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?

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

This is good news for you, because if you go ahead and submit your application again now, it’s likely you’ll get another trial modification, which will press the pause button on any foreclosure proceedings you might be facing due to the missed payments.

The banks acknowledge that only between 2 percent and 20 percent of borrowers granted trial modifications are actually completing their trial successfully and successfully meeting all the other requirements to be offered a permanent modification.

The Obama administration is concerned about this, and has actually started to send Treasury Department staffers into the banks’ loss mitigation departments to "police" the process and ensure borrowers are being given a fair shake. However, the banks actually point back at borrowers, stating that at least 50 percent of the time (or more), borrowers have provided "insufficient documentation" (sound familiar?) to qualify for a permanent modification.

The most common documentation problems cited by banks as preventing trial modifications from converting to permanent include:

  • improper or incompletely filling out forms, especially omitting required signatures;
  • including income from someone who is not a borrower on the mortgage, whose contribution to the household income cannot be verified by the lender;
  • inadequately documenting hardships like death and divorce, or income like overtime or bonus pay;
  • discrepancies between income shown on tax returns and income claimed on financial forms; and
  • a change in income between the time the trial modification was approved and the time it ended.

Action Plan

1. Steel yourself, emotionally, to resubmit your loan modification application and prepare yourself with a whatever-it-takes attitude to get it done. There are no guarantees in the world of loan mods, but you can guarantee yourself that it won’t be because you fell asleep at the wheel or didn’t do everything within your power that your application is rejected again.

2. If possible, get someone from loss mitigation on the phone and see if you can get them to tell you specifically what was wrong with your income documentation. Were they missing something? Was there a discrepancy and, if so, what is it?

What would it take, in terms of documentation, to reconcile that? Was there simply not enough income? How much more would you need to make (or how much lower would your expenses need to be) to resolve that issue?

The answer could be critical to your success on the next go-round. And more than once, I’ve had these conversations with loss mitigation and been able to get them to reopen the rejected application and allow me to resubmit the documents you need. Ask, ask, ask.

3. Then follow up — the answer might be that you need more income. If so, you may need to find a way to do that, or to cut expenses.

4. If you do have to resubmit your application anew, visit your lender’s Web site and collect up every single document requested/required. Check and doublecheck the entire package for missing documents and signatures. It’s very common for lenders to lose documents and request they be sent again. Never send a single document: Every single time you send them anything, send them everything.

5. Create a habit of calling a couple of days following sending documents in, and keep a communication log.

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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