Self-Directed Loan Modification

Are you one of the home owners who have not taken advantage of refinancing into a low mortgage rate?  

Many home owners still have 30 year fixed rate mortgages above 6% because they lack the equity or unable to qualify under tougher lending standards.  

Here's one possible idea that might help some home owners that I call “Self-Directed Loan Modification” or “SDLM”.  The SDLM is basically you conduct the brunt work instead of hiring an intermediary to request a loan modification with the loan servicer(s).  If you can substantiate a financial hardship, contact the servicer of your loan(s).    Call the customer service number on your mortgage statement and request to speak to loan modification specialists.  Each bank/servicer has a different name for this department but it is the department that deals with distressed homeowners.   If you have 2 loans on your home, you will probably have to contact 2 different customer service numbers, even if it is the same service/bank.    

A few things to note about loan modifications:

(1)  if you are late on your payments, that get’s the servicer’s attention and thus it increases your chances of a loan modification (please note that no one recommends you intentionally make late payments since loan modification approvals are not guaranteed and late payments may have a negative impact on your credit score).

(2)  You will need to explain the financial hardship.  It may be a good idea to write it on paper so that you can both verbalize it clearly and have it ready to attach to your financial documents that you send to the lender.   You will need to explain the financial hardship such as divorce, loss of job, cut in pay, health problem which increase expenses….

(3)  It is a long process.  Bank/loan servicers are swamp with many requests and you will need to be patient yet proactive.  It will be a lot of work and the results are not guaranteed. 

(4)  The loan servicer will provide you a list of financial documentation to submit.   Make sure you provide everything they request; otherwise you risk your file being thrown in a bottomless pit.

(5) Loan Servicers/banks are not the ultimate approvals of short sales.  The investor is the investor who owns your specific mortgage.  Loan Servicers will submit your request to the investor for approval. 

(6)  After submitting your file, be proactive and contact your designated account rep who is handling your case.  Sometimes these reps change jobs, your file is lost … and you will have to resubmit your loan mod application again.

(7) Note that the loan servicer/investor will analyze your ability to make payments under the proposed terms of the loan medication. 

(8)  There is usually no charge or only a minimal cost for SDLM.

(9)  You should have an idea of what you are asking for.  E.g.  30 year fixed rate at 5%; 10 year fixed at 4.75%; consolidate first and second mortgage into one mortgage….     A good idea may be to have 2 or 3 options and rank them in your preference and only initially request the number ranked option you are looking for. 

If the loan servicer approves a loan modification, the terms vary from each servicer/bank and for each situation.  There is no industry standard.  E.g. I’ve heard of  5 year fixed rate with interest only payment feature and becomes an adjustable rate mortgage thereafter; loan principal forgiveness (which is a rare); a low fixed rate for 5 years with a principal and interest payment and remaining term identical to your original maturity date….

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