenario, and stockpile the cash you might need to get your mortgage current.
2. Call your lender and triple check to be sure that no notices have been filed against your property.
3. Be aware that from the time a notice of default is issued to the time your home is foreclosed on runs anywhere from 90 to 180 days in most areas. Set a plan in place for using this time to get current on your loan in the event your permanent modification is not approved.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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