What questions to ask about a home loan modification?

December 8, 2011 12:33 PM

What questions do I need to ask before applying for a mortgage modification?

My spouse & I bought our first home in Ohio in 2007. We still live in it, and intend to live there for at least another 5 years (probably more). We have decent mortgage terms, though our interest rate is above 6%, and our mortgage is owned by our credit union, though it's serviced by a loan servicer.

In 2010, my husband got laid off and was out of work for about 6 months. When he went back to work, it was in a different field -- he's been employed full-time for most of this year, but he makes considerably less money than he did before. (I'm employed full-time as well.) So our income has changed drastically since we bought the house. On top of that, the county currently values our home at about $30k less than what we paid for it -- we're underwater. Our credit union has said that they can't offer us a refi, but that they would be willing to work out a loan modification, particularly given our change in income (which constitutes "hardship" status, apparently - I think we meet the mark for our mortgage payment being 31% of our monthly gross income). We've never (even while spouse was unemployed) been late with a mortgage payment.

We have the packet from the servicer to get this underway, and I'm about to call them to work through some questions I have, but I want to make sure I'm asking all the pertinent questions! The most I can think of are the obvious questions about terms/interest rate/etc, and whether or not successfully modifying the mortgage will negatively impact our (very good) credit score. What else should I be looking into or considering?

Should you need it, throwaway email: ohiomortgagequestion AT gmail.com

posted by anonymous to work & money (6 answers total)

I can share my experience with Chase: what a nightmare. If I had to do it over again, I would have just paid my mortgage, but I heard so many stories about people's monthly payment being drastically reduced that I wanted in. I was laid off for 4 months and when I did get back to work, my salary was drastically reduced.

First, Chase told me that they couldn't help me unless I was at least 30 days behind on my payments. I later found out that this is incorrect. Second, they gave me several forms to fill out, which I promptly did (the next day) and faxed them in. They called back within 7 days and said they were missing "Item A". I explained that it was NOT requested as part of the initial paperwork, to which they agreed, but needed it anyway. This happened three more times. At the end of four weeks, they tell me that I was denied because I filled out the wrong paperwork.

They overnight me a different set of paperwork (which asked for the same information), I carefully filled everything out and sent everything back the next day. Naturally, I even sent back the 3 Items they didn't initially request with the first batch. Same thing...every week they needed something new. Each time I asked them, "Is this everything?...If not, just tell me now so that this doesn't get dragged out any longer." But alas, in the end there were 4 more separate items that they needed.

I filled out the initial paperwork in Nov. Each time they asked for something new, I overnighted or faxed in the new items, so the delay was certainly not on my end. I got the final word the following April: denied. Reason: No one at Chase knew; Is there anything else I can help you with? Have a nice day. Bye.

Here's what they don't tell you: Once the modification timeframe is up, (typically a year) you have to start paying back all the missed money. I thought they would simply add it on to my mortgage at the end of the 30 year term, but they don't. Be prepared to explain your household budget, in detail such as, How much money do you spend on shampoo each month? etc.

Hopefully, your Credit Union is better at this than Chase. Also, when you initially talk with them, spill your guts...tell them EVERYTHING. They should give you a good idea if you qualify for any type of assistance.
posted by MoJoPokeyBlue at 1:19 PM on December 8, 2011 [1 favorite]

I went through basically the same ridiculousness MJPB did, with some slight differences (different type of mod, because I was up-to-date on my mortgage). But my experience wasn't with Chase; it was with a local credit union.

Just fill out the paperwork as best you can, hope they'll grant you the modification, and prepare to consult a lawyer after you've been turned down. None of the questions you ask will affect whether or not your mod request is accepted.

I've also heard of people who had good luck contacting their state representative to give their bank a gentle shove in the right direction.

Good luck; it's a long, annoying process even when it's successful.
posted by coolguymichael at 1:38 PM on December 8, 2011

Be careful about being sucked into seemingly attractive answers to the "obvious questions about terms/interest rate/etc." Too many people choose a loan based on terms rather than overall best value. I'd be tempted to call or visit a CPA and ask them what is their shortest amount of billable time and if that is long enough to examine my situation briefly and explain some options. You need someone at "arm's length" to give objective advice.
posted by markhu at 1:48 PM on December 8, 2011 [1 favorite]

If you can make the payments without causing yourself substantial discomfort, I would not do this. I worked in (the mail handling unit of the) Prime loan modification operations of a major US bank: I got to see files in the process of being filled out, hunt down files as people finally submitted Item 36 of the list of required items, sit next to the representatives trying to talk to people asking for loan mods, etc. It was a nightmare for everyone involved. Loan mods are for when you're desperate. (Business was booming in the "homeowner assistance" division when I was there, by the way, which made everything worse because there was never enough manpower for us to be successful.)

And unless you're pretty unusual, the loan mod will affect your credit score - they almost always require that hardship include being late on the loan, and I can't think of a bank that doesn't report late payments even when they know why and that a loan mod application is coming (ask about this practice specifically.)

You also want to know what they might do with any other products you have - especially credit cards or a HELOC - because they may suddenly decide that you're experiencing sufficient hardship that you aren't a good risk for an open credit line. If you're used to taking out tax refund anticipation loans, those might also get denied (by the way, don't ever take out a tax refund anticipation loan.)

And get everything in writing, including the name and direct extension of every single person you talk to.

(If you are experiencing real discomfort making the payments, look around at local rental rates - there's a good chance that the credit score impact will be bad enough either way, and the rental savings substantial enough, that a short sale is actually a better option, especially because your loan mod won't be that great a deal in terms of lowering your payment significantly. Get a lawyer and/or accountant before you make that decision.)
posted by SMPA at 5:00 PM on December 8, 2011 [1 favorite]

Oh, and yeah, if you get to the right supervisor - or it's a small enough place - you'll probably find out that the "you have to be behind" rule isn't hard and fast. But I heard more than enough representatives saying it that I'd be surprised if you don't hear it, at least from the servicer. And realistically, if you're having really serious difficulties, the odds are you'll miss a payment before the mod goes through. They take forever, and I swear the easiest/fastest way to get them is to be in a complete crisis, where the bank is facing tension between filing the first foreclosure paperwork or giving you the danged modification.
posted by SMPA at 5:04 PM on December 8, 2011

If I were you I would find a local non-profit that works with people in your situation. There are a lot of them out there- just make sure you don't have to pay and it is indeed an organization that is on the up and up. Personally, I started the modification process in May 2009, and I have sent Chase 14 different sets of the papers they asked for, went to a local convention center and met both with Chase and Freddie Mac and still have no real answer one way or another- my mod has gone so far as to get to underwriting and it is rejected but I am always told I can apply again. I am now working with a local non-profit- and though I honestly have little faith in the process- I have someone working for me who has done a lot of mods, she fields all the phone calls and communication, and keeps everything moving. We will see if anything happens.

One thing that my rep told me recently is that Fanny Mae (and anything that Fanny Mae does Freddie Mac usually follows suit) is really looking hard at people's bank accounts and wants to see that homeowners are saving as much money as possible- ideally the whole mortgage payment- so even if you stop making payments, make sure and put that money away and DO NOT TOUCH IT!
posted by momochan at 6:42 PM on December 8, 2011