We worry as REALTORS about the impact on the housing market, our clients, communities and our own livelihoods, if we're really honest! Unfortunately I still have several conversations each week with those who are in trouble financially with regard to their current mortgage and may be sinking further by the day.
In all of the turmoil of the past weeks many have lost sight of the potential relief that is available for home owners in the form of the new housing bill (HR 3221, Section 1403) which was signed into effect on July 30, 2008. This bill requires mortgage servicers to modify loans for homeowners if they meet the requirements which are as follows:
- They are already or will soon be in a defult situation on their mortgage
- They are living in the property and it is their personal residence
- A workout or loan modification would represent a larger return to the lender than would a foreclosure
Since most borrowers make their monthly payments directly to servicing companies it is critical for consumers to understand that the law requires these servicers to act in the best interest of the investors who actually own the mortgage. That means modifying the loan if the borrower can afford the modification terms.
Often borrowers who are in trouble tell me of the maze of frustration they experience when they try to contact their lender to attempt to work something out. It is critical to keep the following in mind when in this situation:
- Make sure you are dealing with the lender's loss mitigation or work out department!
- You will need to write a "hardship" letter detailing why you are in default or soon will be. Details like job loss, medical problems, divorce/separation, overextended credit, adjustable interest rates; anything that makes it impossible for you to keep making your payments. You must demonstrate that you are or soon will be in default in order for the law to require the lender to work with you.
- The lender will require you to complete a financial statement including recent pay stubs, tax returns, household expenses vs. income, debt obligations, etc. All of this will demonstrate your ability to pay on a modified loan arrangement.
- You will need to provide your lender with a recent appraisal or have a REALTOR prepare a comparative market analysis of your home showing recent sales and current homes for sale in your area. You will need to demonstrate to the lender that, by modifying the loan, the lender stands to lose less money than if they were to foreclose on the property.
A sample letter that can be used during your negotiations is:
Should your lender refuse to work with you as per the terms of the law it may be appropriate to contact an attorney or legal assistance organization to ascertain your rights and the next steps to follow.
It is in the best interest of everyone if borrowers are given the opportunity to modify their mortgage terms and can remain in their home. We all need to spread the word!