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Overcoming Problems With a Trial Loan Modification
Are you one of the lucky ones who's been able to lower your monthly mortgage bills through the government's Making Home Affordable (MHA) Program? Well, you may not be out of the woods just yet - lenders are reporting that large numbers of borrowers who obtained trial loan modifications under the program are being turned down for permanent status at the end of their trial period.
So what's happening? The lenders point to a variety of reasons. Some borrowers simply fail to make their payments during the three-month trial period on time or miss payments entirely. But an even bigger reason, lenders say, has to do with documentation - problems with the paperwork borrowers must submit to support their application for a permanent loan modification.
How serious is it? According to Molly Sheehan, a senior vice president with Chase Home Finance, her company has offered nearly 200,000 trial loan modifications to date under MHA, but only 4,300 of those have been converted to permanent status (roughly 12,000 more have been approved for permanent status).
Documentation is biggest obstacle
Of trial loan modifications completed by Chase customers in the program's first six months (April-September), she said that 51 percent - more than half - could not be approved for conversion to permanent modifications due to documentation problems. Another 29 percent were rejected for failure to make timely payments. Only 20 percent successfully completed their trial periods and submitted proper documentation that allowed them to be approved for permanent status.
Similar figures are being reported by other lenders. Bank of America reports that, of 65,000 trial modifications is has extended that will be eligible for conversion to permanent status as of Dec. 31, 2009, 50,000 still lack full documentation or have discrepancies that would prevent them from being made permanent under the rules of the program.
Many borrowers, on the other hand, are complaining of being given incomplete instructions by their various banks or being asked to resubmit the same documents over and over. Regardless, it seems clear that documentation problems are a major obstacle preventing borrowers with trial loan modification from having those modifications made permanent upon completion of the three month trial period.
Common documentation problems
So what can you do to avoid such problems if you're currently in a trial loan modification or looking to be approved for one? Here's some of the more common reasons that trial loan modifications were denied for conversion to permanent status, according to Chases' Sheehan:
- Not filling out documents properly, including a failure to provide necessary signatures.
- Including income from a second person not on the mortgage note and which the lender is unable to verify.
- Not providing adequate documentation of such things as divorce decrees, death certificates, overtime pay or information on bonuses.
- The borrower's income on their 2008 tax return cannot be fully reconciled with current document income, as required by MHA rules.
- The borrower's income varied between the time the trial modification was approved and the trial period began by more than is permitted by program guidelines.
Steps to help move things along
If you're currently in a trial modification or hoping to be approved for one, there's a few particular things you can do to avoid problems.
- Make copies of all documents you submit and include a cover letter listing each document contained. Ask for verification that all documents were received. Then send them by certified mail, Federal Express or similar means. This not only guarantees delivery, but provides you with the signature of the person who received your materials if the lender ever claims they didn't receive them.
- Send all your documentation at one time, unless asked to submit additional material. Sending items separately as you obtain them is a good way to get them separated and scattered.
- Make sure you're sending your documents to the right office at your lender. The person you talk with on the phone about setting up your trial modification or which documents you need to submit may not work in the office you need to submit your materials to. Make sure you get the right address.
- Also, make sure you're dealing with the right office when contacting your lender. Loan modifications are handled by the loss mitigation department - not collections or mortgage servicing.
- When calling about a loan modification or document requirements, if the person you're talking to doesn't seem to have a full grasp of the subject, ask to speak with a supervisor. Some lower-level employees and new hires may not be fully up to speed on the program.
- If you believe you have fully met the terms of the trial loan modification and properly submitted all documentation, but are still turned down for a permanent modification or cannot get a definite answer on when you will be approved, write your senator and congressman and tell the lender you are doing so. It is unlikely they will intervene, but the outside possibility and fear of attendant media coverage is often enough to get a lender to act.
Income must be accurate
Finally, when first applying for an MHA loan modification, avoid the temptation to misstate your income to improve your chances of being approved or get better terms. Although applications for MHA trial modifications are much like "stated income" loans - proof of income is not always required - you will have to document your income before your trial modification can be made permanent. And if there's a significant discrepancy - either too high or too low - you could either be denied a permanent modification or have to begin the process all over again. So give the most accurate information you can at the front of the process.
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