“How To Slash Your Mortgage Payment With Loan Modification”

Table of Contents

INTRODUCTION 2

ARE YOU ELIGIBLE FOR LOAN MODIFICATION? 2

WHAT IS A HOME LOAN MODIFICATION? 3

STEP 1: LET’S GET STARTED! 5

WHAT DO I NEED TO GET STARTED? 5

STEP 2: CALCULATING EXPENSES 7

CALCULATING NET DISPOSABLE INCOME 7

STEP 3: THE HARDSHIP LETTER 10

WHAT A HARDSHIP LETTER SHOULD INCLUDE 10

STEP 4: THE FIRST CALL 12

ASKING THE RIGHT QUESTIONS 12

STEP 5: FOLLOWING UP 13

THE IMPORTANCE OF FOLLOWING UP 13

APPENDIX VI: COMMON QUESTIONS & ANSWERS 14

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Introduction

This short publication is an effort to provide guidance and knowledge to allow the
homeowner to first understand the loan modification process, what are the
requirements that lenders are looking for and finally what paperwork to complete
and how to complete it.
At first glance the amount of information and the calculation of income and ratios
can be daunting, but anyone with patience and persistence can complete the
process and get a loan modification approval. To be totally frank I will say it’s not
an easy process and as a homeowner you are at a disadvantage in negotiating
with the lender; reason being that the homeowner has no point of reference as to
what terms, programs and rates the lenders are approving. The bank negotiators
are aware of this and will get best deal for the bank. Also as seen in the CNN video
it can be very frustrating finding the right person to talk to at the banks. Because
we speak with loan mitigation personnel everyday we know whom to speak to get
files approved.
If your goal is to keep your house please consider hiring an expert to assist you in
protecting this most important part of your financial future. Over the term of your
loan a better negotiated loan modification will save you thousands of dollars.
Please keep in mind we do not collect any upfront fees and you will not owe us
any fees unless we get your loan modification approved.

Am I eligible for a Home Affordable Modification?

Answer these questions:

1. Is your home your primary residence? Yes No

2. Is the amount you owe on your first mortgage equal to or

less than $729,750? Yes No

3. Are you having trouble paying your mortgage? Yes No

For example, have you had a significant increase in your
mortgage payment OR reduction in your income since you
got your current loan OR have you suffered a hardship that
has increased your expenses (like medical bills)?

4. Did you get your current mortgage before January 1, 2009? Yes No

5. Is the payment on your first mortgage (including principal,

interest, taxes, insurance and homeowner's association dues,
if applicable) more than 31% of your current gross income? Yes No

If you answered yes to all 5 questions you are eligible.

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What IS a home loan modification?

A home loan modification is the change of your current mortgage terms to new and different
terms. This could mean anything from reducing how much you owe on your mortgage
balance to lowering your interest rate or even permanently fixing your adjustable rate. How
is this good for you? It keeps you in your home! A bank does not want you to walk away
from your home if you are late on your payments, or even if you think you might start being
late. Imagine what would happen: the bank would collect no more interest, they would have
to pay your property taxes, they would have to list the home for sale and/ or market it for
up to two years, keep the lawn looking nice if possible and pay for all attorney and court
costs. This could cost a bank upwards of fifty to sixty thousand dollars. We all know this is
definitely not the environment for banks to be shouldering such high costs.

A lender would much rather work with you to keep you in your home by modifying the
terms of your mortgage note, usually at no cost to you, to something you can afford
comfortably as long as you still have a job. It is hard for anyone to ask for a home loan
modification when they no longer have a job. Think about it: even if the bank did cut your
mortgage payment in half… how would you make your payment if you had no job or
income? Borrowing money from parents or friends does not count as it is not guaranteed
that they will provide you with additional money in the future.
So how do we classify home loan modifications?

A home loan modification may include any of the following:

• Foreclosure Prevention
• Principal Loan amount reduction
• Interest rate reduction
• Permanently fixing or extending an ARM loan
• Term extension (30 year to 40 year)
• Catching up payments
• Loan forbearance
• Deed-in-lieu

Could you explain each to me?

• Foreclosure prevention occurs when a bank starts working with you to keep you in your
home. They may have already served you foreclosure papers threatening you with a lawsuit
to sell your house and kick you out. Foreclosure prevention can be initiated by yourself, a
loan modification company or an attorney. It is simply the process of stopping a home from
being sold by bank and requires action on your behalf. You cannot simply sit idle hoping the
bank or the government will do something to save your dream home. YOU need to take
action first and show that You cannot simply sit idle hoping the bank or the government will
do something to save your dream home. YOU need to take action first and show that YOU
want to keep your home!

• Principal loan amount reductions is the process of a bank reducing how much you owe
on your loan. For example if you owed a two hundred thousand dollar loan and the bank
reduced that to one hundred thousand dollars, they have in effect reduced your principal
balance or how much you owed at no cost to you.

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• Interest rate reductions are the most common form of home loan modification. A
lender would look at your income paperwork and determine that your current interest rate is
too high and subsequently reduce it. In addition they may also adjust the term to reflect
interest-only payments so that your monthly mortgage payments would go down
significantly. In this case you would be paying no principal at all and your monthly mortgage
payment would be applied to interest only. The advantage here is a very low payment. The
disadvantage is that you would not be reducing your principal balance at all unless you
made an additional payment on top of your minimum payment due.

• Permanently fixing or extending your ARM (Adjustable Rate Mortgage) term. Let me
first begin by saying that the more common of the two is the second. Banks would rather
place you in a five to ten year ARM rather than fix your rate for thirty years. They simply
might lose too much money by fixing your rate for thirty years and would be willing to
extend your ARM for five to ten years instead. In most cases this is ample time as most
homeowner’s do not stay in their homes for ten years.

• Term Extensions. In some cases this scenario makes sense: if you are already in a fixed
rate for thirty years, for example, it may be wise to extend your term to forty years. This
would effectively lower your monthly payment as you are stretching the repayment term
over an additional ten years.

• Catching up payments is the predominant form of home loan modification as it gets a

customer who is late on their mortgage payments caught up completely and start “from
fresh”. This is usually done in conjunction with the lowering of your interest rate but may
sometimes be done alone. The decision is always that of your bank to make.

• A loan forbearance, and quite possibly the least form of assistance, is when the bank
raises your current mortgage payment for a set time, usually twelve months, to help you
get caught up on the few payments you have missed. Suppose you missed one mortgage
payment and you usually pay one thousand dollars per month. Forbearance would mean the
bank could raise your payment to eleven hundred dollars for the next ten months, for
example, to help you get caught up on the one thousand dollars you fell behind on. This is
of no help to someone whose income has gone down and may cause more hardship.

• A deed-in-lieu is another way of dealing with a mortgage default that will require the
cooperation of both the lender and the borrower is to transfer the property by means of a
deed in lieu of foreclosure. Fast and inexpensive (legal fees), both parties agree to transfer
the property to lender, avoiding the time and expense of foreclosure. Most importantly, the
borrower may avoid the possibility of the lender pursuing them for a deficiency judgment.

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STEP 1:

LET’S GET STARTED!

What do I need to get started?

I will first start with the requirements of a typical employee who gets paid by W-2 wage
earner. If you receive a paycheck with taxes and social security taken out you are a W-2
employee – the W-2 is what is given to you at the end of the year to file your taxes and see
how much refund (hopefully!) you receive. Start gathering the following:

1. Your most recent pay stub

2. Last year’s W-2, all of them if you have worked for more than one company the
previous year
3. Your last two month’s bank statements (all pages that are numbered)
4. Your most recent mortgage statement.

Simple right? Okay. If you are self-employed or sub-contracted (1099) gather the
following for now:

1. Your last three months of business bank statements (all numbered pages)
2. Your last three months personal bank statements (all numbered pages)
3. Last year’s 1099, all of them if you have subcontracted to more than one employer

As a self-employed or sub-contracted employee you may also be required to provide the

following items at the bank’s discretion but you do not need these right now. Every lender
has a different requirement and they may ask for none, one, a few or all of the following:

1. Last two years of business tax returns

2. Year to date profit and loss statement signed by your accountant
3. Business or occupational licenses

Is there anything else I need to include in my modification package?

Although not required, I would include a copy of my Zillow report. Zillow is a company
which specializes in online appraisal and comparative analysis of your home. Once you type
in your home address it will spit out what it thinks your home would appraise for based on
recent sales in your area. You can access this website at www.zillow.com. Once you obtain
the value of your home through the website, print up a copy of the free report and include it
in your package as it will give the lender more reason to modify you, especially if you owe
more than what your home is worth.

Okay, I’ve gathered everything, now what?

The next step is to write a hardship letter explaining what happened. The hardship letter
tells the bank your story: why you fell behind or, if you aren’t late yet, why you believe you
might fall behind soon. You need to be precise but don’t write a novel –odds are they only
have a few minutes to review each letter. You need to not only tell them what happened but
what payments you think you could afford and sell your honesty; that you will make those
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payments, that you won’t fall behind again and that you are a person of good moral
character. Make them feel good: remember they might be losing tens of thousands of
dollars modifying your loan for you. They are doing you a favor, no matter how much they
are hurting financially – they are the holders to your mortgage note and can choose to
foreclose on you at anytime. Treat them with respect, don’t point fingers – work towards a
mutually beneficial solution for you and your family.

Remember: The Voice of Reason

I say this because I have encountered far too many times individuals who are given the best
mortgage terms, payments cut in half or more, and who believe that it isn’t enough.
Granted, if a bank only cut your payment down by thirty dollars I could understand why you
would be upset. However, If the lender cuts your payment by twenty percent or more you
should be excited and thankful.

There are thousands of people with great credit who refinance to lower their
payments by a couple hundred dollars a month. If your payment gets sliced by a third
or so, you shouldn’t begrudge the bank for not doing more. Use the voice of reason. Too
many times I have seen great scenarios go to waste because the customer decided the
terms were not good enough and the bank, insulted, decided to foreclose on them. At that
point the customers pleaded for a second or, in some cases, a third chance but to no avail.
The home went into foreclosure and the families were kicked out.
My advice to anyone is not to play with fire. Banks are smartening up – they do not wish to
play games with anyone. They are in the business of making quick executive decisions.
They do not have time to entertain ridiculous counter-proposals. Remember: they made
their decision based on how much you have in the bank and the income documentation you
showed them. They chose to reduce your mortgage payment at no closing cost to you,
saving you upwards of several thousand dollars of fees that someone with excellent credit
would have to pay!

Is there a way to find out if I pre-qualify for a home loan modification

before starting the process?
Absolutely. the question grid is shown below and will determine your eligibility for home
loan modification assistance based on current guidelines. Eligibility criteria may change at
any given time, multiple times a month, so do not be discouraged if the website tells you
that you are not currently eligible. I would send the hardship package anyway and stay in
touch with your lender – you will at least guarantee yourself that they will have your
package on file and ready to process once guidelines change.

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STEP 2:
CALCULATING EXPENSES
This simple step is probably the most misunderstood and leads many borrowers to get
declined for home loan modifications. What do we do when we get a flyer or statement
insert from our lender asking us to call them if we are in need of hardship assistance?
Most oftentimes, we call them! One of the biggest pitfall that leads to modifications being
declined is because customers do not do their homework first – before contacting their
lender.

How am I supposed to know this? I’m not a mortgage banker.

That is precisely why I am addressing it now. This common error can easily be avoided and
lead the way to a great loan modification! Calculating expenses properly takes less than a
half hour and is the core basis that determines a successful home loan modification.
The rest is all about following up and calling your bank to make sure they are working on
your file diligently. Do you believe that home loan modification shops out there are charging
upwards of several thousand dollars to calculate this simple step for you? The only other
items relevant to preparing a successful modification package is gathering the income
documents which we reviewed in the previous step and writing a solid hardship letter.
So what are your expenses? Well, it is natural to assume that any monthly obligation
showing up on your credit report could be an expense, such as car loans or credit cards. In
addition to those you will have non-credit related expenses such as:

• Utility bills i.e. cable, electric, water, telephone

• Child support payments
• Dependents (school tuition, clothing)
• Medical expenses
• Gas
• Home or car maintenance cost
• Groceries
• Any other bill you deem important and necessary
• Do not include frivolous or unnecessary expenditures such as trips to
Hawaii, extravagant or frequent dining bills unless for professional reasons
or any other reason that could demonstrate financial irresponsibility and
money mismanagement!

I have included the expense worksheet in the Appendix section which you can fill out
and includes the most common household expenses. When filling out the expense
worksheet make sure you write your current monthly mortgage payment, not the payment
you would like to have. If this payment includes your escrows (home taxes and insurance)
then you can leave it as is – if you pay your taxes and insurance separately make sure you
break these down to a monthly basis and include them on your monthly expense worksheet.
Any expense which is paid in one lump sump, such as school tuition, should be broken down
into an approximate monthly number; so if you pay $1,200 a year for your son’s schooling,
then your monthly expense would be $100 per month and that is the number you would
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pencil into your expense worksheet. The expense worksheet is easy to fill out – be truthful
in the numbers. Do not inflate or reduce dollar amounts. This is crucial for a bank to
properly modify a loan.

Now what?
The next step is to calculate the most important number: your net disposable income.
The net disposable income is whatever you have left after you have paid all of your bills. In
order to calculate it we need to figure out what you bring home every month, not what you
get paid. What do I mean by this? I am not looking for your hourly, weekly or monthly wage
figure. I am looking for the amount you actually deposit in the bank after taxes, insurance
and other deductions are taken out. In the case of someone who makes a gross of let’s say
ten dollars an hour and works a normal forty hour week, that would give us a gross of four
hundred dollars a week. What they take home, however, might be three hundred dollars a
week – this is called the net income and that is the figure we are looking for.

• If you are paid weekly take your net weekly income, multiply it by 52 weeks in a year
and divide it by 12 months in a year. So $300 a week would mean = 300$ X 52 = $15,600
yearly net income. We need the monthly net income so divide that by twelve: $15,600 / 12
= $1,300 per month. A month isn’t exactly four weeks so do not short cut by multiplying
your weekly income by four. Your income figure will not be accurate.

• if you are pair every two weeks take your net bi-weekly income, multiply it by 26 (pay
periods per year) and then divide by 12 months in a year. So $600 every two weeks would
mean = $600 X 26 = $15,600 yearly net income. We need the monthly net income so
divide that by 12: $15,600 / 12 = $1,300 per month.

• If you are paid on the 15th and 30th of every month (bi-monthly) take your
bimonthly net and multiply it by 24 (since you get paid 24 times per year: twice a month
and there are twelve months in a year). Suppose you get paid a net of $500 every pay
period, multiply this by 24: $500 X 24 = $12,000 net yearly income. Then divide by 12 to
get the monthly net income: $12,000 / 12 = $1,000 net monthly income.

Okay, so I have figured out what my net monthly income is and what my monthly
bills are. What do I do now?

We are now going to figure out what your net disposable income is using an example!
Suppose you take home seven hundred dollars a week. Using the guiding points above I
am going to determine my net monthly income. $600 per week X 52 weeks in a year =
$31,200 net yearly incomeNow we convert this to a monthly number:
$31,200 divided by 12 months in a year = $31,200 / 12 = $2,600 net monthly income!
Easy right?

Now we take your monthly bills:

• Current mortgage payment with taxes and insurance $1,100
• Car payment $400
• Car insurance and approximate maintenance cost $100
• Groceries $400
• Medical bills (dental, vision, etc) $50
• Utilities $300
• Gas $100
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• Add all these up for a TOTAL of $2,450
Now we said your net monthly income was $2,600
Your monthly expenses above total $2,450
Your net disposable income is = net monthly income – monthly expenses
Which in this case is $2,600 net income - $2,450 monthly expenses = $150

What does this mean?

This means that after you pay all your necessary bills you are left with one hundred and fifty
dollars at the end of the month. That is a very low figure and spells financial disaster. What
if, God forbid, you got into a car accident? How would you be able to pay for bills when you
cannot even save because money is so tight? There is no way you could save money in this
situation for impending hardships.

What if I am self-employed and do not receive a paycheck?

The two most common methods banks use to calculate your net disposable income is to
average your last two year’s net business income (profits/loss) by averaging the two
years’ net profits (adding them and dividing by two). Unfortunately, most business owners
show a loss or very little income due to numerous write offs and, sometimes, comingling
of personal and business accounts. In the latter case a three month profit and loss can be
created by your accountant – the statement will reveal how much you net after all business
expenses have been paid. Remember, this isn’t a time to be writing all income off; should
there be no income left over your modification may very well be declined. If you gross ten
thousand dollars a month off of your restaurant, and your overhead, payroll and
miscellaneous expenses are five thousand dollars… you are left over with a net income of
five thousand dollars. You are not filing your taxes with your lender, you are showing an
accurate picture of your finances at the current time. For the purpose of calculating net
disposable income, your net income after operating expenses are taken out is what you will
use – from there you subtract your household and other personal expenses and you will be
left with your net disposable income.

For Example:
Mike’s Restaurant grosses ten thousand dollars per month; as we discussed above, after
paying his rent, payroll and other business related expenses Mike is left over with five
thousand dollars.

$10,000 gross income - $5,000 operating expenses = $5,000 net business income
From here we calculate net disposable income by subtracting all personal expenses from
the net business income. Mike has a current mortgage of three thousand dollars per
month and a car loan of one thousand dollars per month (he loves fancy sport cars). He has
no other bills.
$5,000 net business income - $3,000 current mortgage payment - $1,000 car
payment = $1,000 left over or net disposable income.

Where does my net disposable income need to be?

If I told you then everyone would adjust their expenses so that it looked best to the lender,
right? The truth is there is no concrete answer to this question. Be sure to state your
expenses truthfully. A net disposable income of six hundred dollars or more, for a single
person, may be deemed healthy by your bank and so arises the question of why are you
late if you make enough? This could be because you suffered a medical condition which kept
you out of work for several months, for example.

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If you do not have an explainable hardship and your net disposable income is over six
hundred dollars then you need to cross your fingers in hopes the bank will modify your loan!
Remember, a modification is a hardship-based assistance program. It is not an application
for a refinance.

Once you have completed this step, you have made the biggest step required to
get a modification approved. Is it worth paying someone else three thousand
dollars to do this simple step? NO!
So far we have covered income documents needed for a home loan modification and the
expense worksheet, which can be found in Appendix I. You can add the worksheet to your
loan modification package but in most instances this information is taken by your bank over
the phone, or your lender may use their own form. You have written down your major
expense categories so all you will have to go is to copy them down onto the bank’s own
form.
Important Note to financial professionals: we are NOT calculating debt to income
ratio as some of the bills above are not shown on credit reports and would not
accurately reflect your TRUE debt to income situation if looked at by conventional
DU/LP means. If you do not understand what I just said – good. You need not
bother with methods mortgage professionals may be accustomed to.

STEP 3:

THE HARDSHIP LETTER

A hardship letter could be as simple as two sentences describing your situation and what
you will do to improve it. Would I recommend writing only two sentences? Absolutely not,
unless you have the uncanny ability to relay a full story in a handful of words. I would
recommend a couple of paragraphs, the first explaining what happened to you, what
changed over the past year to cause you a hardship and how it has affected you and your
family. Make sure you talk of your children if you have any. Dependent expenses play a
significant role in getting a modification properly reviewed by your bank.
The second paragraph should detail what you will do if you get a modification. Lenders want
to know you are a person of good moral character and judgment. They want to know that
by modifying you they have indeed made a sound decision. Did you know that almost half of
all modifications made in the last twelve months had fallen behind a second time? Banks are
getting more wary of “bogus” hardships to buy a homeowner more time to live in the home
for free - before ultimately walking away from it. This demonstrates lack of moral character.
Promise the bank you will pay them back on time if they reduce your payment. Thank them
for their time. Remember: they do not HAVE to do anything – they could simply foreclose
and write off the loss.

So what should a hardship letter include?

It should be written in clear and simple English with the summary points of your present
situation. You do not need to crack open a thesaurus and use expansive words. This is not a
spelling bee or a textbook meaning contest. It is important that the person reading your
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story is not focusing on the words but the actual contents and what you are trying to say.
Keep it simple.

Include the following in paragraph 1:

• What is your hardship? (Medical illness, loss of job, cut in pay, etc)
• How has it affected you and your family?
• What was your household pay before and what is it now?
• Are you late on your house? Explain to them why.
• If not late do you anticipate being late? Explain why.

In the second paragraph explain the following:

• What payment you think you could afford
• Your promise to pay and good intent
• Your good character and how you did not intentionally fall behind (i.e. you
didn’t plan it so you could live in the house for free)
• Thank them for their time and give them your best contact phone number
Simple isn’t it? It doesn’t have to be long and complicated but it has to cover the basic story
so that someone who has no idea who you are can read it, and easily assess your hardship.
It has to make sense. If you say you were sick for a few months but your pay stub shows
you never missed work and are on track to make the same amount of money this year as
you did last year… you clearly are misrepresenting the truth. You will most likely be denied.

A hard ship letter should include the following:

• If handwritten needs to be clearly legible, if you can’t read it they definitely
cannot read it!
• Preferably typed
• Dated
• Signed

I have included copies of hardship letters for reference in Appendix II. Please feel free
to use any of these as a roadmap to your own letter.

Examples of hardships could be:

• Temporary loss of a job which caused you to fall behind on your bills
• Serious self illness or illness in the family
• Death in the family
• A cut in wages which has caused financial hardship (i.e. lower commissions, cut in hours
worked, reduced salary due to a new job, etc)
• An adjustable rate loan which has adjusted and caused your payment to increase beyond
what you can afford
• A divorce where a two-household income is now reduced to only one person, namely the
one residing in the house
• A lawsuit or other proceeding which has drained you financially
• A business which has suffered a significant loss in revenue, thereby causing a personal
hardship on the owner(s)

Remember that in order to obtain a modification you MUST have a job. Although
some companies don’t even check your pay stubs or that you are employed, most
will.

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STEP 4:
THE FIRST CALL
Now that you have collected the most important documents of the home loan modification
package, you are ready to call your lender. Find a recent mortgage statement and on it
should be the toll free number to call customer service. Some lenders have also
conveniently placed their hardship assistance hotline on this statement, in that case call the
hardship number.

When calling any number make sure you:

1. Ask for the loan modification or loss mitigation department. Tell the
representative that you are either suffering a financial hardship or are about too.
2. Even if talking to the loan mitigation department, you are not talking to a bank
negotiator yet. The person you are talking to is simply a data entry agent.
3. Ask them for the required documents they need to start a modification; do not
forget to get their fax number and to whose attention you should fax the
modification package.
4. Get the agent’s name and extension if possible, and either way write down the
date and time you spoke to the agent. Get a blank sheet of paper we will call the
“Conversation Log”. Every time you talk to the bank notate on this sheet the
date, time and name of the individual you spoke to. Keep the confirmation of
receipt on all faxes you send out. Your fax machine should spit out an “OK Sent”
message, keep that page for your records as proof the fax went through.
5. Keep all your correspondence, copy of your hardship letter and any financial
information in a folder titled Loan Modification for organizational purposes.
6. The agent you speak to may ask for a few more documents than I have listed in
Step 1, or fewer, this will depend on the bank. Write down all documents needed
in your conversation log. Make sure you place the date of your calls next every
entry.
7. Gather all your documents and hardship letter and, with a fax cover sheet, fax all
your documents to the number given to you by the agent; don’t forget to write in
whose attention you are faxing it to.

8. As many faxes can get lost it is wise to write down your loan number, which
can be found on your monthly mortgage statement, on every page that you are
faxing.
9. Make sure to keep a receipt of the Fax Transmittal showing “Sent OK” in
your folder for your records. If the fax number is busy waiting until you get
the “Sent OK” message.

Now that you have completed these steps, and if you have attended my instructional
seminar, is it worth spending upwards of three thousand dollars on a home loan
modification company. Most of these companies don’t even spend a total of two to three
hours on your file, if at all, and end up charging hourly rates that rival heart surgeons with a

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high school degree? Somehow I can clearly see the attorney general’s opinion on this
controversial practice; especially that of gross up-front fee collection.
You are an educated individual: do not be fooled into thinking you are being told the
truth. Don’t be sold, by a salesperson, into a lie.

STEP 5:
THE FOLLOW UP
What now? You’ve done everything you had to: you prepared all your income
documentation. You wrote your hardship letter by yourself or with the help of a friend or
relative. You faxed all the information to your mortgage lender, so now what? Follow up,
follow up, follow up!
Many mortgage lenders are SO overwhelmed they often misplace or lose your
paperwork.
Be sure to call your mortgage lender every Tuesday and Friday to follow up with the
process. This simple call is just to make sure they have not lost your paperwork and that
you are in process. There is nothing you can do but wait at this point.
They may ask you to send them additional information at any given time so always stay
in touch with them. Don’t be afraid of your lender, they need your business just as much as
you need their help. They have hired hundreds of new employees to help clients in need like
yourself.

How long do I have to wait to find out if I am approved for a

modification?
The average turn time is forty five days. Some modifications can be executed by banks in as
little as a week but most banks have a huge backlog of clients who have applied for
assistance, especially the larger banks. Now is the time to be patient but persistent.
Remember to keep following up and never trust anything anyone tells you over the
phone without verifying it first. If a negotiator tells you that you will be approved soon,
ask for his name, his supervisor’s name and by when does he think you should be
approved. You need concrete answers, not estimates. Don’t be bullied or shy –
this is your home. This is the American Dream – you have every right to it.

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COMMON QUESTIONS & ANSWERS

Can investment properties also be modified?

Yes, they can – however the guidelines for these are much more strict than primary
residences and require significant hardship. The core focus of lenders is to modify primary
residences, however individuals who can show that their savings are dwindling due to
negative rent, or soaring payments due to an adjusting rate, such as a subprime or
PayOption ARM, could be looked at. Bank guidelines are constantly changing so even if a
bank were to reject an initial attempt to modify, don’t be discouraged. You can try to modify
your loan every thirty days – you would also be showing the bank you are really trying your
best to work things out with them. The banks want to know that, once modified, you can
afford the new payments. They more than likely would not be as generous in their
modification as they would a primary residence.

What if I do not want to keep my primary home any longer?

This is the unfortunate option many homeowners are choosing. This partly due to the fact
many homeowners do not understand the significant help banks can provide. However, if
you have explored all your options and you no longer want to keep your home (ie too far
upside down) then there is a certain order of modification you should follow. First of all it
would be wise to attempt a modification regardless to show that you are visiting all avenues
and see what the bank is willing to offer. What if they did offer you a principal
reduction? That would change your mind right? Write it down in your hardship letter! Write
down your intent to vacate otherwise. Once a modification is achieved but you no longer
want it, you can ask the bank to accept a short sale. A short sale is when someone sells
the house for less than what they owe on it. If you owed two hundred thousand dollars
on your house but you had a realtor list it for one hundred thousand, then you are
effectively short selling your home, below what you owe on it. You do not need to have a
modification done first to get a short sale approved – it simply wouldn’t hurt to try the
modification route first. Please see our website at www.Easyhomemod.com for more
information about Short Sales

I’ve had my house on the market for a while at a short-sale price but
no one wants it! Now what?
Your only other options now are a deed-in-lieu or a foreclosure. They are effectively the
same thing – one is voluntary the other is involuntary. A deed-in-lieu is the preferred option
which occurs when a bank approves your request to deed the house back in their name, and
take possession of it. You are giving the keys back without having to go through the
legalities of a foreclosure. A foreclosure, on the other hand, goes through legal recourse,
and attorneys, and is a lawsuit against you to repossess the house due to non-payment.
Although it would make sense that a bank would just take the property back in deed-in-lieu
if offered, they won’t usually accept it unless they see significant effort on the customer’s
behalf. Most oftentimes they would rather just foreclose and let their attorneys handle the
foreclosure proceedings as the loan may already be written off as a bad account.

Can investment properties be returned to the bank as deed-in-lieu?

Banks are very reluctant to accept investment properties in deed-in-lieu transfers. This
would create a serious problem as every investor would probably want to off-load unwanted
properties. Furthermore, a serious moral question would be raised: are these transfers
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legitimate? Is this an easy way out for these investors who caused part of this housing
problem to begin with? Would that be fair?
I am not saying some banks wouldn’t do this – but what I am saying is that you would have
to go through the motions: apply for a modification, then if that doesn’t work in your favor,
showing proof that the home has been listed 3-6 months on MLS, and if that doesn’t sell,
then a bank may possibly entertain a deed-in-lieu. The general route for any property
that cannot be afforded to kept is a short sale. A deed-in-lieu is not a common
option.

What if I just choose to walk away from my primary, second or investment home?
The biggest danger in doing so, and definitely something you might want to consult with an
attorney about, is the deficiency judgment. Suppose you owed one hundred thousand
dollars on your home and you walked away and let it foreclose. What would happen then?
First of all, the foreclosure would eventually hit and worsen your credit; second of all, the
house may sell for thirty thousand a year later at an auction handled by the bank or its
agent. The seventy thousand dollar loss the bank has suffered is called the deficiency
balance and guess what happens to you? The bank can write it off as a loss and then send
you a 1099 income form for this balance. This is an IRS requirement. Any lender who
forgives debt above $600 must issue the forgiven party a 1099C. Thankfully, for most
borrowers, the Mortgage Forgiveness Debt Relief Act of 2007 is their get-out-of-jail free
card when it comes to this 1099 issue. For a minority of borrowers who have to do a short
sale on an investment property, an intelligent professional tax advisor who understands
insolvency is the best shot at circumventing the tax consequences of a 1099. In
either case, a 1099 is almost always a better route to take than a deficiency. Under the
Mortgage Forgiveness Debt Relief Act (2007), taxpayers who were forgiven part of their
mortgage on their primary residence can likely avoid tax liability by including Form 982 with
their tax return. See IRS Form 982 instructions for full explanation of qualifying criteria.
If a true deficiency is acted upon, as is common when someone lets a property go back to
foreclosure, it can result in a judgment that a court can order to be collected upon through
garnishment of wages. That’s scary. It very important when negotiating with lender that
proper measures are taken to avoid the deficiency judgment.

This market is horrible – I owe way too much on my house compared to what it’s
worth, should I walk away?
I firmly believe, and advise, that if something could be worked out with your bank that is in
your favor, work it out. You just never know what mortgage guidelines may be like in the
future and how do you know prices won’t skyrocket once the economy recovers? Just as
badly as people want to sell off in today’s market, isn’t it logical that it would follow a
feverish buying frenzy? Now we need to wait until the market reaches some sort of stability.
If the mortgage lender can work payments that suit you, work with them, be responsible
and stay in your home. Buying another home with a foreclosure on your credit may be
almost impossible in the near term.

Do I need to be late to qualify for a home loan modification?

Not at all. You do not need to be late to qualify for a home loan modification. Let me
repeat: you do NOT need to be late. Anyone can qualify based on the severity of their
hardship. You need to prove that you are having a real tough time, or about to have one –
remember, modifications are based on hardships – not good will. Make sure your bank
statements, paystubs or tax returns accurately depict your story. If you make one hundred
thousand a year and your mortgage is only one thousand dollars a month, and you are

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seeking assistance – I hate to say it, but something is wrong in the way you handle your
finances!
Will you get caught in the modification trap?
I would first like to state there are many home loan modification companies that do a
legitimate and very decent job providing their service. For every one of those there probably
exist ten that are out to get your money and do little to no work. The incompetent ones will
generally appear very educated about the market, may even show up with three-piece suits
and operate in extravagantly beautiful offices, and provide you with smoke-screen
explanations and fake answers. Recent changes in the law will not allow upfront fees being
charged so stay away from any companies or individuals that want fees before completing
loan modification.

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