Mortgage Modification: What is a Delinquent or Soon to be Delinquent Borrower to Do?

by Alex Stenback on March 11, 2009


Okay, so you’ve heard that there is this new government program to help you modify your loan if you answer the following questions:

Do I qualify for a Home Affordable Modification? Answer these questions:
1. Is your home your primary residence?
2. Is the amount you owe on your first mortgage equal to or less than $729,750?
3. Are you having trouble paying your mortgage? For example, have you had a significant increase in your mortgage payment OR reduction in your income since you got your current loan OR have you suffered a hardship that has increased your expenses (like medical bills)?
4. Did you get your current mortgage before January 1, 2009?

Right?  So you answer yes and are instructed to gather all of your income and asset information (according to this list, screen shot above) and call your servicer. 

Before you do that, I’d like to call attention to item number 8 on the list, circled above, where candidates for modification are instructed to prepare:

“A letter describing the circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.). “

Oh boy are the servicers going to wish that item was worded differently.

What the servicers really want to know is not so much how you got here, but where do we go from here and is there a solution that is practical for both of you.

Unfortunately, Most People™, when reading that item, will be tempted to write a letter detailing all of the unfortunate circumstances that led to their current situation. 

So if Most People™ is you, don’t do that.  Don’t write a letter detailing all that has befallen you.  You will be wasting precious time, and focusing on precisely the wrong thing, and no matter how unique your story, the servicer will have heard one hundred others just like it.

If that does not make sense, go read the May 2008 post “How Not to Write a Hardship Letter” by Tanta/Doris Dungey at Calculated Risk.  I excerpt a money quote:

“First of all, your goal is not to convince the servicer that you deserve a loan modification. Some people can’t quite get a handle on this point, but you need to. Your goal is to convince the servicer that what you are asking for–in this case, a modification, although it could be a deed-in-lieu or a short sale or just a temporary repayment plan–is 1) necessary given your financial situation and 2) going to work.”

“Servicers do not modify loans because they feel sorry for you. They modify loans because you have convinced them that you will be able to make payments that way.”

Got that?  Go read the rest also, there is more, and some quite specific advice on how to write a hardship letter.  The whole thing is gold. I can promise you it will save you immense amounts of grief if you are seeking any sort of workout of your loan.

{ 1 comment… read it below or add one }

FutureRob April 9, 2009 at 4:35 pm

What the servicers really want to know is not so much how you got here, but where do we go from here and is there a solution that is practical for both of you.

I’m not convinced the servicers are interested in solutions, only in bleeding out the homeowner for as long as possible. Until the game is changed to make it in their economic interest to help the debtor, they’ll continue to to string them along.

DISCLAIMER: I’m a little bit cynical at this time, having tried to approach them in the \where do we go from here\ approached and been rebuffed (to date).

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