Rejection hurts. If you're like many people whose application for a mortgage loan modification has been denied, you don't know what to do. Should you rip the copper pipes out of your house, leave town and start a new life in Mexico, singing songs for loose change in sleepy tequila joints? Before you make that decision, remember that you can reapply for a loan modification.
To put it simply, a loan modification is a big deal. It permanently changes one or more of the terms of a borrower's loan to make it more affordable. But, not getting a modification could be an even bigger deal. If a solution isn't reached, serious concerns about foreclosure, wrecked credit, and a new housing situation can be in order. To make an informed decision, follow the three steps below:
Step One: Find out why you were denied
The first thing to consider when you are denied for a loan modification is why your application was denied (link). If you compiled the documents for the application yourself, you may have forgotten to include a required document. These items typically include:
- A hardship letter
- Current financial statement
- Projected financial statement
- Home valuation,
- Federal tax returns,
- W-2s, pay stubs
- Bank statements
If you left one of these items out, you may be able send it in and wait to see what the bank's answer is once they have everything they need.
If you have submitted everything that's required but are still denied, the bank should give you a reason in writing. One of the most common reasons is that, when the bank calculates your Net Present Value (NPV), they determine that you do not have the income to afford your home. You must show them that you will be able to afford your monthly mortgage payments under the modified terms you are seeking.
Alternatively, you can also be denied for making too much money. Sounds like a high quality problem, right? Even if you earn what the bank deems “too much” money, you may still be in desperate need of a modification.
Your lender may decide to deny your application because, according to their appraisal, your home is not valuable enough. The bank doesn't want to throw good money after bad, and neither do you, so seriously consider the reasons you are given when you are denied.
Step Two: Overcome the bank's objections
If you have examined the reasons the bank has given you for denial and believe they have made a mistake, or you have new information that would change their mind, you can attempt to overcome their objections.
If the bank said you do not earn sufficient income to afford your home, but since sending your bank statements, you got a better job with higher pay, you should reapply. Objections are overcome by addressing them and showing that your circumstances have changed since the denial. All manner of tragic events have happened to cause loss of income, from being laid off to losing a family member. Show that you have moved on from these tragedies, are earning enough to support yourself, and you're on the path to success.
If you are self-employed, determining income is not as black and white as it is for others. Altering the way your income is calculated, in even a small way, can be the difference between loan modification approval and denial. Can capital investments in your business be delayed to free up money? An experienced attorney can advise you where to keep and spend your money to give you the best odds of getting what you want.
If you believe that the property value the bank used when considering your application was not accurate, you can support your claim with evidence and include it in your new application. Perhaps they calculated the value of your home using outdated real estate data. If you can produce newer data that shows a different valuation, you may change their mind.
Step Three: Resubmit your application
If you've looked at the reasons the bank gave you for denying your application, and determined how to overcome those objections, then you are ready to apply again.
Remember, if you are applying for a modification under HAMP, you must wait 30 days from the date you are denied before reapplying, and you must show a change in your circumstance.
A successful loan modification can be the difference between keeping your home and losing it. Interest rates, principal, and late fees can be reduced, loan terms lengthened, and your monthly payment can be capped, among other positive outcomes.
If you applied for a loan modification on your own, you likely found the process to be difficult and time consuming. There is no cost to submit a loan modification, but the stakes are very high, and you need results as soon as possible. The thought of going through foreclosure can cause a person to panic and behave irrationally. But, before you consider tearing up your walls and making your way south of the border, think about applying with the help of a qualified, experienced law firm. You have everything to gain.