Categories: Loan Modification

Loan Modification Do’s and Don’ts

Earlier this week, I released my Top 5 Do’s and Don’ts when considering Loan Modification:

#1. Do tell your spouse or significant other: It’s tempting to hide bad news from your partner, but this can actually work against you. For example, in most cases, you cannot legally negotiate a loan modification without your spouse. You and your partner are in this together and are stronger as a team. Regardless of the reason, disclose it to your partner, put it behind you, and work together to resolve the crisis.

#2. Don’t assume it’s too late to act: As long as you are still residing in your home, you have opportunities to keep your home. 

#3. Do realize that your lender wants to resolve the issue: The only way your lender makes money is if their loans perform—modifying a loan through loan modification makes it perform for the lender. Banks and other lending institutions make more money and lose less money if you can make your payments. When they foreclose, they not only lose your monthly payments, they also have the expense of foreclosing (attorney fees), rehabbing the home, and then selling it (agent commissions).

#4. Don’t go into hiding: As hard as it is, failing to pick up the phone, return phone calls, or respond to notices is one of the worst things you can do. Your lender needs to know from you or your legal representative that you are aware of the delinquent payments and are working on a solution. 

#5. Do seek professional representation: You may be able to negotiate a loan modification yourself by working directly with your lender, but an experienced attorney or loan modification expert can properly represent your case to your lender and make sure your loan is modified to a level of affordability. Homeowners who represent themselves often overestimate what they can afford to pay and end up in the same situation months after they receive their modification. Working with an attorney helps you reduce the likelihood of making the same mistake twice.

Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)


  1. Great advice, Ralph! FHA lenders will allow a streamlined refinance even if the borrower is upside down with regard the loan to value ratio. We would save millions of homes from foreclosure or short sale if the lenders would renegotiate the interest rate and/or loan term when buyers are upside down.

  2. T. M. Says:

    Will the Obama Team mandate or can they mandate the Lenders to modify these loans? Given the fact that Banks/Lenders will again benefit from the taxpayers money with the Bank Bailout II–the other $750B. What can the Congress do to make these Lenders Greatly help homeowners keep their homes. Citi, BOA, Suntrust, JPM, others begged for Billions and got it again!!! but will not stop a fore’C some of them are out right nasty, but receive Billions for their operations from us the taxpayer who’s losing our homes.

  3. Patricia McGovern Says:

    Are lenders willing to modify loans for homeowners if the homeowner is unemployed?

  4. Rob Says:

    Recently I have tried to refinance my home, however due to the economy my hours at work have decreased therefor my monthly income has decreased. Now I have fell behind 2 months on my 1st and 2nd mortgage, also my carpayments and credit cards. my credit score has dropped signifactly… Can I still quailiy for a loan modification?

  5. P.D. Says:

    Question: What would you folks suggest in this scenario? My husband was laid off and as such our income is half. We tried working with a 3rd party to help us do a modification, which turned out to be a colossal mess. Had we not called the mortgage servicer (it’s with a debt collection agency at 10.25%) our house would have be sold at auction. We now have a monthly payment of $2,705, which it was $1,838 (which we couldn’t afford). How do these companies think folks in these situations can afford these payments? Their approach is basically give us our money…at no point did they offer any viable long term solution. Even if we had a 40 year fixed that would help tremendously. Because of our situation our credit is terrible, hence we can’t get a re-finance (unless anyone reading has ideas). Any inputs would be appreciated…thanks for listening….

  6. P.D.:

    I’m sorry you had a bad experience with a LM company. I’m going to be honest and say that it sounds like you can’t afford to stay in this house. Now, with that being said, it also sounds like you could be a good candidate for a LM. You have a verifiable curtailment of income (i.e. Qualifying Hardship). Your credit is poor so you can’t refinance your way out of this trouble, but you do have income so a LM might just be the answer. I would circle back on the LM idea. If your lender isn’t willing to modify your loan, maybe it will give you a Trial. That’s where you make scheduled reduced payments for 3-5 months on-time, every-time to prove you can do it. At the end of that trial period, you could qualify for a longer term modification. At that point your lender might consider the 40 year fixed term and a reduced interest rate you mentioned if it would make the payment affordable in the long run. You might also ask about a forbearance. This could allow you some time without payments or reduced payments while your husband is out searching for a new job. The forbearance period will end in a little while, say 1-3 months, but it will be when your husband has hopefully gone back to work and you can afford a larger payment. If he’s still out of work ask again for a LM or a Trial period. If you can’t get anything worked out at all, you’ll have to move. This time though, deal with a reputable and professional LM firm like the one that sponsors this Blog. Good luck.

  7. Dear Patricia,

    You asked “Are lenders willing to modify loans for homeowners if the homeowner is unemployed?”

    Great question and one I’m sure a lot of people are wondering about also.

    The answer here isn’t cut-and-dry; it’s both Yes and No. It might not be a loan modification, but some lenders are willing to consider other “workout solutions”.

    If you are out of work and it’s TEMPORARY, the lender might give you a forbearance. If they will, great. What a forbearance means is that you won’t have to make payments for a short period of time, or you’ll only have to make partial payments for a short period of time. The short period of no or reduced payments is designed to give you some time to look for other work without having to worry about your mortgage payment. The lender may add the missed payments to the back of the loan, but what you’re really worried about is being able to afford to make the payments once the “grace” period is over.

    If you can’t find work, you may have to move, do a deed in lieu of foreclosure (DIL), or get a short sale. Lenders are sometimes willing to accept reduced payments on a trial basis, and if you can perform as agreed, they might modify. But if you can’t afford a payment at all because you don’t have income, it may only be a matter of time before the lender will foreclose. Don’t let that happen.

    If you can’t stay, do your best to work it out with your lender. Try to offer a DIL or negotiate cash for keys. You’ll want to have an attorney review the DIL or “cash for keys” agreement before you sign them to make sure your interests are protected.

    Important note for you and everyone else reading along… Loan Modification must be based on affordability. No income = no affordability. Do what you can to find a job, then try approaching your lender if you need a loan modification because the job paid less than your previous one.

    I hope this helps,

    Ralph R. Roberts

  8. Rob,

    You asked: “Recently I have tried to refinance my home, however due to the economy my hours at work have decreased therefor my monthly income has decreased. Now I have fell behind 2 months on my 1st and 2nd mortgage, also my carpayments and credit cards. my credit score has dropped signifactly… Can I still quailiy for a loan modification?”

    Rob: You might qualify for a loan modification. It sounds like you’re a good candidate. Loan modifications’s are based on affordability. If the amount you can afford to pay is too little, then a loan modification probably won’t be an option for you, but you won’t know until you try.

    The fact that you are still working, albiet for less money, is a good thing. It means you have what we call a verifiable curtailment of income or a Qualifying Hardship. It means you can afford to pay something.

    The fact that you have poor credit doesn’t automatically keep you from getting a loan modification. In fact, if you’re able to get a loan modification it might also mean you have money to make your car payment and CC payments which can improve your credit score over time.

    For now, you need to prioritize your payments. Your house and your car should be #1 and #2 on the list (particularly the 1st Mortgage). You need a place to live, and you need the car to get to work. If the car is too expensive, however, consider trading it in or selling it and getting a used car for the time being until you’re back on your feet. I know you’d like to pay everything, but if you can’t, well, don’t lose your house or your car because you paid an unsecured credit card first.

    Contact a reputable loan modification firm (like the one who sponsors or contact your lender directly, and do it sooner rather than later.

    Hope this helps,

    Ralph R. Roberts

  9. Rhonda Says:

    How does this affect your credit? I am currently trying to do this type of modification throuh Coun. wide., would I benefit more using your team of attourneys? Does this program always stay the same, through out the deration of the loan? My concern is the down payment I would use to start your program would be my mortgage payment how does that affect my credit because my credit has not been affected yet, I am trying to be pro active.

  10. Dear Rhonda,

    Good for you; more homeowners should investigate their options before they need them. If you’re honest with yourself, you know if you’re likely to need a workout solution in the future. If you think you might, look into it.

    There can be a real tangible benefit to using an attorney to do your negotiating. One of those benefits might be that he or she can negotiate a less detrimental reporting status to the credit bureaus. For example “settled” is better than “charged-off”.

    When you’re in a situation where you need a loan modification, you’re probably behind in your payments on your mortgage or other obligations, or will be soon. So, although it’s not a hard and fast rule for everyone, it’s likely that you have had some negative reporting already. I think the question you’re asking is “will a loan modification make my credit score worse?” The answer to that is probably not. In fact by reducing your payment by way of a loan modification, it might free up money to make other payments on time or cure other delinquencies, thereby actually improving your score over time.

    There is somewhat of a hierarchy of negative affects to your credit score. A full blown foreclosure would be the most detrimental, followed by a deed in lieu and then a short sale. There is also going to be a blackout period ranging form 2-5 years where you won’t be able to qualify for a Fannie or Freddie backed loan.

    The least detrimental is a loan modification because it doesn’t disturb the current loan, it just modifies it. This means that any delinquencies can be reported “settled” and won’t show up like a completed foreclosure would. It’s unlikely that there will be any black out period either, because you settled the account.

    By “this program” I presume you mean the loan modification, should you get one. The answer to that is: it depends on you lender.

    Some lenders do not want to have to address the same issue with you, so they try to fix the problem by converting adjustable interest rates to affordable fixed rates. There are other lenders who may view your problem as being more temporary, or who are willing to assume and increased level of risk. Those lenders might offer to freeze or fix the interest rate for a period of time, say 2-5 years. At the end of that freeze period the rate may again adjust according to the market rate or a margin and index.

    I suggest that homeowners try to negotiate for the best long term solution they can – for most homeowners that means an affordable 30-year or 40-year fixed rate. A long-term fixed rate often allows homeowners to reestablish themselves by allowing them to make future financial plans and a budget without the fear that their mortgage interest rate will once again increase. A mortgage that adjusts up, can quickly destroy any budget planning because it will force you to shift money away from one expense to cover the increase in the mortgage payment. Too many of folks are already aware of this phenomenon.

    About your last question regarding ceasing to make your house payment to afford professional loan modification services. I would NOT advise someone to stop making payments to qualify for a loan modification or solely to engage the services of a professional loan modification firm. However, if you are unable to make your full monthly mortgage payment, your money might be better spent putting it toward a solution (for example, hiring a loan modification firm).

    I hope this helps,

    Ralph R. Roberts

  11. Ron Says:

    Regarding the credit aspect of the loan modification. Will the loan show on your bureau that you have modified it? Will it show settled and a new one opened? Will there be signs to other future lendors that would indicate to them that your convential loan was modified and therefore give them a warning as to the financial hardship that occurred during this period of time. I realize the short term advantage is simply keeping your house, but I am concerned about the long term effects it may have on my family and our future abilities…


    Hello! I have some questions, we are in a very difficult situation right now, I just got laid-off from work, as well as my son and son-in-law who contributes for mortgage payment and household bills, my spouse is unemployed too, also, we filed for bankruptcy. Will the lender give us a workout plan to be able to keep our home? We are hoping for the best at this tough times we hit rock bottom. Thank youo for your reply.


    Mr. Ratuita

  13. Tiffany Says:

    I lost my job back in October of 2008 and have yet to get an interview. I’m in California, actively job searching, collecting unemployment, and my husband’s still working and brings home about $60,000 annually. Along with our mortgage, we have two new cars, a toy hauler, etc. We aren’t behind on payments for anything, so I haven’t told my loan company that I’ve lost my job (although the house is in my name only). Although we aren’t behind on any payments, we have a 30-yr fixed rate loan (80/20) with the ability to pay interest-only for the first 10 yrs.; which is $1878/mo. and that’s what we’ve been paying since buying the house in 2007. We have been interested in modifying our loan so that we are paying toward our principle at a more affordable rate but it always ended up that we had to re-finance and basically come out of pocket about $14,000. Do you think that a loan modification is even an option for us?

  14. Ron,

    No, the loan will not be stated as “modified” on your credit report. I suppose this classification may come in the future, but I’ve yet to see anything other than “settled.” This is all a pretty new adventure and there will be some items that will need to be worked out as time goes on. But if the account was current when the modification was done (i.e. modification was a preventative measure), then I don’t believe there will be any reporting to the bureau at all. What’s to report, you were current and you still are? Maybe there will be a change in the monthly payment amount, but like I said this is all so new I’ve not seen that yet either. For now, my advice would be; if you see a status reported on your credit report that you do not agree with or that is false, challenge it.

    You’re right to be concerned about your long term financial health. Your credit score is certainly a part of that health. You’re also right when you say that the short term goal of keeping your house has to take preeminence. If you can fix the problem now, you live to solve the problem later. If you’ll indulge me in answering your question, I’d like to use the analogy of being in a boat out in a lake.

    The boat springs a leak that threatens to sink it. You happen to have some duct tape (next to the dog, man’s second best friend) and manage to slow the leak down to the point where you’re able to get safely to shore. You didn’t solve the problem you just fixed it temporarily. If you don’t permanently seal the leak, you’re sure to sink the next time you venture out. The leak took your immediate attention because it was urgent and was capable of sinking the whole ship. The financial crisis you find yourself in right now also requires your immediate attention. Like the duct tape patch job, a loan modification might only be a short term fix. You have to assess the real problem in your financial hull and solve it.

    My personal opinion regarding creditors future perceptions of these hardships is that when they look at credit reports a few years from now and see “blemishes” on people credit between the years of 2006 through 2011, their response will be one of: “Oh yeah, that was an horrible time.”

    Your goal should be to make the negative reporting to your credit as short a span of time as you can. I also think that creditors will be more likely to take a chance on lending to someone who took measures to solve the problem than they will be with those who just threw in the towel and walked away. You certainly can not rely on credit forgiveness being reality, but if there’s not something done to address the issues created by these financial times, credit/lending will remain overly tight for years.

    I hope this helps,

    Ralph R. Roberts

  15. Tiffany,

    Sorry to hear that you’re having such a hard time finding new employment; keep trying. It’s encouraging to hear that you’re not behind or late on anything even with you out of work. That tells me that you’re probably pretty good money managers and are living within your means. The alternative is that you’re draining your savings and retirement accounts, running up credit card balances, and borrowing from anyone who will give you money, but I don’t get that feel from your question.

    In answering your question, let me give you what I’ve started calling “Ralph’s Rule of Thumb.” I didn’t invent this rule, but I’m promoting it because I really feel that if more people followed it, they’d be in much better shape with their mortgage.

    What you do is take 30% of your gross household income. If that amount is more than the monthly mortgage payment you’re making now, you’re either in trouble already or are likely to find yourself struggling to make your payment in the near future. It might not be exactly on for everyone’s situation, but as quick assessments go, it’s right more often than it’s wrong. Apply “Ralph’s Rule of Thumb” to your mortgage situation and see what your payments come out to be.

    I’m not an attorney so I can’t speak to what it means for the house to be in your name only in California. What I would like to know is who is obligated on the Note and who signed the Mortgage (security instrument)? If both you and your husband are obligated to pay under the note, and/or you both signed the mortgage, then it’s my understanding that you’re both on the hook or at least the house is security for the loan. If the payment doesn’t get made, the bank can foreclose on the house. If for some reason you’re the only one obligated on the note, and the only one who signed the mortgage, then you may have more protection from foreclosure. (Protection from foreclosure equals leverage at the negotiating table.) You should of course speak with an attorney and have him or her review your loan documents to make sure what I’ve said is correct.

    The current trend in loan modification is to deal with the loans that need immediate help first. People who are behind on their payments and are in danger of foreclosure are typically moved to the head of the line. This happens for three reasons:

    (1) foreclosure costs the lender money so they want to avoid it;
    (2) borrowers not making payments cost the lender money so they want to get the loan performing; and
    (3) performing loans don’t cost the lender any money so there’s less incentive to modify those loans.

    There’s thousands of borrowers requesting loan modification, so the lender is somewhat forced to prioritize them based on immediate need (i.e. how much is not modifying going to cost the lender.) This isn’t a cynical view, it’s just reality. Lenders are interested in modifying loans as a loss mitigation tool – cost saving measure.

    My suggestion to you is that you look into what is known as a “short refinance.” A loan modification might be an option, but this would allow you to refinance the house into a long-term fixed rate loan paying principle and interest without having to come out of pocket with the $14,000. First, you can approach the lender holding the second mortgage and see if it would entertain a short pay-off. This might be all the room you need to refinance the first-mortgage at full balance. The second lender might be willing to do this if the house is “upside down” — meaning you owe more than the house is worth (negative equity.)

    You should know though that this could have an impact on your credit score. If you’re not willing to pursue a “short refi” you could always just wait out the storm. Continue to make your interest-only payments and wait for the property values in your area to rebound enough to allow you to refinance the loans for full pay-offs. If my calculations are correct, you’re approximately 1-2 years into your 10-year period, so unless you’re in danger of not being able to make your payments, you’re okay for now. Plus, once you find new employment you can double up your payment or put something toward principle each month, just watch out for prepayment penalties in the note. It sounds to me like you should look to contact an attorney/law firm like the one that sponsors, who can assess your whole situation and give you some good, sound advice on how to proceed.

    I hope this helps,

    Ralph R. Roberts

  16. Maria Says:

    to qualify for a modification do I need a good credit score? And can you do a modification for only 15 or 20 years.

  17. Maria Says:

    What I meant was I have 20 year left on my loan and I am looking into modifying my loan. Will this loan stay for 20 years even if I modify? I really would not want to start all over.

  18. Joe Says:

    HI Ralph,

    I have a VA that is 100% of what my house was appraised for when i first bought it in Oct. 2008. My concern is if the VA will look at this like me not keeping up with my promise end of the deal to make my payments by looking for a loan Modification. I am not late on my payments yet and will do what I can to stay current, but my job has decreased quite a bit and as a result I foresee my income being about 50% less. I don’t think my house is worth what I owe on it at this point and with the times being like this seems like finding another job is out of the question. I would love to hear advise. Thank You.

  19. Bob Rens Says:

    We have a 5-year Adj Arm (Interest only) with IndyMac. Current monthly payment is $1,666/mo. Rates will start adjusting in April 2009 to an unknown. Principal balance is $460k — house has declind in value from $750k to under $400k (as we are in Michigan). My wife and I are semi-retired bringing in low income (about $40k/yr combined).
    We have excellent FICO score of 820… We have never beeen late on any mortgage payment.
    QUESTION: How can we negotiate now IndyMac for Loan Modification to: (1) convert to 30 yr fixed rate, (2) reduce principal on mortage, (3) keep the same low monthly payment?

  20. Monique Says:

    Hi Ralph,

    We recently had a loan modification done. It was not done correctly. We attempted to the loan modification ourselves. We mad mistake #5 and did use legal representation. Our loan company said we can’ t apply for another loan mod until 1 year from the 1st which is August 1st. We kept getting letters from professional companies who say they can help. They are very expensive. What can we do?

  21. Monique Says:

    correction :We did not use legal representation. What can we do ?

  22. DeeDee Says:

    What are the consquence of a loan modification? I heard you have to give up 50% of your equity in your home. I’m a homeowner (who would like to keep my house to the day I die past it down to my child.) who is upside down in a first and a second. The first interest only. The second is a 15 yr balloon. Interest only. Thinking I could do a refinacing after a few years. That didn’t happen. Should I wait to see what the Stimulate Bill is going to help on the housing market crisis. I’m paying my mortgage I was told if you weren’t in a foreclosure that we didn’t qualify for a loan modification. And how expensive is a loan modification? My fica score was a 780 now that I’m late on credit cards I’m sure my fica score is bad now. What can I do? Help?

  23. Joe, first let me say thank you for your service to our country. Servicemen and women (and their families) make the sacrifices to provide the freedoms we ALL enjoy. Thank you.

    My advice to you would be to contact the Veteran’s Administration/Veteran’s Affairs (VA). I know that your concern, or at least part of it, is to maintain your eligibility for future Veterans Affairs financing. Let them know that you are not delinquent, plan to fulfill your obligation to the VA, and that you are actively searching for additional income sources to make up for the loss of income you’re experiencing.

    You’re correct that your housing voucher is important. It’s a benefit you earned and should be able to take advantage of. The VA is often willing to work with its borrowers even when the servicer may seem less than willing. The VA knows of the nationwide housing crisis and the employment problems facing millions of Americans. I believe that by you contacting them now, before there’s a problem, it actually demonstrates your commitment to keep up your end of the promise.

    My advice would be to contact the VA and explain the situation. Ask them for a way you can continue to fulfill your obligation to the VA and yet make payments affordable given your current income situation. The VA is likely to have a program to help you keep your house. You are not the first person that has faced this situation before, and you will not be the last. The VA will likely be more willing to work with you than an outside third party investor would be. You should call and inquire into what solutions are available to you and offered by the Administration.

    I hope this helps? Let me know how you do.

    Ralph R. Roberts

  24. Mr. Rens,

    Thank you for your comment/question. This is a most unfortunate situation that many Americans, especially Michiganders, are facing. The added hardship to you and your wife is that many homeowners facing these challenges have years of income earning potential ahead of them, but you are as you say – semi-retired. You thought you had nearly $300,000 in equity in your home and now the market situation has pulled that out from under you. You have maintained excellent credit scores, so refinancing may be an option for you. What diminishes refinancing as an option however is the fact that your home is not worth, in today’s market, what you owe on it. What this means is that you would need to do one of two things in order to secure refinancing:

    1. Bring money to the closing table to satisfy the deficiency between what the new lender is willing to loan on the property and the amount you currently owe.

    2. Get your current lender to agree to accept less than the full amount owed on the current note. This is known as a short-refinance or a short-payoff. It will affect your unblemished credit score however, so you should know that going in.

    If you have a large sum of money to put toward a principal pay down and it won’t result in you incurring a large pre-payment penalty this may be an option for you. If you can, you might want to look into the benefits of a reverse mortgage. Being “semi-retired” you might meet the age requirement to qualify. This type of mortgage can eliminate the need to make payments at all for the remainder of your lifetime. There, of course, is a loan to value requirement, but as I said if you have a large sum of money to apply towards principal you might be able to make yourself eligible for a reverse mortgage.

    Another option for you, and probably really what you’re asking, is how do I get IndyMac to convert my ARM (which will adjust here shortly) to a 30-year fixed rate loan I can afford? My honest answer is that at face value you will not get them to agree to that. Why? Because remember that the key to a successful mortgage is affordability. I use what I call “Ralph’s Rule of Thumb” when roughly calculating affordability. My rule is that you should be able to afford a principle and interest payment that’s 30% of your income. Any more than that and it’s just a matter of time before you have trouble making the payments. You stated in your question that your wife and you bring in about 40K combined household income. Using my rule, you can afford about $1,000 per month on your house payment (P&I). Your current interest only payment of $1,666/mo works out to be about 50% of the household monthly income. Even if you were able to convince IndyMac to charge you ZERO interest you’d still have a payment of approximately $1,277 per month (P&I) based on your current loan balance. Okay, so again you’re back to needing money to pay down your Unpaid Principal Balance (UPB).

    But wait, IndyMac was taken over by the Federal Depository Insurance Corporation (FDIC). The FDIC has a loan modification pilot program that may allow a homeowner to “forbear principal” until the payoff of the loan. This means that the FDIC is willing, if you qualify, to calculate your payment based on a portion of your UPB and not the full amount. They’re not willing to forgive principal, just hold off on collecting it, and more importantly not use it to calculate your monthly payment. The FDIC also uses a target ratio of 38% of your household income dedicated to your mortgage payment. This means your payment could be as much as $1,266 per month with the FDIC’s program. The FDIC program will only lower the interest rate down to 3% though, so you’ll need to get a principal forbearance of approximately $160,000. ($300,000 at 3%, with a 30 year Am., payment = $1,265 P&I). That seems like a pretty tall order, but there might be a chance. To get this process started you should contact your servicer and ask about how to qualify for the FDIC principal forbearance program. The servicer should be able to help you determine if you’ll qualify or not.

    My final suggestion is that you speak to your accountant or your financial planner before dumping large sums of money on the principal. I say this because your interest rate is going to reset in April but to what amount? You said you’re not sure, but in your promissory note there should be how the rate will be calculated. The rate is usually calculated based on an Index plus a Margin to give you the interest rate. The Index can be LIBOR, Treasury Notes, Bank Prime Rate, or any other. The Margin should be some fixed percentage. You may not know exactly what the Index is for April, but my guess would be you can get close. What you should do is add the Margin to the expected Index and you should arrive at your interest rate. For example lets say your rate is calculated using the Bank Prime Rate (3.25 since Dec. 24, 2008), and your Margin is 1.75% over Index. That would mean you could expect your rate to adjust to 5% from whatever it is now. There are minimum interest rates set in your note, so you need to check this document out, but that’s basically how it works. The reason I suggest you speak to your financial advisor is because the interest rate (and payment) increase might not justify paying a large sum of money from a 401K or retirement account that’s earning more interest than the rate increase would cost you.

    I hope this helps? Please feel free to keep me posted with how it all turns out.

    Ralph R. Roberts

  25. Monique,

    Not knowing the details of your loan modification or the lender you worked with, or what went in to qualifying you, I’ll explain what probably happened and what actions you can take now.

    First, lenders/investors set their own requirements and parameters for loan modifications and other workout solutions. Some lenders allow you two workouts in a twelve month period. This is typically when you accept a modification (or other workout) that didn’t actually make the payments affordable. That means that you defaulting on the original modification agreement is really only a matter of time. It sounds to me like your lender is saying that they are not going to revisit your workout plan until you have performed for 12 months. This raises the question: how can I perform for 12 months in a plan I can’t afford? Good question.

    It may be that you’re not asking for the right workout plan. It may be that you’re not using the right term or the right language. You may be asking for a loan modification when really what you need, and may be eligible for, is a forbearance or trial period. Many homeowners don’t know the industry language to use when asking for a workout solution. This can sometimes cause future aggravation for the homeowner as it appears to be for you. This language barrier is also one of the main reasons I often suggest that homeowners seek legal advice and/or third party assistance with dealing with their lender. I know that the cost is too often prohibitive for homeowners, but if the expense results in a truly affordable modification the first time, you will recover the cost of the service pretty quickly with the monthly payment savings, and save yourself future headaches.

    Now for what you should do next:

    You should contact your lender again. (I can’t tell you to hire someone to do it for you, but you might want to consider it this time). This time ask whether there is any other workout solution that you might be eligible for. If you do go with a third-party representative, make sure that you explain to them that you already received a modification from your lender, but that it simply did not make the payments affordable. If you already defaulted on the current agreement tell them that too. If the representative is going to contact the lender, they need to be dealing with all the facts. If you thought your current plan was the best the lender would offer (maybe because the lender said it was) let the representative know that too. A lender that’s willing to modify should be willing to modify to true affordability otherwise they’re simply prolonging the inevitable. Personally I’d rather have lenders tell borrowers that there’s nothing the lender can do to make the payment affordable opposed to putting them (the borrower) into a plan that’s destined to fail. Giving the borrower the honest information allows them to make informed decisions. Some lenders don’t always give the borrower that option. I know it happens, but I don’t have to like it do I?

    I hope this helps,

    Ralph R. Roberts

  26. Mani T Says:

    Dear Mr. Ralphs:

    Thank you for responding to so many people. Your advice is truly invaluable.

    We brought a townhome in Southern California in 2005 for $415k. We currently owe $315k in first mortgage (5yr Interest only ARM with IndyMac Bank resetting in April 2010) and $80k in second mortgage (30 year fixed HELOC with a Credit Union). The value of the house currently is $280k. Our combined monthly payments on the mortgage, insurance, taxes etc. is $2300.00.

    Meanwhile, we are now in escrow to buy a bigger home (due to various reasons: expansion in family, cheaper home, better neighborhood etc.) We will not be able to afford both homes at the current mortgage payments. So we are deciding on what to do with our existing home. I would truly appreciate your opinion and advice on what to do with our first home. We are currently considering 3 options.

    1. Get a loan modification from IndyMac bank, lower our monthly payments and rent it out. However, it looks like we could end up paying $500/month from our pocket as the rent will not cover full expenses.

    Given that the the house house is not going to go up in value (above $415k) for a few long years, do you think it is makes financial sense to rent this home?

    What happens to our second mortgage in a loan modification?

    2. Request a short sale. We found that would be loosing about $65k compared to if we had rented a house for the 4 years instead of buying this house. We are willing to take a ding on our credit if we are loosing by renting out (option 1).

    3. Request a short refinance from the banks?

    Can you please suggest other approaches you would advice us to minimize our loss on this house?

    Thanks much in advance,

  27. Harry Joyce Says:

    I live in Michigan and my house value has gone down $100,000 in the past 3-5 yrs. I am 68 yrs old and have a 10yr arm (2005) and want to refinance to a fixed rate while the interest rates are low.I am afraid that I will loose the house when the arm runs out. I can barely make the payments now because my wife and I are retired and living on social security and a pension from general motors.My question is with an income of approxamently $28,000 a year and our ages do you think that we could get a 40yr fixed rate to lower our mortgage payments.We have a good credit rating and have never missed a payment. this might not be the right format but I thought I would ask for some advice thank you Harry Joyce

  28. V H Says:

    Dear Ralph,

    You are a life server. My wife and I bought a home five years ago for $535,000. Our first mortgage is with Washington Mutual ( JP Morgan Chase now) with a balance of $333,000. Our second which is a line of credit with E*Trade with a balance of $52000.00. Our third mortgage is a home equity loan with Navy Federal CU with a balance of $192,000. We are currently two months behind. We contact both JP Morgan Chase and Navy Federal CU in December 2008 to let them know that we need help. We faxed all the required financial statements to them both. Now, Navy CU said that they will not do anything until JP Morgan Chase approve a loan modification. And JP Morgan Chase just sent us a letter saying that we are denied because they do not have our proof of income. We faxed it to them already. I am in auto sales and my income has been reduced by 40%. I thought the JP M Chase want to help people stay in their home. What do you advice me to do now?? I am considering contacting the Federal Loan M. Law Center that sponsor your website. By the way, what is their fee??

    Thanks a million!!!

    V H

  29. Harry Joyce Says:

    Dear Ralph this is Harry Joyce I wonder if you can give my wife and I some advice for our predicament. thanks Harry

  30. E G V Says:

    My mother’s name is on the title and loan documents of our home. She is retired and has no income other than social security. I pay the mortgage. When she purchased the house, the lender gave her 2 loans, one being an Interest only loan. Due to the poor economy, our home value has depreciated almost $20,000 and we can’t seem to get out of this loan. We can’t refinance, she can’t “sell” me the house (have it under my name). Are there any options for us? Can we go thru a loan modification even though she is retired? Your advice is appreciated!

  31. Andy Lauer Says:


    I saw your answer to tiffany and i have a question about your “rule of Thumb”. >>

    You wrote: “What you do is take 30% of your gross household income. If that amount is more than the monthly mortgage payment you’re making now, you’re either in trouble already or are likely to find yourself struggling to make your payment in the near future. want to modify my home loan”.>>

    didn’t you mean if 30% gross of your income is LESS than the monthly mortgage payment then you’re in trouble?

    i did it 12 months ago on my own but they only gave me 20 months. i have waited the year and now want to modify again. My question is:>>

    Is there a way to ascertain if there is a ’sweet spot’ or rule of thumb that the mortgage company goes by regarding my assets vs. expense. if i make too much they’ll say i dont need to modify. if i say too little they will say i’m hopeless and need to short sell. i am self-employed and have some wiggle room as far as what i can state my income to be. My wife is fixed so no bending there.

  32. Marie Says:

    I have had 4 mortgage companies in the last 5 years with an ARM which continues to rise. My payment has gone from 986 to 3000 and I can no longer afford the payment, when I asked for a loan modification my loan was once again sold to someone else and I have to start the process over. Now six weeks into the loan modication request I keep getting the runaround, one person will say they have the paper work and another says they need more. When I asked for a loan modification I was told that they would go 12 months maybe and possibly 24 months. All the loan modifications I read about are fixed 30 year deals. I am now behind on my payments and they are calling me at work wanting to know when I will be paying, and all the while I am trying to work through a loan mode without success.
    AHMSI is my mortgage company and I feel that I am being taken advantage of, preditory lending. What options do I have that do not require me giving someone $$$ without results, no guarantee?

  33. Sharon Says:

    Is there such a thing as a 50-year loan?

    Would it be considered predatory?

    What would be a legitimate purpose to use one? How would it amortize?


  34. Andy Lauer Says:

    i have contacted many agencies to help me with my modification. About 1/2 say i need a Forensics Audit. Other 1/2 says its a waste of time. This might help you answer, Ralph:

    My loan originated with a ‘fly by night’ mortgage broker and then sold the load to ??? who then sold the countrywide who then sold the loan EMC….lots of hands.

  35. lisa Says:


    in as much as Obama is doing a good job on the economy helping all the bloated corporations keep their million dollar bonuses and crap,m it would be nice if they took the same effort to help those of us that are afraid to pick up the phone because of b…

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