Are you facing foreclosure? The worst thing you can do is to take no action. You need to contact your lender right away if you're having trouble making your mortgage payment. You may be able to get your mortgage restructured and avoid foreclosure. You need to act quickly if you want to restructure your mortgage, because mortgage restructuring (loan modification) is a time-consuming process. But, it also stops the foreclosure by restructuring your mortgage with a lower rate and payment on your terms.
How Mortgage Restructuring Stops Foreclosure
Mortgage restructuring allows qualified borrowers the opportunity to modify the terms of their existing loan in order to stop foreclosure. Restructured terms ay include an agreement between the parties to place the amounts in default onto the loan principal allowing the borrower to recommence its regular payment thus removing the borrower from default status. Or, it could entail an increase in the terms of the borrower's current loan to lower mortgage payments, renegotiating an adjustable rate to a more stable and affordable fixed rate or negotiating to lower mortgage rates on a higher fixed-rate loan.
How do I get started?
Talk with your lender's loss mitigation or real estate owned (REO) department and tell them you're interested in restructuring your mortgage. Just remember, loan modification decisions are typically not made by the lender, but rather by a firm servicing the loan under contract to the owner. This firm may consist of a single lender, or it could be a group of investors who own pieces of a mortgage-backed security collateralized by a pool of loans. This firm is under contractual obligation to find the solution to payment problems that will minimize loss to the owner. So, it is your job to make sure that you present your case to show the lender that restructuring your mortgage will be the most cost effective solution.
First, you'll need to convince the lender that you can't afford your current mortgage and prove that you can't afford it by providing a list of your bills and documenting your income. Your lender will need:
- Complete last year and previous year's signed federal tax return forms, and last year and the previous years W2 federal forms.
- Two most current pay stubs within 30 days for each borrower.
- Last three bank statements for all savings and checking accounts.
- Evidence of additional income (rental agreements, child support, alimony, military allowance, etc.).
If you're self-employed, you'll need to provide:
- Last year and the previous year's signed federal corporate, partnership or sole proprietor tax returns.
- Last year and the previous year's and current (calendar or business year) year to date (YTD) signed Profit and Loss Financial Statements.
- Current year to date (calendar or business year) signed state tax return forms.
Your lender may also need property tax and homeowner's insurance information. It would also be a good idea to get an appraisal done on your home because the amount of equity you have also weighs in on the loan modification decision. If you have a lot of equity, the lender may opt for foreclosure.
Then, you'll need to calculate your debt to income ratio (DTI). Calculate the DTI based on your current mortgage obligation and again on your proposed modified terms and send both to the lender. This way, you can let the lender know how much of a mortgage you can afford, and they can determine if a loan modification is feasible.
Here's how to calculate your DTI: Add up your total gross (before tax) monthly income. Add up your monthly debt obligations (including credit card bills, mortgage payment, etc.). Divide your total monthly debt obligations by your total monthly income. This is your total debt-to-income ratio.
The most important thing you need to understand is that you must also be able to prove to the lender that the financial difficulty is short-term and that you are currently able to make your mortgage payments under the modified terms.
"Homeowners must understand that they have to prove themselves to lenders when trying to restructure a mortgage in an attempt to save their home from foreclosure," says Justin Lee CEO of SaveMeFromForeclosure.com, LLC.
Don't take the lender's non-responsiveness personally. Loan modifications must be handled by more specialized people with higher levels of training and higher levels of pay than those who handle typical mortgage loans. This cuts into the lender's bottom line, so they'll try to get you to give up by not responding. Don't give up because a loan modification could save your home from foreclosure and help spare your credit from being further damaged.
Visit the "Get Started" page on this site to get foreclosure info and to learn how loan modification may save your home and your credit.