Strategies for successful home loan modification

A very hot topic today in the financial and mortgage industries is the personal mortgage modification. Between 2000 and 2006 mortgage brokers had access to an amazing amount of flexible mortgage programs that allowed borrowers, who otherwise would not have qualified, to be able to purchase a house.

While there were a number of different specific types of loans, almost all these loans had one thing in common: they were adjustable rate notes. This means that the interest rate would stay fixed for a certain number of years and then go adjustable. The first rate increase after the fixed period expired usually stuck borrowers with a 20 to 30 percent payment increase overnight. Many could not afford the increase and were unable to qualify for a refinance.

These large groups of borrowers are the ones most susceptible to foreclosure and are also the ones a personal mortgage modification can help the most. A mortgage modification simply means that the lender modifies the new interest rate back down to the original contract rate and fixes it there permanently-or for a specified period of time.

Most of the major mortgage lenders have developed their own in-house note modification program. With the state of the economy the majority of these lenders are now overwhelmed with requests for note modifications. Some of these requests are granted quickly, some take a long time to be processed and some are rejected. What is it that causes one request to be granted and another to be denied or delayed? There are three best strategies that will make a personal mortgage modification request sail right through to approval.

First of all, all the lenders have a requirement that the borrower provide them with a hardship letter essentially stating why they should be granted a note modification. The letter must convince the lender of two things: that without the rate reductions, they will have to foreclose on the house and that with the rate reduction, the borrower will be able to make the monthly payments on time for the remainder of the loan.

Secondly, the borrower must convince, with documentation if necessary, that the current inflated monthly payment is unaffordable and that they have taken steps to be able to afford a reduced monthly payment. In other words, the lender needs to be convinced that the modification will work. This usually involves submitting detailed financial statements, including pay stubs, bank statements and tax returns.

Lastly, the borrower must comply with the exact requirements of the modification application process. Keep in mind the lender is now overwhelmed with these requests, and those that are not accurate or are incomplete will be put aside or ignored in favor of those that are correctly submitted.

Borrowers should keep in mind that the average time to process a personal mortgage modification is roughly 30 days, and that is if everything is filled out correctly and if all the required documentation is submitted the first time. Borrowers should also be aware that many lenders are motivated to grant legitimate requests since they generally end up losing money on a property when they are forced to foreclose and resell it.

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