What is Loan Modification?

Loan modification allows homeowners and lenders to change the terms of a loan in order to help the borrower stay in the home and avoid foreclosure. It is important to note that a loan modification is not a new mortgage. A loan modification is the renegotiation of an existing loan.

With a loan modification, it's possible that a homeowner's:

• interest rate may be decreased
• interest rate can be changed from an adjustable to a fixed rate
• time the borrower has to pay the loan back can be lengthened
• loan principal may be decreased
• late fees may be waived
• second mortgage could be waived or wiped off of the books

How long does it typically take to get a modification done?
The average modification takes 90-120 days and sometimes as long as 6 months. We have done modifications in as little as 18 days, but this is rare. It will sometimes seem like nothing is happening because the weekly updates will continue to be the same. However, once a negotiator is assigned the process will move a little faster, but investor approvals can slow it down once again.

What happens to a file once it is submitted to the lender?
Once the lender has received the file it will be entered into their computer systems. All banks vary on the timeline here, whether they assign it immediately to a negotiator or whether the file makes its way through the many levels of review before actually being assigned to a negotiator. Either way, there is not much decisive activity until it reaches a negotiator and is analyzed by them. They will review the file in depth, they will most likely pull credit, if it wasn’t done already, they will request some kind of property report, but only in extremes cases will they actually order an appraisal. They will note in the file if more documentation is needed, but they will rarely contact you or anyone else. It is up to us, All Cities USA to maintain consistent contact with the bank to make sure the file is being reviewed and to follow up if any further documentation is needed.

What happens if the lender asks me to make a payment?
We never recommend a client miss a payment. However, some lenders will only work on loan modifications if a mortgage is behind.

If I don’t make a payment, or am already behind on payments, what will the bank do?
The bank will contact the client regularly, asking for a payment. If All Cities is working on your file, it is best that you refrain from talking with the bank and refer the calls to us. Once the loan has gone unpaid for a certain amount of time, a Notice of Default or Breach Notice is sent to the client. Every bank is different when they issue their Notice, some will do it at 34 days, then again at 65 days, others wait until the standard of 90 days, and yet others put it off even further. Some banks will put it off indefinitely if an “active loss mitigation” (aka: loan modification) is taking place.

What happens after the Notice of Default is issued?
Once a Notice of Default has been issued, the client will officially be in pre-foreclosure, which means that they will also now be incurring attorney’s fees on top of the late charges and other admin fees that banks charge. We usually recommend to all clients that if they can make a payment to stay out of pre-foreclosure, they do so. The Notice will be recorded with the County, with the expiration date. Once it expires, the lender prepares for full foreclosure, and soon thereafter a Notice of Trustee Sale will be issued.

What is a Notice of Trustee Sale (NOTS) and what happens when one is issued?
An NOTS records an official auction date with the county in which the property is located, it tells you where and when the home will be sold at auction, which is typically on the steps of the county courthouse. This is where modification becomes more difficult; now the ticking of the clock has become very loud and noticeable. You will be very nervous at this stage and it is perfectly understandable. We have had dates of sale postponed, some over and over again. If you have a package turned in, you can typically push for postponement, but there is no guarantee, which is why we recommend that if a client can stay out of the Notice of Default range, it is their best interest.

What if I am already in the foreclosure process when I come to you?
The legal process of foreclosure does not slow down just because you have decided to do something about their mortgage situation. We will need your immediate cooperation and we will have to work as expediently as possible, but you do need to be prepared for the truth that you may lose your home. Depending on how far behind you are on your payments, the lender will want some kind of good faith payment, or even reduced consecutive payments and a lump sum good faith payment prior to approval of a modification. We’ve seen lenders ask for a single payment, up to 30% of the unpaid balance plus fees. At some point the default may be too great and the bank will ask for the entire balance due. We believe that it is always worth it to submit a loan for some kind of modification, no matter how far behind the client is. Anything is better than foreclosure.

If a modification doesn’t work, what are my next steps?
If you are unable to achieve any kind of modification, or you still cannot meet the terms of the modification, the next step will be a short sale. The process is very similar to the modification process, except that the package of documentation submitted to the bank must include a listing agreement, an offer and an approval letter for the purchaser. Once the package is submitted it will go through the negotiation process similarly to the modification process, and again, the legal process does not stop so you could still be fighting a NOTS. If a short sale is not possible, then the client can submit for a deed-in-lieu of foreclosure, again the process is similar. Some lenders will require that you at least tried to sell the home before they apply for the deed-in-lieu. The last step and the most extreme is foreclosure.

How does this process affect my credit?
Once you have stopped making payments, or if you are making haphazard payments, your credit will be affected. Some banks report immediately after a payment has gone late; some give a longer grace period. With all the filed bankruptcies that lenders are faced with these days, it would seem that credit reporting is not their priority, but your credit rating will definitely decrease from any missed payments. We often tell clients that are concerned about their credit scores, that credit can be fixed; they need to decide which is their priority, their credit or their home. All the steps listed in the previous answer will show as paid as agreed on your credit, except foreclosure.

Is there any reason why All Cities USA wouldn’t accept my file?
We believe that everyone deserves chance to save their home. However, if we think a file has questionable success, we will review the file and advise you (the client) of what we find. If you still wish to proceed, we will do so with your express consent. Typically the files that have trouble getting finished are the ones in which the client is uncooperative, undecided or uncommitted to the process.

What are some of the key ingredients to a successful modification?
The most important thing for a loan modification in terms of success is thinking outside the box. The lenders really DO NOT want the houses, if you can give them a compelling enough reason to offer a loan modification, they will do it. We will review your file and find the best approach to present to the lender. If one scenario doesn’t work, we will find another, which is another key ingredient, persistence. Continued contact with the lender ensures that the file is looked at, which is the number one thing that most people trying to do a loan modification on their own do not do. Cooperation and commitment from you are also essential, it does no good if you put together a fantastic package and you decide you cannot meet the obligations necessary to save your home.

How can All Cities USA best help you?
You are obviously going through a very difficult time and you will need our support as well as our strength and honesty to help you. We will sometimes have to give you information that is difficult to hear, but in the long run you will appreciate our forthright approach and you will need our empathy and understanding.

What is the difference between a modification and a short sale – in the process?
A short sale should be considered after a modification attempt. If a modification is not possible then a short sale of the property is the next logical step. A modification gathers all the same paperwork and goes through the same procedures at the bank, except that a listing agreement, offer for purchase and an approval for the purchaser should also be submitted. The same timelines all still apply so the short sale process needs to happen very quickly after a modification is denied, if the home is already in foreclosure.

What happens if I have increased my own debt?
Many of our clients have increased their revolving debt as a result of subsidizing their income to make mortgage payments. When a person faces financial difficulties they will look for income anywhere they can find it. They turn to the easiest form of income and that is CREDIT CARDS. This is a small problem when trying to modify their mortgage because it can push them out of budget thus disqualifying them. When we do a proposed budget for you, we will make a recommendation on how to handle the unsecured debt.

Does it matter if my credit is good or bad?
No, it is not the same as a refinance or purchase; you do not have to have good credit to qualify for a modification. However, the lenders do check credit to see if there are any debt(s) that is not being reported by you and to verify the debt to income ratio is enough to cover the modified payment.

What if the home is in the husband and wife’s name and they are getting divorced?
We can only work with the person whose name is on title and the mortgage.

What happens if I already have a NOD and am 6 months behind on payments?
If you have already received a NOD, any modification attempt will have to be done as efficiently as possible with an eye on the clock. Keeping in mind that the Trustee Sale date will most likely be set while the modification is in process, you will also have to push for a postponement of that date.

Can I get a principal balance reduction if my house has dropped in value?
It is possible, but it depends on the bank and the investor. If the bank is still originating loans, they are more likely to reduce the principal balance owed, especially if the value has dropped significantly.

Does everybody qualify?
Not everyone will qualify for a modification. It is our job to preview the documents to see if you can afford the home with a modification. This is all part of the Game Plan we need to complete with you. The budget is truly the single most important piece of the puzzle.

What if I don’t have a job?
You do not necessarily have to have a job to get a loan modification, but you will have to show some source of income that is at least close to covering monthly expenses. You can be collecting unemployment, renting rooms in your home, or collecting “other” income, as long as you have some way to show proof.

What if the house is a mobile home?
It depends on the investor. Not all investors want to keep mobile homes on their investment books. We have found unless the home is FHA secured, most banks do not want to do a modification. With that being said, it is not impossible, just more difficult.

What if the property is an investment property?
Investment properties can be modified with most lenders, as long as the budget shows that they are capable, with the help of a modification to maintain the properties. The lender does not really want the homes back, whether the properties are primary or secondary.

Can you do modifications on commercial properties?
Some lenders will do modifications on commercial property. It all depends on the lender, investor and their guidelines. We take commercial property modification on a case-by-case basis.

What happens if the lender has gone out of business?
Not much of anything happens when the lender goes out of business. The money is still owed and the lender will still attempt to collect it. A note may be sold to another servicing agent, which only means that the payments will be sent to a new company.

What happens if I cannot afford the modified payment?
Then we have to help you find another solution. Short sale would be the next step, but you could also rent the home and find another rental that is less expensive. There are other solutions and we are happy to make suggestions, but staying out of foreclosure is critical.

What if the lender denied the modification because my income was too low?
We will go over the budget and the other income documentation to verify what the income actually is. We will also identify other avenues of income generation, given your situation and occupations. It is truly our job to find solutions for the clients from all angles to give them the best shot at a successful modification.

What if I have a first and second mortgage? Am I required to modify both the loans?
We will need to look at both mortgages to determine the best Game Plan; it all depends on the lenders and your situation. No, you do not have to modify both mortgages.

What happens if I do not want the house anymore and want to walk away?
Walking away from your home means that you are letting your home be foreclosed on. Fannie Mae and Freddie Mac have both released statements noting that they will penalize people that just walk away from their mortgages without trying to work out their situation. We have seen a client walk away from their home based on advice from their realtor, without doing a short sale. Remember you did take out the loan so you do have the obligation of doing the right thing. Most lenders understand when people are having financial difficulties and they want to give you every opportunity to succeed. When people do not attempt to stand by their obligations the lender has no problem coming after them. If you cannot afford the home at all or simply just want to walk away, the best solution is to do a short sale.