Foreclosure Loan ModificationOne of the most popular foreclosure alternatives is a "Loan Modification" resulting in lower monthly mortgage payments. Reduced payments can stem from principal reductions, lower interest rates, extension of loan terms for additional years or a combination of any of these tools. Although popular with homeowners, the same can't be said of banks and financial institutions who have been much less enthusiastic to embrace this option and deny most modification requests overall. Employing their typical greedy approach, banks hate giving away money which is how many lenders wrongly perceive loan modifications. Instead of trying to improve the economy by slowing the foreclosure rate -- which will help both homeowners and banks -- most lenders focus solely on short term profits. Further, banks also fear that if foreclosure loan modifications become too popular, even homeowners who can otherwise afford mortgage payments will stop paying in the hope of getting a better deal through strategic default. Imagine the horror of giving a homeowner a fair deal! Be sure to read our "STRATEGIC DEFAULT" section for information on using Strategic Default to increase your chances of getting loan modification or short sale approval. A final reason why so few loan modifications are granted involves the role of "loan servicing" companies in the approval process. Hired by lenders to handle billing and collection matters for your mortgage, loan servicing companies make much more money if your home goes into foreclosure or your loan goes into default. Although there are exceptions, many of these companies have no interest whatsoever in helping you out of the foreclosure process. How To Get Loan Modification ApprovalBefore proceeding any further, we strongly recommend that you contact a mortgage broker or lending consultant with loan modification experience to help guide you through the process. Make sure you hire only competent professionals recommended by a source you trust.The best way to get your loan modification approved is to submit a professional looking package of materials to support your request and convince the lender you need help. However, make sure you're actually sending the materials to the right party which is the company that owns your loan, not the loan servicing company who has little or no interest in helping you. After confirming who owns your loan the next step is proving that your mortgage is underwater. By showing the lender that your loan is more than the value of your home and by how much, you'll force them to decide between helping you or paying for a costly and protracted foreclosure battle. Be sure to review our section on "UNDERWATER MORTGAGES" for the best way to document the discrepancy and also work with your mortgage broker to produce the most relevant supporting evidence. Although the process varies slightly among banks, most also require a financial hardship letter or affidavit to explain what caused your money problems and a summary of your overall financial condition. Because this is such an important phase of the approval process, we've created 2 separate Sample Financial Hardship Letters covering job loss and medical conditions which you'll find in our "SAMPLE DOCUMENTS" section. We have also prepared a Sample Cover Letter to send to the lender which briefly explains what you're asking for and why which is also contained in "SAMPLE DOCUMENTS." Like Goldilocks and the Three Bears, banks want to confirm that you don't have too much money to warrant a reduction, but you have enough money to make future payments which is why that want details on your finances. Be accurate and provide enough details for them to know what's going on and be careful not to misrepresent something which might have actually helped if you'd been truthful.
Sample Loan Modification Cover Letter
Watch Out For "Dual Tracking"While the owner or loan servicing company (if you can't find the owner) is working on your modification application, and even if they promise you that your foreclosure lawsuit is on hold, don't be fooled.Through a method called "dual tracking" most lenders continue to pursue foreclosure cases even while the loan process is ongoing so make sure you meet all court deadlines and continue to defend the lawsuit until you get formal approval and confirmation in writing that the foreclosure is over. If you make the mistake of being lulled into a false sense of security, you'll be pondering what happened from the sidewalk outside your former house! Don't Forget About Mortgage InsuranceAlthough you may not have been thrilled at your loan closing when you were forced to buy mortgage insurance, the mortgage insurer can be your best friend.The purpose of mortgage insurance is to protect the lender from potential default on payments, which if it happens requires the insurer to reimburse your bank for its loss. To avoid this result, mortgage insurers are often willing to contribute money towards a loan modification or other foreclosure solution to avoid taking a full hit on your mortgage. Accordingly, make sure to keep them involved at the earliest stages of your foreclosure problems as they can be a very powerful ally at a time when everything else seems stacked against you.
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