Denied a Loan Modification?

966 days ago by
10 comments

By: LINDSEY O’NEILL, ESQ.

Several million mortgages are currently in default or expected to become past due in the coming months. Some of those homeowners who are past due have lost everything in foreclosure, some are simply walking away before it gets to that point, and others are struggling to stay in their homes. For many homeowners in default to be able to stay in their homes, their mortgages must be modified. While some homeowners have received decent loan modifications, others have been surprised to find out only that they’ve been denied by their lender. As diplomatically articulated by the FDIC Chairman, Sheila Bair, the financial industry wants to avoid foreclosure by offering loan modifications only “when it is financially prudent to do so.” (See a portion of the “Message from FDIC Chairman Sheila Bair” here.) Lenders are interested in modifying distressed mortgages, but only when the modified loan will be a “performing loan”. In other words, they’ll modify your loan if: (1) you can actually afford the modified loan and will pay it; and (2) the modification yields more money for them they’d make selling your home in foreclosure.

The FDIC Loan Modification Program manual explains some of the basic eligibility criteria participating lenders and servicers require in order for a homeowner to qualify for a loan modification.  Generally:

  • Modifications may be available for loans that are at least 60 days delinquent or where default is “reasonably foreseeable”; 
  • Foreclosure sale is not imminent and the borrower is currently not in bankruptcy, or has not been discharged from Chapter 7 bankruptcy since the loan was originated;
  • The loan was not originated as a second home or an investment property;
  • The modified monthly payment (of principal, interest, taxes, and insurance (PITI)) is within the allowable 31-38% housing-to-income (HTI) ratio;
  • The terms of the modifcation are less costly to the bank/investor than a foreclsoure.

For a thorough explanation of the considerations taken into account by the financial industry when reviewing a possible loan modification, read the FDIC manual by clicking here.

  • Judy

    What about those of us who purchased our home in the height of the market and are responsible enough to continue to pay our mortgage? Our homes are not worth what we paid for them, but we are still making payments. Why can’t we get a modified loan. Not a re-finance, just a rate modification or a loan restructure, just to make it a little easier on us. I guess only the irresponsible get rewarded by the lending institutions and the government. These entitlement programs at the taxpayers expense makes me sick.

  • http://www.lawinfo.com Lindsey

    Hi Judy. So many homeowners share your concerns. The good news is, from what I’ve heard, you may be entitled to a loan modification even though you are still able to make payments. There are more programs available today than ever before. Check out MakingHomeAffordable.gov and speak to an attorney or a modification professional to determine which options are available for your situation. Good luck!

  • Scott R Popielarz

    I’ve been waiting to hear from my bank since September.All i get is the run around,lost my job and want to modify my loan..What can i do i’m at wit’s end.I.ve made my payments for ten years on time and all i ask is for help and get the run around.Will never go to a Bank agian I’ll go to a credit union. Please help with Information.

  • Joan

    My load modifcation had been denied for the following reasons:
    1. My income exceeds the maximum for our lending program.
    2. My hardship is not of a permanent (I guess, they add my overtime which is optional for me and i guess not right.
    Our homes are not worth what we paid for them. Do you think we can still be approve for loan modification.

    Thank you much!

  • Jeff K

    I applied for a loan modification through chase bank back in October 2009, as many individuals in these trying times, I find it harder and harder to make my payments. I’ve never been late!, always on time.
    I’ve sacrificed necessitates simply to pay the mortgage, I’m self employed and find that might have been the one issue i was turned down for modification.

    Within the process of dealing with Chase bank has been extremely bumpy, I submitted all the forms required, they kept
    asking for documents I already sent, two, three four times.
    When contacting chase via telephone (several times) the conversation starts out friendly, but ends up in a vicious cycle going nowhere, when requesting to speak to a supervisor, one is never available, and then asking for a return call from a supervisor
    ASAP, the call is never returned. Three times I was hung up on by Chase bank.
    Now nearly four long gurgling months later, I’ve been turned down.
    I’m not asking for a free ride, simply a little help to stay in my home.

  • loan modification

    There are numerous of free loan modification programs available; however, the biggest frustration is getting this information to homeowners.

  • loan modification

    Chase is one of the most difficult lenders to secure a loan modification from. They’re not doing any principle reductions and the interest rates they offer are nothing in comparison to what other lenders are doing. What Chase will do is a forbearance but that’s about it.

  • allthatmatters

    The reason information is hard to get to the consumer, is the same reason gas saving vehicles took so long to hit the open market; not enough complaints and demands. The market can tolerate the amount foreclosures so the industry only let so much out of their portfolios. Educate yourselves not from the Banks and Loans perspective; you will always come up short. They put on seminars and information to weed you out not in. If you believe that fraud or manipulation by a lender was used in your loan process..submit your information to: http://www.sigtarp.gov/.
    Remember your rights mean nothing until you exercise them!

    Best Wishes To All

  • http://www.lawinfo.com Lindsey

    Thank you! Good information for struggling homeowners. Also learn more about the Emergency Economic Stabilization Act of 2008 (EESA) at http://www.financialstability.gov/roadtostability/programs.htm.

  • Francisco

    Hello Joan: I am in the same situation like you, yesterday they call me an denied my modification after 6 payments. My question is, what do you did after that, they send you any letter or the put your home on sale without telling you enything.

    I am very confused this right now.

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