Loan Modification applications and file inertia

File Inertia can help you get a Loan Modification

This simple revelation makes you want to “sweat the small stuff” to win in the loan modification game.

It’s been two years since I was arguing with th banks about my own loan modifications. After my own frustrations I developed the 60 Minute Loan Modification Kit to help others avoid the pitfalls – every one of which, it seemed, I fell into! I’ve helped hundreds of people get their applications done quickly and get modifications that saved their homes.

In 2010, with so much press about loan mod failures, I’m often puzzled as to why I still get such a high success rate. I’ve come to realize that it’s about what I call “file inertia”.

That is the way I describe how it seems application files in motion tend to stay that way and ones that are stopped tend to stay that way. Loan modification applications must, more than ever before, perfectly presented, perfectly complete, perfectly accurate and perfectly approvable.

Lenders are overwhelmed…that isn’t news. A way to get more time to work on the easy files and get management to cut them some slack is for Loss Mit Officers to reject as many files as they can for whatever reasons are available. There is lots of incentive to get files off their desk and out of their cubicle and the easiest way to do that is to find some way to redirect it for rework.

Items such as unsigned Tax forms, missing documents, expired form 4506-T and inadequate income documentation make it easy to get your file off their desk and over to the fix-it team..

Following are some tips on how I keep files moving toward approval.

Number One: Document Income correctly and show it clearly. This includes, notarizing self-employed P&L, including annual award letters for SSI and EDD income, showing calculations for monthly gross amounts and explaining precisely how your 1099 income has been of late.

Number Two: Handle rental property correctly. This is especially important if you are applying for a HAMP modification.

With 3 or more properties, present your rental properties on a separate form and go to great lengths to make sure they evaluate it separately – the gross income is the issue.

If you only have one or two properties, you may be able to include the income and expenses in your own budget without wreaking havoc with your ratios. Be cautious – these folks are not highly trained and not experienced financial people. The issue is not to diminish your DTI with too much income and have to explain/argue about the other mortgages, etc.

Number Three: Your front-end DTI must be above 31%. If it is not, your application will be rejected – for ANY mod program. This is calculated by dividing your gross household income into your 1^st mortgage payment (be sure to include Principal, Interest, tax and insurance and homeowner’s assoc dues, if any. You must get your income down or your payment up to this degree or it’s not going to work – file inertia or not.

Number Four: Your total indebtedness – aka back-end DTI – should be less than 70%. If it is higher, you will get rejected for too much debt.

Number Five: Be sure you check your credit report (get a free copy each year at www.annualcreditreport.com) to be sure all debt items are present and accounted for on your application.

Number Six: At the end of your budget…after income taxes, debt payments and costs-of-living…you should have about $0 left each month.

Number Seven: In order to be treated within a reasonable timeframe, you must be late on your payments. Most banks require that you be more than 60 days late before they stop halting your loan mod progress with their “Immanent Default” shenanigans.

Number Eight: Make your application perfect…with not loose ends. And, make it easy to understand. Put it together like you are there presenting it…with a cover letter, a table of contents page, with notes to clarify things… imagine you are explaining to a poorly trained, 20 year-old with no finance and no real estate background…because, you are. Use their forms and mark thru the cells you are not using (so they don’t think you missed it) and complete all you can. Sign and date at the bottom left of each page (every person who is on the loan should do so). Put page number at the bottom-right of each page and prominently display the account number in middle-bottom of every page.

If you do these things correctly your application will get approved quickly…not rally. But you will have edged past thousands of other applications that started alongside yours but were stopped along the way.

You also have to follow-up effectively – but, that’s a whole article more!