Mortgage Loan Modification Negotiating Tips

For some small business owners, trouble on the home front (as in home mortgage front) threatens already precarious business conditions. Home mortgages that once seemed a good source of money for the business now could result in the need to lay off workers or even close. Homeowners with trouble making mortgage payments often hear that their best bet is to contact their lender about a loan modification. They should be well prepared when they do so.

As discussed in this blog post, home mortgages threaten millions of small business jobs in California, and likely other states as well.

Whether the problem making mortgage payments is short term or long term, the best option for homeowners often is to contact their lender to try to work out a new payment agreement. Lenders are not obligated to make mortgage modifications, however it is often in their interest to work out a feasible payment plan for the homeowner rather than foreclose and sell the property.

As discussed in this blog post, the Obama Administration's Homeowner Affordability and Stability Plan included refinancing of qualifying mortgages owned or securitized by Fannie Mae or Freddie Mac to a lower fixed interest rate (see makinghomeaffordable.gov). As reported by the Washington Post, today the Obama Administration announced that the program will apply to previously excluded second mortgages.

In part to help those outside this program, the Obama plan also included $75 billion in matching cash to encourage lenders to agree to mortgage modifications. 

Here are quick tips to keep in mind when seeking a mortgage loan modification.

1. Don't fall for any mortgage modification scams (such as advanced fee scams).
2. To learn how to best make your case for a loan modification, contact one of the HUD Approved Foreclosure Avoidance Counselors in your area. They can also inform you about any federal, state or local programs that may assist you.
3. Get an accurate picture of your finances. Your best chance at getting a modification is to demonstrate the ability to repay and a thorough understanding of the costs and income you face going forward.
4. If the problem making payments is short-term, ask your lender about forbearance or postponement of payments for a limited period. Be prepared to demonstrate when you'll be able to start making payments again.
5. If the problem is long term, and what you need is modification, be prepared to make an offer and demonstrate how you could repay the modified loan. Be sure your lender is up to speed on incentive programs that may be available to help.
6. When negotiating a modification, make sure to understand how it will deal with any fees or penalties that may have accrued. Know what fees are in play and whether the modification will eliminate, reduce or tack them on for repayment.
7. If the lender won't modify and foreclosure looms, consider asking the creditor to "produce the note" (particularly when a creditor other than the original lender seeks foreclosure). It's a stalling tactic, but can sometimes encourage creditors to negotiate.

• U.S. expanding foreclosure prevention plan (L.A. Times)
• Minnesota's foreclosure wave moves upscale (Minnesota Star Tribune)
• Rejected? Call your bank again for a loan modification (Newsday)
• Consumer Alert - Advance Fees and Loan Modification Services (California Dept. of Real Estate)
• Bankruptcy and Mortgage Foreclosure (provided by Debt Advisors, S.C.)