Why Is My Loan Modification Denied?

Editor's note: This article was originally published March 2013, and has been updated in August 2015.

So you've recently had your loan modification denied and can't figure out why?

You’ve handled tax forms; you’ve filled out car applications, job applications, and credit card applications. And a loan modification is just another application. Are you thinking to yourself: How hard could it be? Unfortunately, a loan modification might be the hardest thing to get approved without the help of an attorney.

Ask yourself this question: Do you know your DTI “debt to income” ratios? Your Net Present Value (NPV) and how to structure it?

What about organizing and keeping track of all of your final loan modification papers to ensure that nothing is left out?

When you apply for a mortgage loan modification, your financial history is the single biggest piece of the puzzle; otherwise, what would be the point? Mortgage lenders have established guidelines for approving or denying loan modifications and when you apply for a modification on your own, without the help of a foreclosure defense attorney; you are hanging over a cliff on a string.

In order to handle a loan modification on your own, you need the knowledge to understand what the mortgage lender is looking for on the application, how to negotiate with the bank and what they are looking for in other budgets such as your cell phone or grocery bill.

5 reasons homeowners are denied when applying for a loan modification on their own:

1. Your income is calculated or listed incorrectly. Lenders have specific guidelines on income and the numbers must align. Self-employed homeowners should be very concerned about this and need to hire professional help to ensure the loan modification requirements are met.

2. Disclosing income that isn’t supposed to be considered for the modification.

3. Documents have not been submitted to lender in time.

4. You’re not able to keep up with documentation demands. The banks need updated paperwork every month and sometimes they need the documents again because these documents have been “lost.”

5. Hardship is not explained correctly according to the banks guidelines.

If you try applying for a loan modification on your own and documents are late, filled out incorrectly or if they don’t meet the requirements of the bank, your loan modification could be denied. Sometimes, if you've been denied for a loan modification once, your bank won't consider you a second time.

Think long and hard about the ramifications of going it alone on a loan modification, or you could put your home and your financial situation into more trouble than they were in to begin with. Hiring a foreclosure defense attorney will allow you the peace of mind to know all negotiations will be settled promptly and all paperwork will completed in the correct format.

photo credit: Joelk75 via photopin cc