Hey there! Mike from Mike Buys Houses and today, I was talking to a homeowner who had their loan modification denial from their bank. Since the topic was fresh in my mind, I thought I would also put some information up to potentially help others!
What is a Loan Modification?
In a brief summary, a loan modification is when you and your bank or lending institution come to an agreement to adjust the terms of your mortgage to better allow you to make your monthly payments on time. This is typically done when someone has a rare situation that they are working to correct. The goal for the bank is to avoid foreclosure by adjusting the terms of the agreement to make sure both parties are still benefiting. Please note though, loan modifications are labor and time intensive and the bank does not have to work with you on it.
Due to these taking time to complete, you might be at risk of missing multiple months of payments. Therefore, the sooner you act on this, the better it will be.
Why Might a Loan Modification Get Denied?
There are a multitude of potential reasons for a bank to deny a loan modification, but we have come across four common reasons in our work.
Information Supplied is Incomplete or Late
As I mentioned previously, the timing is going to be absolutely critical with this process. There is going to be a lot of paperwork and many specific questions asked of you. It is easy to miss something or fill in the wrong line. It is also easy to get overwhelmed by all that you need to do, and along with everything else going on in your life, simply put it off or miss a deadline.
A simple trick I tell my clients is to over communicate and ask all the questions you can. Even if it is a basic question, showing that you are engaged and trying to make this work will only help your case. Even going so far as to tell the person you’re working with when you will be trying to complete the paperwork, so you can ensure they are available should you need help.
Of course, you can also reach out to us to give you a hand as well. It is surely a busy time for you, so we’re here to help.
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Lack of Ability to Make the Payments
This one is pretty straightforward, but the bank is going to be extra rigorous in their screening of your financial picture and they are going to want to be absolutely certain you can make the new agreed upon monthly payment. It should be noted that your monthly payment is not guaranteed to go down! It is really dependent on the timing and economic environment.
Lack of Hardship
This is what I was referencing earlier. You can’t simply skip a couple of months of mortgage payments because you wanted to spend your money on a vacation. The bank is going to want a letter approving a temporary hardship and that it has been resolved.
Without some letter detailing why you missed mortgage payments and what is going on in your financial life that you have since gotten control of, you will have a hard time getting approved by the bank. They want to feel confident that the missed payments were a blip on the radar and not a trend of something much larger.
Hit the Maximum Number of Loan Modifications for Lender or State
Ok, this one isn’t that common, but I think it’s interesting.
Depending on which state you live in and which lending institution you are working with, there are varied rules and regulations. Even if there isn’t a written rule, some institutions will work with you once, but if you slip up, they may not be so understanding.
Facing foreclosure is a serious problem and it requires immediate corrections but also long term changes.
If you are facing foreclosure or worried because it seems like you might face it down the line, reach out so we can help!
Missed a Trial Payment
So let’s say you got all of your paperwork in and your bank is working with you through the loan modification. There will likely be a trial of payments that they will institute as sort of a check to make sure you are serious and will make all your payments on time. You really can’t miss making these payments, it’s incredibly critical. If you do miss one of those payments though, it is likely the end of your loan modification request.