Improve Your Prospects for a Home Loan Modification

More than half of all American households experienced some level of impact from the 2008 housing and financial market downturn. The aftermath of the sharp decline in home values is still keenly felt throughout this country as financial markets struggle to return to pre-bubble levels.

Find out from your friends, family, and neighbors how much this drop in home values has affected their spending patterns, purchasing power, and general consumer confidence. Even the most staunchly fiscally conservative individuals will be shaken by the answers. In the current economic climate, many homeowners have negative mortgage equity or very little equity in their homes. Perhaps they have even seen foreclosure signs or broker advertisements for short sales or loan modifications littering their own neighborhood or block.

If you are like the majority of Americans, your parents likely instilled many of the same values in you that we all hold dear. One of those values has to do with paying off your debts, and more specifically, paying your bills on time each and every month.

What occurs, however, if you lose your job, your spouse loses his or her job, your small business fails, or the factory where you have been obediently working for many years closes? Worse yet, what happens if the manufacturer assigns your job to a worker in China who is less qualified and paid? What happens if you sustain an injury at work but have scant or subpar medical coverage? Or, absolutely no access to medical care?

Sadly, these are the only situations that the average American family is currently faced with. At times, it can be nearly impossible to pay your bills on time. At that point, you must make some extremely difficult, potentially life-altering decisions as the head of the household. Since this is my largest bill and we need to buy groceries and gas, should I pay my mortgage this month or stop paying altogether? Do I skip paying my credit card bills since I’ll only be using cash or debit in the end? You must consider credit cards to be a luxury.

Your credit score will be significantly lowered if you stop making on-time mortgage payments as well as at least the minimum payments required on your credit cards. Maintaining a good credit score typically takes a backseat to making it through this economic downturn unscathed if you are in the “survival-of-the-fittest” stage.

To help homeowners who are falling behind on their mortgage payments and in danger of having their homes foreclosed upon, the government established the “Home Affordable Modification Program” a few years ago. In essence, the lender who gave you the initial loan is much more likely to think about modifying or refinancing your mortgage once you are significantly behind on payments. The primary factor that makes the modification successful is the widely acknowledged fact that your lender does not want to forcibly remove you from your home.

Contrary to what many people think, the lender does not want to take your house away for a number of reasons. First off, it’s possible that your house needs some serious repairs or rehabilitation, which could cost a lot of money for the bank. Second, it would be unlikely for the bank to force you to leave your home and then obtain fair market value for it because markets are still weak in many parts of the country. Thirdly, because banks have such strict lending criteria, the pool of qualified potential homebuyers has completely dried up.

In essence, if you are behind on your payments and can convince the bank that they should modify your mortgage, you stand a good chance of being accepted. Most banks will want to speak with you directly, and their underwriters will want to gauge how strongly you feel about wanting to keep your home. A letter outlining your financial hardship will be read by the banks. You must write a well-written, sincere, compelling, and persuasive argument for why they should assist you in that letter, which is essentially a blank canvas.

Finally, by paying banks that assist their customers, the government is making an investment in our banking system… you the consumer. Therefore, there is basically very little risk on the part of the banks. Because their executive teams are aware that the government will intervene to assist “them,” the banks are therefore more likely to assist you in maintaining your current residence.” Do not, however, hesitate to take action if you are facing financial difficulties and the possibility of losing your home. Be proactive; there are resources available to you.