There are plenty of mortgage loan modification myths floating around that are assumed facts, especially with so many upside down mortgages caused by the housing market crash. A lot more homeowners qualify for a mortgage modification than lenders are letting on.
MYTH: You cannot modify a loan if your home is upside down.
FACT: While you may not qualify to refinance if your current loan to value is upside down, that is not a factor for modifying a loan.You are not asking for a new loan. You are asking to restructure the loan you currently have. This does not involve re-qualifying. The same goes for credit score.
However your income and expense documentation does need to demonstrate you can afford the mortgage loan modification you are asking your lender to grant you.
MYTH: You cannot modify a loan unless you are behind on payments.
FACT: While your lender may tell you they only do mortgage loan modifications if you are two or three payments behind, that is just untrue.
What is really happening is that your lender is putting you off and hoping you will continue to make payments. As far as the lender is concerned you have made payments up till now, so if they can brush you off with a quick "no," then they will.
You do not have to be lying on the floor bleeding to get help. You just need to get the lender's attention and get them to take you seriously. The fact that you have made all your payments actually shows that you are a good candidate for help. You will continue to pay on time if you can afford the payments. Lenders can be convinced of this — but you have to get their attention and get them to take you seriously.
It is possible to negotiate mortgage loan modifications where the homeowner has never missed a payment or been late.In fact most of my personal clients are current and their lender previously said they did not qualify.
MYTH: Investment properties do not qualify for mortgage loan modifications.
FACT: I do not know where that idea came from but I will answer that in one word: POPPYCOCK! (Or is that two words?)
A loan is a financial transaction with a lender. Your lender does not care what you spend the money on (short of fraud) if you pay it back with a profit. If you cannot pay it back, the lender only wants his money.This is where mortgage renegotiation with a mortgage loan modification steps in.
You borrow $500K to buy an investment property. That property is now worth $250K. If the lender forecloses, they would be lucky to recover $250K if they can sell right away.
More likely the lender will end up with an empty property for months or years. An empty property pays $0 and the lender now has to pay someone to care for and sell the property. Those costs are going to come out of whatever the property sells for.
What if the property continues to go down in value? How much of the $500K is the lender likely to recover? The lender can be convinced to do something in their best interest. This gives you a lot of room to negotiate a mortgage loan modification.
Bottom line: the lender will make more money if you keep the investment property and continue to make payments, even if you are paying less. You are looking for positive cash flow on your property — so is your lender.
MYTH: You cannot do a jumbo mortgage loan modification.
FACT: (First, see the fact above.) I do not get many properties over $1,000,000 but these are properties that lenders foreclose on fast. If you are behind two payments, you will likely hear foreclosure threats and may get a notice of default filed at the court house.
Lenders also negotiate and modify fast on jumbo loans, if you are behind on payments. (Note: not all lenders are fast, but they will handle jumbo loans faster than smaller loans when behind.)
MYTH: Call your lender; they will help you modify your mortgage.
FACT: Honestly, sometimes they do and sometimes when they do your modified payment is higher.
It also depends on how long you are willing to sit on the phone to make repeated calls and wait on hold. Congresswoman Maxine Waters (D-CA) was willing to sit on the phone but did not find that lenders very helpful.
“The average American trying to negotiate a loan modification will not be able to get it done,” said Waters. “It will be impossible for them to get in touch with the right person, and even if they get in touch with a so-called counselor, they have a cookie cutter kind of direction that they go in.” She no longer believes that myth.
Many people who call their lender for help are given a repayment plan instead of a mortgage loan modification. This means they have to make their regular payment plus make an additional payment to catch up. What kind of help is that? The homeowner already could not make payments, why would they now be able to make a larger payment? Some people lose their home because they believed this myth.
MYTH: If you do not fit the Making Home Affordable guidelines you cannot get a mortgage loan modification.
FACT: Lenders have been doing mortgage modifications when it makes financial sense to them before Congress stepped in. Many borrowers will be helped by the government guidelines. Many more will not. For those who fall outside the guidelines it may still make financial sense for the lender to restructure the loan. Most of my clients fall outside those guidelines and do successfully restructure their loans.
Lender participation in adhering to government guidelines is voluntary. You still have to negotiate and convince your lender that a mortgage loan modification makes financial sense for them. You will have to demonstrate and document that you can afford the payment you are asking for. If you cannot, you will need to use another option.
The good news is that there are other options and it still may be possible to stay in your home.