How to Get Your Mortgage Loan Modified

Given the current state of the housing and finance markets, this is about the most important and timely subject I can think of. I recently went through this process successfully and it completely changed my financial picture.

Things You'll Need

• Your mortgage statement and phone number of the company holding your loan
• Patience and hope

Instructions

1. Create a list of your monthly expenses. This should detail large and small things such as car payments, phones, utilities, gas, food, childcare, credit cards, cable, and internet. Think of all the things you spend money on each month, not just credit and formal accounts.

2. Create a list of your monthly household income. There is a certain balance your lender will be looking to see when deciding whether to give you a loan modification. Your income and expense list will need to be "massaged" to arrive at the magic number they deem worthy. Of course, this is relative to the amount of your mortgage, but consider showing a household deficit in the range of $200-$500 monthly.

3. Get your story straight. Your lender will want to know why you are having financial difficulties and may ask questions that will make you embarrassed or uncomfortable. They may even give you "tips" on what expenses you need to cut back on, like a car payment, cable TV, the internet, etc. Don't react with anger or defiance. Listen to what they are saying between the lines: "You need to get rid of one of your car payments (and you'll get the modification)..." They want to see an effort on your part to meet them halfway since they're going to be cutting your payment down and helping you out, thereby losing loan interest income.

4. Create a "hardship letter". They will ask you to put into letter form a description of why you need a loan modification. Start with "To Whom It May Concern," and include text about "seasonal business dropoff", "my industry has been affected by recent events in the economy", "loss of income due to extended medical leave", or "downturn in my business". Express your concern about getting into a fixed mortgage (if you currently have an adjustable one) and your inability to meet your obligation if your payment should be raised. Convey that you intend to stay in your house indefinitely and need some help to get through this difficult time. Explain that your income may recover in the future, but you don't know how long it may take, possibly a year or more.

5. Act before it's too late. This is very important. Don't wait until foreclosure has been initiated. Contact your lender while you're still current or about a month behind. They need to be convinced that you will be able to make your payments if they give you the modification. If your picture is too bleak, and you're months behind with too big a gap in your income and expenses, they may not be confident it will help you. Project your intention to make your payments and work through this tough time. If you're heading it off early, explain that you don't want to wait until you're in trouble, but you can see difficulty ahead.

6. Be persistent. You may need to adjust your numbers 2 or 3 times to get the right combination. Pay attention to what the representative is telling you. It's actually coded to help if you listen. It may take months for a decision to be made so if you get turned down at first, wait a month and submit a modified expense list. Get rid of a car payment and explain that you had a family member help you pay it off or you sold it. Remember, it's just cold numbers on a screen they're looking at when evaluating you. They can't verify your monthly expenses or income so they use what you give them. They may ask for back-up documentation such as bank statements or paystubs, but usually don't. In my experience, it was conducted almost entirely by phone and I faxed my letter and lists. The whole process took months and I was declined the first time. Then, out of the blue, I received a FedEx package with a one-sheet modification to my loan. My original $2160 payment was reduced to $1580 after they lowered my interest rate to 6.24%. My mortgage was converted to a 30 year fixed from a 40 year adjustable. I sent it back signed and notarized and that was it.

7. Nobody wants to go through submitting themselves to financial scrutiny, but now is the time to get this done. Don't wait until your situation deteriorates or the mortgage industry recovers enough that they stop these programs and you lose your chance to get a better rate.

8. One other significant benefit that occurs during this process is that you likely will not have to make a mortgage payment for a couple of months or more while they redo your interest and payment schedule. In my case, it was four months. Plus, unlike when you refinance, there are no fees added to your balance. These two things represent thousands in savings and much needed breathing room if you're behind on bills.

Tips & Warnings

• Act now, before you're in serious trouble

• Get your income and expense information together before you talk to a rep

• Be able to explain why you need help

• Don't wait until you're in foreclosure

• Don't take the company's criticism and suggestions personally

• Don't give up if you're declined at first