proven 15 STEPS to A LOAN MODIFICATION
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Unemployment benefits. Are they now allowed? (as of 2/10/11) Wells Fargo CEO area has reported that "for the most part" unemployment is not allowed. "A very few investors" now allow unemployment.
Recommendation: Before answering any income verification questions, try to find out first if unemployment is allowed. Assume NO when preparing your numbers for modification. Note: In the 2 modification lessons (Making Home Affordable and Traditional), read "12 ways to show income" to learn ways to augment income for modification purposes.See Updates. See Top Tips.
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***** This video lesson explains material presented below. *****
Prepare your Numbers First Before Calling Your Servicer
NOTES BEFORE YOU BEGIN:
* * Some Conventional (investor-owned) loans follow the formulas of the Making Home Affordable
program (HAMP). Ask your Servicer first if your Investor is following Making Home Affordable formulas
for eligibility and if so, click here. If you are not eligible for Making Home Affordable guidelines, attempt
to posture your numbers to meet the formulas below. Outcomes can vary widely with Conventional
** V.A. Loans now follow VA HAMP formulas (if Servicer is utilizing) as well as the Traditional formulas.
Always ask the Servicer first if the Investor is following the V A HAMP or just Traditional formulas.
The following lesson gives Traditional formulas. SEE STEP #4 below for formulas.
** All Loans: Servicers will consider Borrowers for a modification using the traditional formula;
(See Step 4 below).
Other Resources: Information You Need. Frequently Asked Questions (*recommended).
Do Not Panic. Know the difference between letters
STEP #1: I f you are reading this lesson, to be aware of all of your options, ask your Servicer if your case is being evaluated based on Making Home Affordable (HAMP formulas) or just Traditional guidelines. Remember if you are not eligible for HAMP, try Traditional guidelines are discussed below. To learn about the Traditional formula. read STEP 4 below. To learn about types of loans, eligibility and outcomes, click here. To access the Making Home Affordable lesson, click here .
STEP #2: Circumstances may require that you need to authorize someone to speak to your Mortgage Servicer --either with you or on your behalf. A Letter of Authorization simply authorizes a third party, such as a Friend, Counselor, or Realtor (if selling property) to speak to your Mortgage Servicer. To obtain a Letter of Authorization click here. Use one for each Servicer. Fill in the name of the authorized person(s) and then your personal information. Fax this form - without a fax cover - to the Letter of Authorization fax number listed in the first column under Important Numbers 1st Chart Loss Mitigation Allow 72 hours for it to be uploaded by the Mortgage Servicer. It is becoming increasingly difficult with some servicers for third parties to help Borrowers without a Letter of Authorization already on file. If you need another party to help you, please fax this authorization immediately and confirm with the Servicer that is it has been received to avoid complications later.
If you have filed bankruptcy and you are still under jurisdiction of the court, you can review loan workout options with your Servicer, if a Consent Form from the Bankruptcy attorney is faxed directly into the Servicer’s bankruptcy area. To obtain a sample Consent Form click here. Send this form to your bankruptcy attorney to prepare and ask your attorney to fax it in to the Servicer’s Bankruptcy Department. Find the fax number under Important Numbers 3 rd Chart Bankruptcy Numbers or ask the Servicer’s Bankruptcy area for the fax number.
STEP #3: PREPARE your numbers before contacting your servicer to make sure that you fit the guidelines. If you have previously verbally answered the questions incorrectly. do not worry. Prepare and begin again. Contrary to what you may be told, you do not have to call the Servicer first before faxing your information. The Servicer will accept the paperwork via fax. They will mostly likely ask for your financial information when you call to verify receipt of documentation. We have provided scripts to use when calling your Servicer in Step 14 on the website .
STEP #4: To meet best practices Traditional guidelines, make sure to show your Net Income (income after deductions) to be approximately $300 (not under $300) over total Monthly Expenses. including your monthly mortgage payment Principal, Interest, Taxes and Insurance. + Revolving Debt (any minimum payment on all installment debts/credit cards, monthly payments on all junior liens/2nd mortgages, monthly mortgage payments for second homes) + household expenses.
** Best practices expressed is based on an average monthly income (spreads may have to be a little greater in higher income brackets). Remember when you are using the Mortgage Calculator . after you add the back amount owed, keep in mind they are looking for affordability. the ability to make the modified monthly payment without risk of default. If the potential modified payment, added to your other expenses, does not show that you can cover all of your expenses, the modification will most likely be denied.
Caution: Ocwen calculates differently - see notes about Ocwen before picture of worksheet below. Traditional modifications are different from HAMP (Making Home Affordable) as they take into account household expenses.
Click here to obtain Operation Restoration's Financial Worksheet for Traditional Guidelines (different from worksheet for Making Home Affordable). This will bring up a blank form and a sample. It is critical that you prepare your answers before you contact your Mortgage Servicer so that you will answer the financial questions correctly to meet Investor guidelines for a traditional modification.
We recommend practicing with Operation Restoration’s financial worksheet. Include this in your package to the Servicer,
Your Servicer may require
their own financial worksheet. If you see your Servicer here, click on the Servicer's name to obtain their required financial worksheet. See Chase, EMC, and Washington Mutual (all owned by Chase). Saxon. RBC. American Home Mortgage. Indymac and One West (Indymac was sold to One West), Ocwen ,
Capital One (Capital One includes Financial Worksheet and Hardship Affidavit). Sign and date it.
Note: Ocwen worksheet is different. We are asking upper levels of Ocwen for their new formulas.
1. Make sure you show Net Income (not Gross income, income before deductions) to be more than total Monthly Expenses by approximately $300.00. If your income shows considerably more than that, for example $800 more, then the Servicer may attempt to place you on a repayment plan to collect the monthly mortgage payment plus a portion of the past-due amount.
2. Do not include unemployment income (see note at top of page) as this is considered temporary income.
» If a co-borrower has income, show the co-borrower’s income.
» You can also add other income contributing to household. See Ways to Show Income below.
» If you include unemployment income in your calculations, most likely you will be contacted by representatives from the Servicer's Collection or Foreclosure area, and most likely you will be offered a Repayment plan. Repayment plans are explained here in Information You Need. Frequently Asked Questions about Prevention Options and Loan Modifications. Always ask. if you receive a call from the Servicer, to what department you are speaking. The Foreclosure/Collections area is designed to collect money and to set up Repayment plans (which is usually not a feasible alternative).
3. Show Income for the most recent one (1) month/30 day period. This does not apply to people using Profit and Loss sheets who are reporting average gross and net monthly incomes. Profit and Loss sheets are covered in Ways to Show Income below.
4. If your monthly expenses (including the mortgage(s) are more than eligible net income. consider:
• Lowering expenses such as Food; or, lowering or omitting expenses such as Clothes, Dues or other expenses not reported on a Credit Report.
• Adding income of another person living in house.
• Getting a renter
• Asking member of family to contribute to monthly household income.
• Getting a part-time job, even working from home.
• Getting another job, following a structured job search campaign. We will soon be presenting Proven 15 Steps to Obtaining a Job: How to Run a Successful Job Search Campaign.
Important Tips about preparing your numbers for the Financial Worksheet (refers to Operation Restoration’s financial statement):
1. Include property taxes and homeowner's insurance in the right expense column of the financial statement only if they are not included in the mortgage payment. Pro-rate them into monthly amounts. Do not show taxes and insurance if they are included in the mortgage; instead, write "included" in the available space.
2. Present all expenses in terms of monthly amounts, even if you are billed every 6 months, 3 months, etc. For example, if you pay your auto insurance every 6 months, divide the amount by 6 and give the result next to "auto insurance".
3. Do not double count expenses. If a loan or other amount is deducted from your Gross income, do not place it under Expenses.
4. If you are self-employed and using a profit and loss sheet, deduct business expenses from Gross Income. Do not put business expenses under Expenses on the financial worksheet. The financial worksheet is for personal expenses.
5. If you are not paying on your credit cards or other loans, place monthly minimum amount(s) due anyway – they are used in the calculations to determine if you meet Investor guidelines. Remember, Mortgage servicers pull credit reports to verify numbers you report on the Worksheet. (If you have filed bankruptcy which has eliminated credit card debt, then put 0 next to credit cards). If you are unsure about your minimum payments, call your credit card company or ask for a free credit report from a credit bureau such as Equifax.
6. If you have other Loans, such as other mortgages, place these amounts in empty or unused spaces on the Financial Worksheet and mark “Loan 1, Loan 2, etc”. Report rental income in the “Other Income” box on the Worksheet. (Please note: Servicers only count 75% of rental income as income .)
7. Bankruptcy clients : place your Trustee amount in the expense column if the amount is not automatically taken out of your pay every month.
8. If you receive food stamps and this covers food expenses, write "Food Stamps" next to Food and put "0" for monthly food expenses.
Reporting Assets and Income:
1. List estimated value of all autos even if you do not have auto loans.
2. List a realistic, conservative value for your property. Do not use the property tax assessment and do not list the mortgage balance unless this is substantiated by a professional. The following recommendation is not mandatory but is meant to help you be aware of your current market value. You may want to ask 1-2 Realtors who work in your area to give you a “CMA 1 page Summary”. This is free and will take a Realtor just a couple of minutes. If later you decide to sell your property, this Realtor may be the one you ask to sell it. If you do get the help of a Realtor, ask them not to pull records older than 6 months and to use properties similar to yours (not extreme variations). Mortgage Servicers do run internal valuations so it is better for you to be knowledgeable.
3. For income, do not estimate Gross and Net Income amounts! These amounts have to be exact and verified by documentation.
4. Remember, do not use unemployment income (see note at top of page).
5. If you have other income (listed in the Additional Other Income box), please circle all income types that apply.