File Name: 05.28.09.LoanMod.Demystified
Duration: 00:44:35
Ryan Rockwood: Hello everyone and welcome to the call. Welcome to the 60-Minute Loan Modification Insider Secrets Teleconference Series. We’re here to beat the bank, save your home, and help you escape bad debts forever. My name is Ryan Rockwood and as usual, I’m joined by my father and business partner, Mike Rockwood, on today’s call.
Mike Rockwood: Hello there everybody.
Ryan Rockwood: We spend most of the day dealing with loan mod applications. Give me one sec here. I’m told that we might be having some technical difficulties. Okay, fantastic. Looks like we’re back online and I hope everyone can hear us. If you can’t, if you’re having some problems…
Mike Rockwood: Tell us if you can’t hear us.
Ryan Rockwood: E-mail us at – if you can’t, yes, that’s not going to work isn’t it?
Mike Rockwood: No, it isn’t.
Ryan Rockwood: All right. To e-mail us with questions for today’s call is help@60minuteloanmodification.com. All right, we’ve got a couple of announcements before we start the call today. We spend most of the day dealing with loan mod applications. And just to be clear, we’re talking about physical applications. In 99% of the cases you must submit by fax or mail a physical application that will include your household financials, your tax forms, proof of income, and hardship letter.
Here’s why I’m saying this. Talking on the phone with your lender does not mean that you started the loan mod process. Many clients have a chat with their lender and then are under the impression that something is happening and that their lender is working on their modification. And it’s tough too because sometimes they actually do give you indications that something’s happening or that something might happen better in the couple of weeks and that you should call, that we’ll wait and see or something like that. That idea and you can’t call them back if you lose your house or if you don’t have the money for the payment and tell them that you thought they were working on it. This is not going to fly.
Mike Rockwood: Your bad.
Ryan Rockwood: Yes. Use your workbook. Present your story dearly. Submit a physical application as soon as humanly possible. Announcement number two, we do not recommend that you call your lender until you got your story straight. Now, of course, everything can be fixed afterward just about everything. But why go through the hassle, right?
Mike Rockwood: Yes, but Ryan, there’s a half of dozen things, big mistakes that you can make early on if you’re not prepared and you start the process early, right?
Ryan Rockwood: Yes, definitely.
Mike Rockwood: We’re always warning people about, you know, you want to make that call quickly but you don’t want to make it until you’re really ready.
Ryan Rockwood: Yes. By your story, what I mean is you must present your income and expenses in the correct ratios or you will kill the deal immediately. I would say that 70% of the people that would qualify for a loan modification will get denied immediately by the bank because you need someone like us who’s an advocate for you, telling you how to do it, in other words. And that’s what happens with the majority of our clients that they have been turned down but they say “Gosh, I feel like I was such a good applicant.” So keep that in mind.
Use our workbook as a guide. Copy our successful examples. It will make all the difference in your negotiations and conversations with your lender. Also, be sure to listen to our phone tap CD before you make any call to your lender if you’re in any way intimidated.
Mike Rockwood: That’s a good one.
Ryan Rockwood: That CD is literally phone tapped conversations with real lenders and borrowers. And I’m sure there’s nothing fancy about this. It’s literally, ultimately, totally boring to anyone that’s not going through this but very, very helpful when you feel like you’re the first person in the world to ever call your lender and ask for a loan modification, you feel awkward, you don’t know what to say. It seems it’s just the unknown, right? It’s something that every one of you should listen to all the way through.
Announcement number three, we are looking for real estate agents and entrepreneurs for a team of partners. If you’re self starter who wants to get involved in helping people save their homes, please e-mail help@60minuteloanmodification.com now. We’ll be having a special teleconference in about 10 days’ time to talk you through how you can help us and yourself at the same time. All right, on with today’s call. Today’s topic is DTI or Debt-To-Income Ratio Demystified.
Mike Rockwood: All right. Are you ready for me?
Ryan Rockwood: Yes, go for it.
Mike Rockwood: Okay. Ryan, before I jump into that, I want to mention a couple of other things first. And one of them is, in a teleconference earlier today with some other loan mod experts around the country we’re really brainstorming why people are having trouble getting loan modifications, what the biggest road blocks are, and several of these guys are do it yourselfers like we are. And when we really put our minds to what we really realize, it’s not because of guts. It’s not because people are intimidated by the whole process. And it’s certainly not because of brains because the process is really quite simple.
And it’s not for money or for lack of money. I mean sometimes people say you’re not going to – they don’t want to do it themselves or they don’t even want to hire somebody like us to help them do it because they don’t want to pay the little fee that we charge or pay us to do it ourselves, do it for them. So, it’s not money. It’s not brains. It’s not guts. We really came to realize that it’s really follow through.
Very often, people know themselves well enough to know that this is kind of a lengthy process and it does require some follow through. I’m sure, Ryan, you’ll agree that so many of the clients get bugged down in just gathering the documents getting ready to put together the application.
Ryan Rockwood: Yes, well personally, I’m one of those people. I mean, I’m one of those people that would get real caught up in what my net income is and work on that for a couple of weeks.
Mike Rockwood: Yes, and then getting all the documents together just following through and making it happen even if it takes two or three days to get it all together. It shouldn’t but for some people, it will. You know what I mean? You don’t know where you keep your taxes.
Ryan Rockwood: And that’s why you hire someone else to do everything in life, right?
Mike Rockwood: Yes.
Ryan Rockwood: And so hopefully our kit will kind of be another person for someone.
Mike Rockwood: Yes.
Ryan Rockwood: And say, hey, that’s not so serious. Crank it out. Estimate your net. What’s your budget? This is what other people’s budget are. Here’s what a budget sheet looks like.
Mike Rockwood: Yes.
Ryan Rockwood: So, consider it your buddy.
Mike Rockwood: Right. So, there’s the follow through to get all that stuff done. And then there’s the follow through after you submit your application, you know, to follow through the consent. What we recommend is a daily fax routine in order to keep your loan modification application on track.
So, it really is we think follow through that is the biggest hurdle. So, all of you could take a personal assessment about and kind of redouble your efforts to follow through and make this thing happen because really, it is the single biggest thing that you can do to improve your financial 2009. You know, it can dramatically improve your month-to-month budget by $200 or $800 or more. One of our clients recently got a $2,400 per month reduction with her loan modifications. So, this is a big deal.
Ryan Rockwood: A lot of the people on the call are thinking my mortgage isn’t $2,400.
Mike Rockwood: Yes.
Ryan Rockwood: And to those people, you’re very fortunate.
Mike Rockwood: Now we’re out in la la land in Los Angeles where it’s not uncommon to pay $5,000, $7,000, $8,000 a month on your mortgage expenses. All right now, a couple of tips that I want to reiterate that has come up really since Tuesday’s call that I want to remind people about those of you who have investment properties and multiple properties, couple of tips.
Number one is you got to use that Schedule of Real Estate Owned in order to segregate your real estate business from your personal profit and loss or your personal monthly budget. So, keep the income and the expenses on the real estate owned schedule and keep those off of your budget. Don’t show the rental income in your income line. Don’t show the expenses in your expense line. Just enter one expense line item for your monthly loss. And it’s an important way to do it to keep it straight so that your debt-to-income ratio and other ratios don’t get all messed up.
Ryan Rockwood: You have to document though.
Mike Rockwood: Oh yes, you have to document them. But that’s how you keep them straight. And that’s how the ratios that we talk about and that everybody is talking about with loan modifications make sense. And then also multi property people, I want to reiterate that I always recommend that you start with your personal primary residence. Do a modification there first. You will learn so much in that modification. You’ll get so good at it that as soon as you submit that application, you will feel so energized and so ready to take off after all the other mods that you can do all of them very quickly after that. But do your primary residence first. After all, the bank gets the biggest incentive to modify that mortgage so you’re most likely to hit a homerun with that one.
All right, and then also I want to remind people that a lot of folks with multiple properties use a multiple approach. In other words, on some properties that they are crazy upside down like in Florida, some of the places that are like 70% underwater. On many of those you might just want to pursue a short sale strategy along with your loan modification strategy and we can help you with that. We service clients all around the country with short sale services. So, keep us in mind for that.
All right today’s topic is Demystifying Debt-To-Income Ratio. And I really want to talk about all the ratios that we use. Remember what the bank – and we’re addressing now one of the three main criteria that the bank uses to determine is they’re going to modify your loan. And that is, do you qualify? Do you have enough money? Can you make the payments? So, it’s the same underwriting criteria that they use when they gave you the loan.
Ryan Rockwood: So similar.
Mike Rockwood: It’s similar but it’s not nearly as – they don’t scrutinize your income and your expenses nearly to the degree that they did when they first gave you this mortgage. But here’s what I want you to remember. Your debt-to-income ratio and all the ratios are just as simple as it sounds.
Ryan Rockwood: They don’t sound simple. That’s the problem I think people…
Mike Rockwood: No, if you just take a minute and think it through, your debt to your income is a ratio that gives them an indication of how much debt you have taken on. If you purchase too many cars and you use too many credit cards and you stretched up in to a mortgage, your debt-to-income ratio – in other words the amount that you pay each month on debt to the amount that you bring in, in income each month is probably more than 70%.
Ryan Rockwood: So it makes more sense to me, but with something like debt-to-income percentage.
Mike Rockwood: There you go just put it that way then.
Ryan Rockwood: Because I’m like what?
Mike Rockwood: Which is the numerator? Which is the denominator?
Ryan Rockwood: Exactly.
Mike Rockwood: Yes, okay. All right, so; I want to run through a quick example. And most of the confusion in this regard comes because the industry itself uses HTI and DTI interchangeably and they use them incorrectly. And different lenders use different numbers to calculate DTI.
So, it seems confusing because it absolutely is confusing. And what we coach you to do is to submit an application that fits into the ratios as we explain them. But certainly, they will then fit into the ratios that your individual lender uses. For instance, some lenders strictly use gross income when calculating debt-to-income ratio. An awful a lot of lenders for an awful lot of months had been using net income. And a lender who this month is using net income may next month start using gross income. But it does not matter because their ratios then change. All you need to know is how to prepare your application accurately. Okay.
So, don’t overly consternate over whether or not you are calculating it the way your bank will calculate it. You just have to calculate it in such a way that it makes sense and is in within the guidelines that we give you. And then no matter how your bank is calculating it, it will fit into their guidelines as well. Let me give you an example.
There an awful lot of households. Let’s just say our example household grosses $70,000 a year. Primary breadwinner brings in $50,000 and a secondary brings in $20,000. So, we have a gross income of $70,000 or $5,800 a month. That’s about $5,000 a month in net income. Now, how did I get that? Well, I multiplied $5,800 times 0.85 because an awful lot of many, many millions of us pay about 0.15, about 15% of our gross income in taxes. Most people think they pay more than that but at the end of the day, after all your good deductions, that’s probably about all you pay.
Ryan Rockwood: It might be simpler to say you calculated 85% of the monthly income.
Mike Rockwood: Right. So, let’s take 85% of our $5,800 gross and that’s $5,000. Now, let’s just say this hypothetical family has two mortgages. The first one, the payment, principal and interest is $2,400. You guys are going to have to write this down. The payment is $2,400. Tax and insurance is an additional $300. The second mortgage is $300. Credit cards are $250. That’s the minimum payment. It’s very important. And their car payment is only $250. They got one of those $199 special deals, the special Honda deals.
All right so their total debts every month that they make payments, the total debt payments are $3,500. Now, as a percentage of their gross income, that’s 60% and that’s right well within the guidelines. As a percentage of their net income that is 70%, still well, within the guidelines.
Ryan Rockwood: Well, isn’t that a little bit higher?
Mike Rockwood: 70% is pushing it. Yes anytime you get up over 70%, you’re on the bleeding edge. So, that one’s close. But let’s pick this apart a little bit more and understand these ratios because a lot of people get caught up in, what is this 31% and 38% that the Obama plan, the Making Homes Affordable Plan talks about all the time?
So, wait a minute, before I leave DTI let’s just review how we got there. I added up all your debt payments and I got $3,500. You make $5,000 a month net. That means your DTI is $3,500 divided by $5,000, and that gets you 70%. And that person would qualify for a loan modification. Their DTI would be within range.
Now, their first mortgage principal and interest only was $2,400. That happens to be 41% of their gross income. And the reason I bring that up is the Obama plan uses gross income divided into your first mortgage payment to compensate the banks to begin their calculation for their compensation to the banks and to give them guidelines for modifying your mortgage. Boy, I hope I’m not overly complicating this. Am I Ryan?
Ryan Rockwood: Yes, but just, I think, burn through it a couple of minutes. And a lot of people, who are just listening in their cars or something, don’t hang up. We’ll get over it this hump in about three minutes. But if you are in a computer or some place where you are able to write, please take a few notes, write this down. And if a question pops into your mind, be sure to write it down too, help@60minuteloanmodification.com is the e-mail. All right.
Mike Rockwood: All right, so your debt-to-income ratio, that first underwriting pass, should be in the range of 45% to 70% or 45% to 75% is really getting quite high. Now, I mentioned that their first mortgage payment principal and interest only was $2,400. And I wanted to bring that to your attention because that is 41% of this family’s gross income. So, the banks would begin to analyze how to help this family with a loan modification by figuring out how much they needed to lower their interest rate to get that payment to down into the 38% range. And that’s only a few hundred dollars.
So, with very little effort, their lender is going to be able to take their mortgage down into the 38% range at which point they qualify for significantly more government help to bring it all the way down to 31%. And 31% of $5,800 is $1,800. So, this couple would likely be offered a $600 reduction for a modification on mortgage payment, number one, their primary residence, their first mortgage.
All right, so you see how these ratios are used. That one would be called HTI when you’re talking about first mortgage divided by your gross income. Now, all these ratios are really not intended to confuse anyone. They are just ways of expressing the debt situation that the borrower is in so the underwriter can determine if, in fact, they may have too much debt or, in fact, they may not need help, right. I mean if your HTI was 29%, they’re similarly going to reject your application for a loan modification simply because you do not need the assistance.
Ryan Rockwood: Okay, want to answer a quick question on this?
Mike Rockwood: Yes.
Ryan Rockwood: What is debt? Someone asked. First it seems simple enough.
Mike Rockwood: No. I should certainly have addressed that. In this case, we are talking about the debts that show up on your credit report.
Ryan Rockwood: So, a car is a debt?
Mike Rockwood: Your car loan is a debt. Your credit cards are debt. And you have to know what payment to use. On your credit card, it is absolutely imperative that you use the minimum amount because that’s what the bank will look at. And it’s imperative that you – I always recommend to people that they get a credit report while they’re going through their loan mod application process because some people, strange at seems, I’ve done it myself, forget that they have a particular debt.
Like, let’s say, you leased a car and in the second year of the lease, you gave it to one of your kids to use and they’re making the payment. You kind of forgot that it was there. You forgot to mention it. Well, the underwriter, looking at your loan modification, will not forget because he’ll be looking at your credit report.
So, in this case we’re talking about any debts that are on your credit report. Now, whether or not you include the debt payment that you make because you borrowed $5,000 from your folks a year ago and you’re paying them off at $500 a month, that’s up to you. That’s your business. But the bank will expect to see all your car loans, all your credit cards, installment debt, any kinds of indebtedness that you have and they’re going to want to see that monthly payment with all your housing payments to be in the 45% to 75% range, really 65% to 70% range of your income.
Ryan Rockwood: Paul asked, “Is it correct to apply only the debts for the primary residence on the personal budget? And is it correct to apply only the mortgage payments on the rentals, on the Schedule of Real Estate Owned mortgage payments on the rentals?” I really know that…
Mike Rockwood: Well, the first part of the question is an absolutely killer question and that is really good. Now, let’s say there are husband and a wife. The husband is the only on the mortgage, let’s say. The wife has a good income and she has three credit cards in her name only. Those do not need to be included on the loan modification application, neither does her income. It’s entirely up to you whether or not you include either her expenses or her income or any part thereof.
Ryan Rockwood: I wonder if Paul is asking something differently though because he’s asking, is it correct to apply only the debts for the primary residence? Not the primary…
Mike Rockwood: Oh, primary residence. Oh not person. He means the home.
Ryan Rockwood: Apparently. Oh maybe. I mean, what I think he means.
Mike Rockwood: I think he means…
Ryan Rockwood: Does he mean residence [phonetic]?
Mike Rockwood: Yes. You know like…
Ryan Rockwood: Yes.
Mike Rockwood: It ends in a T, you know. That’s right that he meant. And then with regards to the Schedule of Real Estate Owned, what do you think he means by primary residence?
Ryan Rockwood: Well, let’s just tell him what he does have to include and I hope that he can…
Mike Rockwood: Okay. The beauty of the Schedule of Real Estate Owned is that…
Ryan Rockwood: What is the Schedule of Real Estate Owned first of all?
Mike Rockwood: First of all, if you own more than one property, if you own any property that you do not live in, put it on a separate schedule of real estate owned. On that schedule, you list all the indebtedness that has lien against the property. So, your first mortgage, second mortgage, any HELOCs, anything you have against that property. And you list how much rental income you get from it. And you list any expenses that you have. And all this is very easy to do. It’s on an excel spreadsheet on the Black Belt CD. And it’s also in a hard copy as an appendix in my workbook.
Ryan Rockwood: Do you know what the folder or step that is?
Mike Rockwood: Yes. It’s in step number six.
Ryan Rockwood: Step six? But basically, it’s different from the primary in that all of your expenses, if I remember correctly, go in one cell. So, you just add them up and plunk them in there, right?
Mike Rockwood: Yes.
Ryan Rockwood: And all of your income from the property goes in one. You don’t have to itemize it.
Mike Rockwood: You don’t have to itemize it.
Ryan Rockwood: And then your mortgage payment goes in another. So, it’s extremely simple. You know, it’s like a…
Mike Rockwood: It’s very easy to do. And a lot of people – and you can use it to fine tune your net income from your Real Estate Owned. In other words, whether or not you spend $100 on lawn care at a particular income property, a particular rental that you have is your business. And whether or not you include that on your Schedule of Real Estate Owned is your business. And whether or not you pay a manager is your business. So, whether or not you include it there is your business. So, this is a great tool for modulating your income to be able to hit the target that the bank wants you to hit in order to give you a loan modification.
Ryan Rockwood: So, I got another question here coming in online. And online, you can ask questions by help@60minuteloanmodification.com. Also, we’ll take a few callers in a second. Feel free to speak up. You just say your name. I’ll acknowledge your name and then we can get your question. And if you would, please mute your phone right now so that we can’t hear the background noise when we go to questions, okay?
I got another quick question here coming in online. “What level of back-end DTI would disqualify someone from getting a loan modification? The government guidelines seem to say 50, some resources 79. And many people talk about the magical $500 cash flow leftover after expenses. Yet other resources state the back-end DTI standards are being relaxed as of industry-wide experience. I think this guy’s maybe listen to our calls because this is a lot of what we’ve been talking about. The $500, the budget, we go as high – what do we say, as high as 78% DTI?
Mike Rockwood: Yes. We have gotten them approved at 78%.
Ryan Rockwood: What does he mean? What does this mean, back-end DTI?
Mike Rockwood: Yes. That’s what I’m struggling with. I know I’ve heard the term and used the term but I forget the back-end DTI? Who’s the caller?
Ryan Rockwood: You know it doesn’t have a name. Caller, why don’t you shoot us an e-mail?
Mike Rockwood: Remind us with back-end DTI.
Ryan Rockwood: At help at DTI, help@60minuteloanmodification.com. We can’t answer it on this call. We’ll answer it in a follow-up e-mail. But let’s just assume that you’re just talking about DTI.
Mike Rockwood: Yes, I think that may be only on your primary residence that debt-to-income and it may at even be only your first mortgage on your primary residence. That maybe back-end DTI, it may be the calculation that Making Homes Affordable Program is supposed to use what I referred to a little bit ago as HTI. And if that is over 50%, I don’t think there is that limit any longer. And you are correct in that the guidelines are being loosened, loosened, loosened and I think that has as much to do with the fact that we’re having a hard time slowing the increase in the numbers of foreclosures. So, the banks are getting – now they’re getting paid significantly, and now they’re under all kinds of pressure to stop these foreclosures because the rate of foreclosures is, in fact, accelerating.
So, it’s kind of all hands on debt. We got to modify, and modify, and modify. So, I think that’s part of the reason why we’re seeing some of the underwriting guidelines loosened. Obviously, it’s in their best interest and it’s their best hope for keeping that mortgage alive is to keep the family that’s in that home, in the home making some payment. So, the tables have really turned from last fall. Now when you call the lenders, they are ready to take action. They are ready to move quickly, they’re ready to wham bam, thank you ma’am. If you have your ducks in a row, you’ll get a good loan modification these days.
Ryan Rockwood: Okay, got another question on that debt. And what I’m going to ask this caller to do or listener to do is speak up when we go to callers because the question is, what is debt? And my guess is maybe there are some specific examples of gray areas that we could negotiate because I think we answered that pretty fruitfully [phonetic] as much as we can out of more info. Kevin asks, “When it comes to the medical bills and dropping income, should I give them actual numbers upfront in a hardship letter or only if they ask after they receive my letter?”
Mike Rockwood: I wouldn’t give them any numbers, any numbers at all. Shame on you. The only numbers in your hardship letter should be your zip code.
Ryan Rockwood: Oh, come on. What about – when you say, I had to spend over – if it’s impressive, you know.
Mike Rockwood: No, that’s true. Not bad, yes.
Ryan Rockwood: I had to spend – it costs over $30,000.
Mike Rockwood: Yes, okay. I take it back. I take it back. That’s good. And then also – I said that I realize we always recommend that people ask for a very specific amount of relief.
Ryan Rockwood: Yes. The other thing is that – but it’s not very impressive like it’s like $5,000 or something.
Mike Rockwood: Yes or $750. Yes, I’ve had people…
Ryan Rockwood: With a little bit more gray there.
Mike Rockwood: Yes. Go that way. But listen, the premise that he mentions there about saying as little as possible is one, it’s got to be our mantra, is say as little as possible. And honestly if you use your ears and listen to these people, they’re almost telling you and begging you to give them the right information these days. So, listen carefully to what they ask for and then give them exactly what they ask for. And if it suites you and the modification offer that you get is good, don’t give them anymore information. You’ll just confuse them with the facts.
Ryan Rockwood: Now Kevin, I want to remind you that as part of the loan mod kit, there is a coupon in there that entitles you to a complete e-mail review of your hardship letter. Use that. A lot of people let that go to waste. And there’s really no reason to get that to us. We actually read them and work on them and send them back to you. So, you’ll know 100%, you feel a lot better about it if you run it by us.
Mike Rockwood: Hey, and then you know that the examples that we give in the book too are really good ones, Ryan.
Ryan Rockwood: Examples of what?
Mike Rockwood: The hardship letter.
Ryan Rockwood: Oh, okay.
Mike Rockwood: That is really good.
Ryan Rockwood: Oh, okay. Yes, the hardship example, what page are those on?
Mike Rockwood: The application hardship letter, they’re on page 52.
Ryan Rockwood: 52. Okay, so Kevin, check around 52 for other examples of some ones that have actually been sent in, in the past or approved. Okay, Kevin asks, “Is the first mortgage equal mortgage payment plus insurance plus taxes?
Mike Rockwood: The correct answer is yes. And when you’re calculating – when you’re using it to calculate your DTI, the lender will actually strip off the tax and insurance when they go to begin the process of figuring out how to address your particular problem and when they go to figure out your HTI.
Ryan Rockwood: All right.
Mike Rockwood: So, the good way to think about it is include tax and insurance. Include a full PITI payment in your indebtedness portion of your monthly budget.
Ryan Rockwood: Okay, let’s jump online here and see if we have a few callers that we could take questions from.
Marvin: Hello.
Ryan Rockwood: Hi, there. What’s your name?
Marvin: My name is Marvin. My mortgage broker is fortified. It’s time for me to get my loan modified. Thanks Ryan and Mike, I’m feeling kind of lucky.
Mike Rockwood: All right, Marvin. How can we help you tonight?
Ryan Rockwood: Somebody’s just been [Indiscernible] Marvin completed [phonetic] his loan mod. I don’t think so.
Mike Rockwood: Yes that was good but I hate to hear about the death of a mortgage broker.
Ryan Rockwood: Yes. I think that’s why he probably called.
Mike Rockwood: Oh, okay, you think?
Ryan Rockwood: Okay. Next question. Who else is out there that we can help? Hey how about the callers that has the debt question. Are you there? We’ll give you a few more minutes and we’re going to go back to…
John: Hello. This is John.
Ryan Rockwood: Oh, John.
John: Yes, I have a question. Once you start the process here, you mail in a hardship letter and for the workbook and everything if you’ve done all that, if you go longer than, say, 30 days [Indiscernible] settle on a modification, when do I [Indiscernible] the next mortgage payment? Let’s say it’s been like another payment coming up and you haven’t work with the modification. Should I get that or meaning [Indiscernible] that mortgage payment in order to hurry up the process?
Ryan Rockwood: There’s a follow up here. Are you able to make the payment?
John: Well, yes. I’ve already skipped one mortgage payment so yes, I couldn’t make the next one but I don’t know if that would hinder or be contrary to my argument that I need a modification if I can make the second in the meantime.
Ryan Rockwood: Okay. I’m going to mute you and repeat the question and give you good answer. Thanks for the time. All right, go ahead. So, basically the question the caller asked for those of you that couldn’t hear because it’s a little fuzzy. He’s in the process of a loan modification right now. Should he make the payments in the meantime?
Mike Rockwood: And now, he said he had already missed one and so he already got their attention. So, he’s already realized that in this loan mod frenzy, you really do have to miss a payment, unfortunately, to get respect. Isn’t that crazy?
Ryan Rockwood: Well now, at one point – maybe you can just – can you just not make payments now? I mean you’re going to have to pay it eventually, right?
Mike Rockwood: Yes. So, to some extent, it doesn’t matter John because all the missed payments, all the interests and all penalties, you are going to have to pay. Either they’re going to tack them onto your loan or they’re going to put you on a repayment plan and ask you to catch up over a period of three months or something.
So, technically it doesn’t really matter. Now that you have missed a payment, you are getting the respect that you deserve before having missed one. But now that you’ve missed one, you’ve got their attention. So, I don’t think you’ll get additional attention or additional urgency put on your modification because you’ve missed two or three.
Ryan Rockwood: Maybe you should though because then they might ask you to make upfront payment to get this modification started. And at least you could say, hey, I can make one pay if you got that money saved up.
Mike Rockwood: Yes. It’s a strategy that I have used extensively. In fact, my strategy always was to just stop paying until they give me modification. And it still is. But that’s my taken and that, of course, hurts your FICO score more than – and you can minimize the hurt if you want too. But my idea, because I was going for several modifications at once, was get all the hurt out of the way. So, I just stopped the payments, stuck that money in a savings account, had plenty of money to wheel and deal when I wanted to get on the repayment plan in order to get back into the loan modification with the lender.
But it really is entirely up to you, John, 30 days these days is not too long to be waiting. So, it’s really – it’s your call whether or not you miss another payment. You miss another payment; you will get another FICO hit. So, it’s really up to you.
Ryan Rockwood: All right.
Mike Rockwood: Can I talk a minute about…
Ryan Rockwood: Yes, go ahead.
Mike Rockwood: Let me talk a little bit further on the personal budget because a lot of lenders, like I’ve been saying lately, have started to after your debt line on your monthly budget. We all know where your income line comes from, then you subtract from that your debt line what you pay monthly on your debt. And that leaves you some percentage of your income, 30% to 50% of your income for discretionary or cost of living expenses.
Now, a lot of the big lenders that are really moving fast have started to use statistics for your size family in the county in which you live. And those are the statistics that they apply. So, they don’t even ask you for an itemization of your utility bills, and your groceries, and your gas, and your car insurance and what do you spend on medical and stuff like that. They don’t even ask anymore a lot of them. But you got to be kind of careful of that because it might not be at the statistical average. If you have a high medical expense, you want to be sure that you itemize that. If you have for your work reasons, you have a high gas expense or a high food expense for any justifiable reason you want to be sure to include that.
So, in your cost of living expenses, don’t short circuit it just because the lender does. You know, the lender might apply $1,100 to a family of three or $900 to a single person or something like that for cost of living expenses. Don’t just accept that because yours might be slightly more. And remember the bottom line at the end of the day; your monthly budget needs to be no worst than $500 short every month and no better than $500 extra every month. You just have to trust us on that one. That’s reality. If you’re anywhere outside of that, you’ll get busted. You’ll get rejected.
Ryan Rockwood: Someone today called in, you know, it’s a constant source of frustration. The question was really, I can’t qualify for the loan. But if I figure out the budget with the modified mortgage, it makes sense.
Mike Rockwood: Yes.
Ryan Rockwood: And unfortunately, that just won’t apply.
Mike Rockwood: That just doesn’t apply. All right so, is that clear? So, we’ve really covered –really, we’ve covered the personal budget.
Ryan Rockwood: So, let’s see if we have another – I think we have one more call and then we’ll wrap it up.
Mike Rockwood: Okay.
Ryan Rockwood: Hi, anyone have a question?
Art: I do. Yes, hello.
Ryan Rockwood: What’s your name?
Art: My name is Art and I have a question. I just e-mailed you a question. I am with IndyMac and I tried to negotiate. They sent me some kind of forms. They told me they’d only start negotiating if I send them in the pay of $1,900.
Mike Rockwood: Okay. They’ll only start negotiating?
Art: To start negotiating. Pardon?
Ryan Rockwood: How behind are you in your payments?
Art: Two months.
Ryan Rockwood: Okay, just two months behind.
Art: Two months behind, I called them and they told me get onto my own websites. And I got on to it. I signed up and I was told to – if I make…
Ryan Rockwood: Did they allow you to fill out an application for a loan modification?
Art: Yes. They sent me an application. They sent me paper works. And basically told me that I can get it down from 6.5% down to 3% if I can prove to them income between $5,000 and $7,000. But in order to do anything, I got to send them first $1,900.
Mike Rockwood: Holy cow.
Art: My mortgage payment is $3,100
Mike Rockwood: And you got a $5,000 to $7,000 monthly income?
Art: Yes.
Mike Rockwood: Oh boy, this is going to be a sweet one then. I would really play ball with these guys, IndyMac for all the bad press they got.
Ryan Rockwood: I’m going to mute him so that people can…
Mike Rockwood: Okay.
Ryan Rockwood: Let me repeat it. Basically the question was, Art is two months behind and he’s got – it sounds like he’s just too much behind. It sounds like he’s on the verge of a nice modification with IndyMac. It’s not guaranteed. You know what I mean?
Mike Rockwood: Yes. No, definitely not.
Ryan Rockwood: It’s not like it’s guaranteed but they say that they will not proceed unless he makes that payment, a payment of $1,900.
Mike Rockwood: And you know, I can’t say that that’s very common, Art. It certainly is if you are more than three months late. But if you’re only two months late, it’s really pretty unusual for them to ask that. But who cares if it’s $1,900 which is significantly less than your monthly payment. And they are insinuating that they’re going to give you that kind of a modification. That’s a kick butt modification. So, I guess I would play along with them. IndyMac really does follow rules. I mean, crazily follows the rules. So, don’t miss a single deadline. And honestly, I found them very, very trustworthy, but again very – wow, just crazy about their rules.
Ryan Rockwood: Yes it’s weird is that there’s so much variation.
Mike Rockwood: Yes.
Ryan Rockwood: There’s one person could have to do something. It’s just wild.
Mike Rockwood: Yes and where do they come up with the $1,900? Maybe that gets you within – maybe that brings him down to only 30 days late or something. I don’t know. I don’t know, Art
Ryan Rockwood: [Indiscernible] because $2,100 is just payment, I think.
Mike Rockwood: Oh, I thought he said $3,100.
Ryan Rockwood: Oh, maybe. You know, the other issue is that, Art, you want to just make sure you’re not getting scammed. There are a lot of crazy mailers that you might get that look official and websites that look official.
Mike Rockwood: Oh, especially with IndyMac. They all get jumped on IndyMac. Yes. A lot of law firms are using the IndyMac logo and, yes.
Ryan Rockwood: So, who knows? You might be paying some dude in Mumbai
Mike Rockwood: No, if you’re sure it’s your lender, and then it sure it doesn’t sound like a bad offer to me. And honestly, more and more, I’m advising people to go along with these offers because the banks are getting pretty aggressive. They’re getting compensated well. And so now to a greater extent than it used to be, we’re going to work with the banks to make these things happen fast. That’s the key these days is to get – submit an application that is so complete that has every tea crossed and every I dotted so that they can just, boom, approve it and only have to talk to you once or twice.
Ryan Rockwood: All right, well that’s our call for today. Thank you everyone for joining us. I really hope that you got some great stuff out of this. And just a reminder, tomorrow, sorry, next week, we are going to our new format. Thank you so much for joining us on the 60-Minute Loan Modification Insider Secret Teleconference Series tonight.
With all the stress and money worries most of us have right now; it’s easy to lose sight of the smaller issues that are under your control. And your mortgage is one of those things. Loan modification in a nut shell is about taking that $1,500 a month payment and lowering it to $1,100 a month or taking a $2,400 payment and getting it down to $2,000 $1,800, whatever – basically whatever it is, insert your numbers here.
You’ve already spent the money to buy the house. Even if you put nothing down, remember your closing cost, your moving expenses, all that stuff adds up. And moving is going to cost you too. So, you are invested here. So, if it makes sense for you to stick it out at least the next 12 months or so, then you’d be crazy not to modify your loan. Save some money, lock in a better rate and move forward with at least one battle one.
If you don’t already own our 60-Minute Loan Modification kit, do yourself a favor. Get it now. We guarantee your success so there’s no risk to you. Aside from our paint-by-number system, you’ll also get free coaching calls and a free critique of your hardship letter and expense worksheets. Full info is available at 60minuteloanmodification.com/products.
As always, we’re huge advocates of the Do-It-Yourself Loan Modification but that does not mean you should do it alone. We’re here to help. We spend most of the day on the phone, so e-mail is the quickest way to get a fast response to any and all questions. Please e-mail us at help@60minuteloanmodification.com. Thanks for joining us. We’ll see you on Tuesday.