On July 30, 2008, section 1403 of the new housing bill (HR 3221) was signed into law.  This law requires mortgage servicers to modify loans for homeowners and help them avoid foreclosure as long as three requirements are met:

1. Default on the mortgage either has already happened or is “reasonably foreseeable”
2. The home owner is living in the property as his or her primary residence
3. The lender is likely to recover more through the loan modification or workout than by forcing the home owner into foreclosure

Here's how it works; borrowers make their monthly payments to mortgage servicers, and servicers keep a portion of the payment as their profit while sending the rest to the Wall Street investors who actually own the mortgage. The law requires servicers to act in the best interest of all their investors (note #3 above) and obligates them to modify your loan if you can afford the modified loan terms.

When negotiating a loan modification with your mortgage lender, it is advisable to follow this four step process:

1. Make sure you are dealing with your lender’s loss mitigation and/or work out department.
2. Write a hardship letter demonstrating job loss, serious medical condition, balloon payment coming due, adjustable rate reset or some other financial calamity that will make it impossible for you to continue making your mortgage payments as scheduled (imminent danger of default).
3. Send the lender your financial statements, employment records, tax returns and bank statements demonstrating how you would be able to afford the modified loan terms.
4. Send the lender a current appraisal of your home or some documentation on recent comparable sales in your neighborhood demonstrating the current value of your home to demonstrate how the lender is likely to recover less money through foreclosure than through your proposed loan modification plan.

Here is a sample letter that you can use during your renegotiation: http://www.cmpsinstitute.org/pdf/SampleLoanModificationRequest.pdf

Be advised : consult an attorney immediately, if you see any problems
during the process.  

The era of easy credit is over. Banks, suffering from bad loans, have become much pickier about who will get a loan. Loans are still available to those with good credit, but those with a less-than-perfect record have a much higher mountain to climb.

Todd Mark, Consumer Credit Counseling Service of Greater Dallas, said that to get the best interest rates, consumers now must have a FICO credit score of 720 or above-a substantial increase from previous standards.  Lenders also are upping their bottom line for approving loans.

A credit score is a number that summarizes your credit risk and helps lenders estimate the chances of you repaying a loan.  The most widely used is the FICO score developed by Fair Isaac Corp. It ranges from 300 to 850.  Major factors influencing your credit score include whether you’ve paid your bills on time, how much debt you’re carrying, what mix of debt you have and the length of your credit history.

The ongoing credit crunch and a consumer’s credit score are not only affecting consumers’ mortgage borrowing power, but also credit card applications, home equity loans, and student loans.

Would you like more information about raising your credit score, contact Team Repage and ask for our publication, “Understanding Your Credit”.  

RYAN PARK PROFESSIONAL OFFICE CENTER