Let December Be Known as Loan Modification Month

The hottest buzz word in the industry right now is not short sales nor foreclosures. It's all about loan modifications. Lots of unscrupulous businesses are springing up that offer consumers help with their loan modifications, and they are charging home owners $3,000 and more to do what home owners can do for themselves.

To find your lender's loan modification requirements, click on the photo and you will find my article on About.com, which details major mortgage lender guidelines for loan modifications.

Nobody wants to admit it, but the lenders are making loan modifications seem confusing and difficult. Perhaps it's an effort to discourage applications? If you're considering a loan modification, the first thing you should do is pick up the phone and call your lender to find out if you qualify. If you do not qualify, and can no longer afford to make your monthly mortgage payments, then call a short-sale specialist and put your home on the market as a short sale. Many lenders are placing a 3- to 4-month moratorium on foreclosures, so this will give you extra time to get that home sold.

The criteria for a loan modification is tight. Many banks insist on the following qualifications:

• Existing loan origination date prior to Dec. 31, 2007
  
• Existing subprime loan (fixed or adjustable) or Option ARM
• Loan-to-value ratio above 75%
  
• Owner occupied as primary residence
  
• Employed homeowner
• Existing mortgage payments exceed 31% of gross monthly income.

However, if you qualify for a loan modification, you can assemble the paperwork the lender wants by putting together the following package:

• 2 years of W2's
• 2 years of tax returns
• Financial Statement that lists assets and liabilities
• Last 2 pay stubs
• Hardship letter

Don't pay a company to do this for you. Do it yourself.

If you are successful, a loan modification may give you:

• A lower mortgage balance.
• An interest rate between 2% and 4%.
• A loan term of 30 to 40 years.
• A low monthly mortgage payment.
• Elimination of negative amortization and / or a waiver of prepayment penalties and fees.

Remember, California short sale sellers, you have until December 31 to sell that home to avoid paying state taxes on debt forgiveness.

Happy Thanksgiving, everybody, and Happy Debt Forgiveness!

Photo: Big Stock Photo

The Short Sale, by Elizabeth Weintraub, coming from Archer Ellison in January 2009.