Who Qualifies For A Loan Mod?

First, let's discuss what a loan mod is and what it is not.

A broad interpretation would be a re-structuring of terms, negotiated with the homeowners' original mortgage lender(s). What it's not is a re-finance, which may or may not be with the homeowners' original mortgage lender(s). The difference is in the qualifying, if your income has decreased, or your equity disappeared, you are not going to qualify for a re-fi. A re-fi requires good credit scores and sufficient loan to value. On the other hand, to qualify for a loan mod, the homeowner only has to prove that they have suffered a hardship which may cost them their home. They must also be able to prove that their current income is sufficient to repay a modified loan, in other words, the numbers have to make sense. With a loan mod, credit scores and equity position are not important factors.

There are also different types of "loan mods". If you are a homeowner who is looking for a principle reduction, good luck. That's not to say that principle reductions aren't done, but, they are hard to negotiate. Note that declining home values, creating an upside down equity position, is not reason enough for the reduction or reason enough for any loan modification. You would almost have to prove mortgage fraud! If you suspect that you were "victimized" and coerced into a "bad" loan, then a forensic analysis may be in order.

For our purposes, I'm talking about loan mods that reduce interest rates, consolidate loans, convert ARMS to fixed rates, extend terms, forgive delinquencies and penalties or combinations of such. The results should keep the homeowner in their homes with monthly payments they can afford, given their present circumstances.

So, who is eligible for a loan mod? You are, if you have an ARM, are struggling to make your monthly payments, are behind in your payments or are facing foreclosure.

Remember, you only need two things to qualify: proof of a personal hardship and proof of income. What kind of hardship? Anything causing a loss in income, loss of a job, pay cuts, injury or illness, divorce, stock market decline, higher property taxes, lower rental rates, etc. How will you prove income? They will substantiate what you tell them through your bank statements and deposits, tax returns, pay stubs and cash on hand. You don't have to be on the job for any length of time, it could be a new job, a part time job, and you could include family contributions to household. You want to be honest, mention whatever it is that's holding you back and what's keeping you afloat. An honest, well written hardship letter could make all the difference.

Yes, lenders will negotiate directly with the homeowner for FREE, but it's time consuming, laborous and you're likely to get what you paid for, not what you needed! Likewise, not everyone will qualify under the government subsidized program, “Homeowner Affordability/Stability Prog” (HASP). If you have a 1st and 2nd mortgage, only the 1st is do-able, your rental properties or your second/vacation home are properties that would otherwise not qualify under the government subsidized program. Further, not everyone will want to be at the mercy of their lenders, without representation of their own. Some reports indicate monthly payments were reduced by only 10% on those mods negotiated by the homeowner. Lenders, left to their own, will typically adjust original rates and terms only enough to qualify for their government incentives.

As with any other legal matter, the homeowner would be better served and represented, achieve more favorable terms and have their file fast tracked by their lender if there is an Attorney's name or law firm on that file. There are provisions being written, as we speak, restricting who is certified to actually prepare the file and submit the package to the lenders. Homeowners BEWARE! Your decision should not be determined by who's the cheapest and your trust should not be given to anyone with their own agenda.

Download a FREE Ebook for more information on Loan Mods and other solutions to keep you in your home and STOP foreclosure.