Preparing For Your Loan
Modification Negotiations

 

Preparing for your loan modification negotiations primarily involves gathering information. Although most lenders have their own set of forms that you will be required to complete the underlying information usually comes from the documents listed below.

The centerpiece of your paperwork will be your cover letter. This will summarize your case for the lender granting your loan modification. Not only should this letter include a reminder that you have made your mortgage payments in the past successfully, it should also include a detailed account explaining why your payments have fallen behind.

Make sure that your cover letter also outlines a solution to your problem and why you believe that it will work as opposed to the past. Don't be afraid of asking for a substantial payment reduction through interest rate, principle reduction, waiving current payments due.

Your solution should be reasonable, fact based, and not over dramatized. Lenders are impressed by numbers that make sense, not a sob story. Let them know what you can do concerning your payment amount and why you can do it.

Obviously the solution will be lowering your monthly payments on a long term basis. This can usually be accomplished through an interest rate reduction. In some cases lowering your payments sufficiently may also require a principle reduction. This option will actually reduce your mortgage obligation. Although principle reduction is less common than interest rate reduction, it is a viable option. In order to support your request you should be prepared to provide your lender with information such as your home's current value versus it's value when your mortgage began. In some areas this can be over 30%!

Your request for a loan modification should be backed up by your personal financial statement. Make sure that the numbers in your personal financial statement are accurate and verifiable. Also be certain that your personal financial statement does not include a list of unnecessary expenses. Lenders are more than willing to work with those that are in genuine need of relief however they have little patience with a spendthrift.

Documents Needed For Your Loan Modification

1. Three (3) most recent pay stubs from your current employer. If you are self employed you will need to provide the three (3) most recent month's P&Ls for your business and supporting banking statements.

2. Three (3) years most recent W-2’s. (1099s if you are a contractor)

3. Most recent mortgage statement (Includes additional statements for second mortgages or home equity lines of credit).

4. Three (3) most recent bank statements (for each bank account).

5. Two (2) most recent Federal income tax returns.

6. Personal Financial Statement. (a list of all income less all regular monthly expenses)

7. Cover Letter explaining your current financial situation and why you believe that your loan should be modified. Include any extenuating circumstances such as illness, ARM-adjustment, job loss, etc. Also note why you believe you will be able to carry out your modification plan ie. new job, lower payment etc.

The time that you spend putting this information together for your loan modification can pay off for years to come.