What to Expect When Applying For a Loan Modification

You're in trouble on your mortgage and you want help from your lender.

They are asking for pay stubs, tax returns, bank statements, your firstborn child!

Well, that last is a bit much, although it may seem to you that your mortgage company is way out of line to request all this paperwork.

What's up with that?!?

First of all, try to think about this from your lender's perspective. You're asking your lender to make changes to a legal arrangement that you committed to some time ago. What's different now is that you're telling them that you can't afford the original arrangement. Is it so unreasonable for the investor to want to know what you CAN afford?

Plan to provide honest figures about your income and expenses. Many lenders will allow you to participate in a telephone financial interview, to get a good idea of where the changes need to take place. Be upfront. Do not "pad" or exaggerate your figures. The lender needs an accurate picture of where you are in order to offer you the best solutions.

Remember, too, that you will be required to provide documentation of the income (and perhaps the expenses) that you provide. Pay stubs, bank statements, rental agreements, tax returns, plan on sending in all of those and maybe even more.

Don't be put off if your lender suggests ways to lower expenses or increase income. Large car payments, credit card obligations, excessive cell phone, cable and grocery bills are fair game. Let your lender know upfront that you've already spoken with your credit card and car loan companies, and you're being pro-active in order to lower some of those bills. Remember that credit card companies will not foreclose on your family's home. Be reasonable.

Does it matter that your home may have lost value? Do you feel that your mortgage company should drop $25,000 or $50,000 off the principal balance of your loan because your house isn't worth what it was a few years ago? Why? It's not the mortgage company's fault your home depreciated. And funny, when that happens to your new car the day you drive it off the car lot, you don't call the car loan people and demand that they lower the principal balance of the car loan, do you?

You've completed your financial interview and your lender says they may be able to help. Expect to be placed on a forbearance plan or other program. Many mortgage companies require a "probation" period before modifying your loan permanently. This is to make sure that you can manage three or four modified payments in a row before going to all the work and expense of changing your original loan documents.

And of course, remember to treat the person on the other end of the phone with dignity and respect. After all, this is the one person who can help you with your mortgage issue - and you really do catch more flies with honey than with vinegar.