My Loan Modification was Denied, Now What?
The Loan Modification process can be one of the most stressful experiences a homeowner can go through. Anyone who has had experience with a loan modification can attest to the fact that the mortgage companies do not want to approve the loan modification. They use subtle tactics to achieve this result. For instance, in order to apply for a Loan Modification you are required to complete what is known as an RMA Packet. In addition to the RMA Packet, the mortgage servicer is also going to request various documents, the most standard being:
- 30 days of pay stubs for all borrowers
- signed 4506-T
- signed tax return for most recent year
- hardship letter
- proof of occupancy
The document and information requests themselves are very reasonable. They want basic information on your finances, which makes sense. The problem starts once you “submit” the documents. What you will soon find out is that the mortgage company makes it almost impossible to receive your documents. You fax the documents and you wait 3 business days, then you call and are told that they did not receive the fax. Who cares if you have proof that the fax went through, it doesn’t matter. So you re-fax the documents and again they have problems viewing some or all of the documents. You continue down this path for several weeks. At some point they may tell you that they have your documents, but they now need updated documents (your paystubs are likely too old for them to review).
This process continues. In addition, the mortgage servicer may ask for completely new documents that were not previously requested. So what really should take no more than 30 days ends up taking months and months. Now for some people, they started the loan modification process in the hopes that they could lower their interest or lower the amount owed to reflect the new value of their home. Often times, if you are current on the mortgage or barely behind, the mortgage servicer will actually tell you to STOP making payments so you can be reviewed for their loss mitigation programs.
So let’s fast-forward. You get your documents together in a few days, but due to the “problems” of the mortgage servicer, it takes 2 months before they have received all of your documents. Once your documents are received and reviewed, the mortgage servicer will then move your file to underwriting. This is almost a magical division within the mortgage company. No one can talk to the underwriter. As a homeowner, you have no right to call/email or ask for information from the underwriter. This person contains all the power and will determine whether you are approved or not.
A few weeks later, you will likely receive a letter saying your loan modification was denied for “some reason”. This reason is usually that the “net present value” shows that the return to the investor will be less under the modification then if they simply foreclosed on the property. No one will disclose what the formula is, rather they just tell you whether you pass or not and the same person who made the determination cannot be contacted.
This process plays out over and over for thousands of homeowner’s. The government was supposed to set guidelines that were clear and easy to follow. If you met the guidelines, your loan was to be modified. This was done with the intent of slowing the foreclosure crisis. However, what we are seeing now is that mortgage companies are going through the motions but are approving very few loan modifications.
If you have already been denied, or if you are in the process of trying to get a Loan Modification then you need to pay particular attention to how to make sure your application will pass the “NET PRESENT VALUE” test, otherwise, everything else is a WASTE OF TIME.
STEPS TO PASS THE NPV TEST:
STEP 1: Go to http://www.checkmynpv.com and plug in the numbers. If you were denied a loan modification, your denial letter should provide the figures for your NPV test. If this is your first time, do your best to obtain these figures. Most of the information can be obtained from your original loan documents and a recent bank statement.
STEP 2: The single quickest way to pass the NPV test is if you can show that your property is undervalued. Contact a realtor and ask them to do a comparative analysis on your property. They will typically do this for free and in that analysis it will show you what your house is actually worth. The mortgage servicer likely used an inflated value, which hurt your chances of passing the NPV test.
STEP 3: Once you have passed the NPV test, it’s time to reapply. If you are within the 30 days of the original denial, then you can simply write a letter explaining that you want to reapply and that the NPV test calculation was incorrect. Make sure you explain why it was incorrect (i.e., value was higher than what it should have been).
I would also recommend that you consult with a Dallas foreclosure attorney to help you with the loan modification process. But BE CAREFUL, there are thousands of companies that will gladly take your money. Make sure you properly vet the person you are hiring and make sure you talk/meet with the actual attorney.