So you contacted your lender and are trying to get a loan modification processed. They requested mountains of paperwork, and on a couple of occasions asked you to refax the paperwork because something is missing.  Sound familiar? It has happened more-often-than-not and is the most frustrating situation known to mankind. No one likes getting the run around, especially when it comes to the most important buying decision they made for themselves and their family. What do you do? Are banks really conducting loan modifications that are real … not some $200 to $300 trial adjustment that reverts back to the original payment in 90 days? Are the Government programs really helping people and do I qualify?

Here are two important questions to consider:

Should I pay to have a loan  modification company, attorney or any other type of service that claims they can modify my loan for a fee?

Great question, in most instances I will tell you no. Why? No one can tell your story better than you, it is your money, your home and your family and there is no magic spell that any third-party company can cast to reduce your monthly mortgage note. In the rare instances where a third-party company will be of benefit is when your work schedule doesn’t allow to communicate effectively with your lender. The truth is most of the major banks have systems and schedules in place that are flexible with your schedule.

Can I realistically get a loan modification?

Again, great question! It depends on several factors, but to really simplify the process, let’s take a look at the “Making Homes Affordable” government program.

Making Homes Affordable

Eligibility and Verification

You may be eligible to apply if you meet all of the following:

  • You occupy the house as your primary residence.
  • You obtained your mortgage on or before January 1, 2009.
  • You have a mortgage payment that is more than 31 percent of your monthly gross (pre-tax) income.
  • You owe up to $729,750 on your home.
  • You have a financial hardship and are either delinquent or in danger of falling behind.
  • You have sufficient, documented income to support the modified payment.
  • You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.

*Eligibility criteria is for guidance only. Also, this information has been pulled directly from the Making Homes Affordable  website.

If you meet these requirements you could be in luck. Now let’s do some quick math prior to you picking up the phone. The following formula will give you a really good idea of what you can expect. This is where we will produce a best case result and where I will remind you to be realistic.

The “Making Homes Affordable” program has a floor rate of 2%. The term of the loan can technically be extended to 40 years, but this requires multiple levels of approvals. Let’s say they extend your loan out 30 years at the 2% floor rate. This is where you must take your current balance and add on everything you are delinquent. This is your new loan balance. Obviously, the number will be higher than the current balance and it will be calculated at 2% for 360 months (3 years).

Here’s what it looks like:

Current Balance + Total Delinquency = New Balance
New Balance x 2% divided by 360 months = New Monthly Payment

So there it is, your new monthly payment under the “Making Home Affordable” program.

If the payment is not affordable for you, then don’t waste your time. Just so you know, any reputable real estate agent, loan modification attorney or any third-party entity will conduct this exercise and inform you of your eligibility based on your current financial situation. If they don’t, you should run away as fast as you can.

Be smart, be empowered and most of all be knowledgeable.