Demystifying the Mortgage Modification Process

Demystifying the Mortgage Modification Process

mortgageWhen Teresa D. Johnson purchased a home several years ago, she was excited about becoming a homeowner and had planned to move her mother and father in with her so that they could enjoy a peaceful retirement. But last week she was seeking help with getting a mortgage modification from the Rainbow/PUSH Coalition’s annual Wall Street Economic Summit because she is in jeopardy of foreclosing.

The home was vandalized, says Johnson, a funeral director. The damage prevented her from using it as her primary residence and placed her in a position where she had to pay rent and a mortgage. She couldn’t afford the repairs and soon fell behind in her mortgage. Her loan had already been modified once, but her payments were still unbearable.

Johnson’s case is not rare. Almost 3 million people foreclosed last year, according to a report by RealtyTrac. That number would have been higher had it not been for state and federal government intervention, said James Saccacio, RealtyTrac CEO, in a statement. For example, President Obama introduced Home Affordable Modification Program to assist homeowners with reducing their monthly mortgage payments.

HAMP supplies homeowners with self-assessment tools, calculators, and free mortgage counselors to help them refinance or modify their mortgages. In addition, the HAMP Website provides a checklist of key documents homeowners will need to have ready when calling their servicer. spoke with Janis L. Mathis, vice president of the Rainbow/PUSH Coalition and the summit’s loan modification coordinator, about when you should modify your loan, why banks are not modifying loans, and resources homeowners can use to get help when your payments are delinquent. How does someone know if their mortgage needs to be modified?

Janis L. Mathis: If they are behind in payments, then obviously they know that they need help. Usually once [a home] is foreclosed there is not anything we can do. In a couple of instances we have been able to do post foreclosure relief but that is rare. The sooner you seek help the better off you are.

You should seek help if you are in arrears; if you can’t pay utilities and your mortgage in the same month; if you are paying the mortgage but you are skipping on medicine.

But it can be too early. Some of the banks won’t talk to you until you are delinquent. They say as long as you are paying you don’t have a hardship.

What types of information should homeowners bring to a loan modification counselor?

They need to have at least three pieces of information: a budget, proof of income, and a hardship letter describing what it was that made them get behind in their mortgage. Was it a death? Was it a disability? Was it a loss of a job? For most people, it wasn’t just that the payment escalated, it was that–plus something catastrophic that caused them to become delinquent.

I’ve heard that some banks will modify loans if you are spending 30% or more on housing costs. Is that true?

That is one of the guidelines that come from President Barack Obama’s Home Affordability Mortgage Program. That is another way to determine it. But most people don’t sit down and try to calculate the percentage of their gross income that their mortgage represents. Most people feel it before they can actually see it on paper.

Many people are being declined for modifications. When the bank tells a homeowner that they can not do anything more, is that really the case?

The law does not require the bank to modify the loan. We’ve been relying on some incentives for the bank to do the right thing. Rainbow/PUSH supports bankruptcy reform because it will allow a consumer to go Chapter 13 and let a judge look at it and make a decision. But the banks have kept that from happening. Rainbow/PUSH founder Rev. Jesse L. Jackson Sr. says that one bank had one million homes that were eligible for modifications but only 98 permanent modifications were made. Why are the banks unwilling to do modifications?

Banks will do modifications if it makes financial sense for them to do it. Sometimes it is because they don’t want to look bad to the community. When [Rainbow/PUSH] calls [the banks on behalf of the homeowner] about 80% of the time we get a modification done. It’s effective for those few people we are able to reach but it is not effective for homeowners in general. Is that a good reason for one person to get it and somebody else not to get it? It seems pretty arbitrary, doesn’t it?

Where else can people turn for mortgage modification assistance?

Most cities and counties have an office that provides low-cost or free housing counseling. Look for a HUD-certified counseling agency. They can contact your mortgage company on your behalf for little or no money and be an advocate for you. I would not go through this process alone.