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How to get a loan modification

On Behalf of | Feb 26, 2013 | Bankruptcy, Chapter 13, Chapter 7, Chapter 7 vs Chapter 13, Firm News, Foreclosure

It seems that every time I read the paper, there’s a new program to help homeowners, or a new lawsuit against mortgage companies that was settled, and they talk about how it helps, but there are never details on how to go about it. And few people actually get the help they need.

My anecdotal evidence is that about 15% of people who try, actually get loan modifications. So why even try? Because those who get them, can reduce their interest rate to 2%, wrap arrearages into the principal balance, reamortize the loan over 40 years, and sometimes (although rarely) even get some of the principal forgiven.

The first thing to know, is you shouldn’t pay anyone to help modify your mortgage. The Minnesota Attorney General has issued such a warning, and has posted a list of free resources and tips.

So you can do this yourself, but don’t expect the mortgage company to be your helper – they get paid whether you modify it or not, and it seems they intentionally frustrate people who are trying.

To find out whether your will have a decent chance of getting the best kind of loan modification, which is a “Obamaplan” HAMP mortgage, see if your mortgage is owned by Fannie Mae or Freddie Mac. Try to get a personal representive to assist you, follow up at least weekly, and DON’T get discouraged when they tell you that they didn’t get something that you faxed them; just fax it again. It’s also not a bad idea to document the process you are going through, so you know what they’ve told you. Sometimes you won’t qualify because you’re current, some people don’t qualify because they make too much or don’t make enough. Self employed debtors should be prepared to provide detailed P&L’s, and hopefully have good accounting and separation between business and personal expenses.

If you ultimately cannot get a loan modification, a chapter 13 bankruptcy can prevent a sheriff’s sale of foreclosure and help you cure arrearages, and I have had clients who couldn’t get a loan modification that were ultimately able to do it after filing chapter 13, even chapter 7.

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