Part 3: Keeping the Pressure On
After you’ve gone through the initial collection of your data, submitted all the paperwork and started your conversations, what happens now? You call and follow up. In the beginning you’ll probably follow up once a week. I like to call in the morning since I’m on the west coast and besides it’s easier to catch people in the morning. Don’t forget, every call starts with verifying who you are – even if you’re speaking to the same person every time; so don’t get frustrated by this!
Once you have confirmed all your paperwork is in you will be assigned an RM – Relationship Manager, their job is essentially to make sure all the paperwork is correct and current (this means be prepared to send in your latest bank statements and paystubs upon request). Presuming you followed my advice in Part 1, you’ll pass this test and your file will go to Underwriting. This is the most difficult part. You may have thought the losing of your file or transfer between more than one RM was the worst, but I am here to tell you the Devil is in the details and the one in charge of making the modification recommendation and scrubbing the details is the underwriter. One would think the guidelines would be similar to refinancing a loan and in many ways they are, however modifying existing terms is a complex animal that few understand. All the more challenging is the fact that you won’t be able to speak with the underwriter – ever. Further still, the underwriter may be forced to follow certain investor guidelines that are different from the bank you make your loan payment too – they work for one bank but have to answer to the rules of another. The investor may have bought the loan from someone and wants the rate they are already getting from you. They may have “policies” that exclude you and your file. The underwriter is charged with managing all this, crunching numbers to try to make a payment fit within pre-structured guidelines set forth by the government; percentages of debt to income or DTI. It would seem so simple for the lender to say, “OK, we’ll just reduce your rate and stretch out your payments”. But it’s not. They have to calculate impounds for back taxes and insurance – what they refer to as “escrow costs” because they will set up what is commonly referred as an impound account for taxes, insurance and maybe even homeowner’s dues. They have to find the balance between the highest rate they can get for the investor against the rate you can afford. One of the key elements here is the 31-38% debt to income ratio (DTI) used under the H.A.M.P. guidelines. This ratio is the adjusted home payment after modification, divided by you family income. If you make too little, your ratio will exceed 38% after modification and you won’t qualify; if you make to much your payment will be below 31% and again, you won’t qualify. When you make to little they apply everything; forebearance of debt, reduction in rate and extension of terms (the Big 3) . When you make too much, we don’t know what combination of modifications they apply.
What are the “Big 3?” Rate reduction. This one is pretty obvious, but sometimes to get you to qualify they do a “step up” where your rate steps up over time – think adjustable. Extension of time is just that: amortization over 40 years for example vs. 30. This reduces the payment. Forebearance. This is the most confusing because it is not debt forgiveness only debt postponement. With forebearance, the lender is basically postponing repayment of a certain portion of the loan until you either refinance or sell, at which time they get paid back that money. The main point here is that it is essentially “set aside” from the amortization schedule so it’s only paid back with sale or refi, not monthly. This reduces the payment by virtue of reducing the amount to be repaid. I recently had a loan mod rejected because the forebearance had to be 64% of the total loan to get the new payment DTI under 38% and the investor was both unwilling and unable under HAMP to do it. The cap on forebearance is typically 30%. In other words, that’s as much as the bank is willing “postpone.”
Loan Amounts. You are probably aware that there are two types of loans; those backed by government agencies like the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac. These are also referred to as conforming loans. These loans fall under the oversight of HAMP, the Home Affordable Modification Program. Remember I said there would be some government forms on your lender’s website that you would have to fill out, and HAMP is the root of this. But what if your loan was a jumbo loan? Do HAMP rules apply to you? No, but yes. No because banks don’t have to adhere to the HAMP rules but yes because they still follow them in general. At Chase for example, they call it “CHAMP”: Chase Home Affordable Modification Program. But because it is not technically HAMP, expect different investors with even more complicated rules. If you have a jumbo loan, it is very likely you will get rejection letters that will say you’ve been declined as unqualified for HAMP. Don’t get discouraged by this. You already know this because by definition a jumbo loan doesn’t qualify for HAMP. The people you need to speak with are not the same people generating these obnoxious letters. And when I say letters I mean you may get these HAMP decline letters several times if you are a jumbo mod candidate. Just ignore them.
Time to bring out the guns. You’ve been waiting and waiting and it starting to appear as if you’ve stalled. You can’t get any meaningful updates, and you want answers. While staying cool and calm, you ask for a supervisor, try to get the name and extension; feel free to go over all your notes with whomever you are speaking with ie: “on March 3rd I spoke with so and so and she said… and on March 17th I was told by Mr. What’s His Face that I should expect an answer by such and such etc., etc. Let them know you are handling this as a professional; you are detailed and have documented everything including them, if you’ve spoken with them before. And if you have spoken with them and you remember, let them know, “John I spoke with last week about my mod on 123 Main Street. They may or not remember you but it helps to break the ice and makes it friendly. But you mean business at this point so keep the pressure on. You can’t take no for an answer. If you completely sputter and really hit the wall, you need to escalate. From the internet find the number of the Chairman’s office and call there. While this is no guarantee of success, odds are, after you’ve explained to the person you reach, all the dates and conversations you’ve had, (obviously it won’t be the CEO but will be someone from the executive office), you should find a more responsive RM going forward. This is called “getting your file escalated”, and it’s an important, virtually inevitable necessity. I like to call it Climbing the Food Chain.
QA vs. UW. So you’ve escalated, gotten your file over to Underwriting and finally UW has made a recommendation for modification. You think “I’ve done it!”, only to find out it now goes to Quality Assurance. QA will evaluate the recommendations made by UW and look for errors; and there will be errors. Remember how I said it was a lot more complex to modify than to refinance? Because of this, your file may go back and forth between QA and UW more than once. If you can’t get satisfaction from you RM or there is no answer and you’ve left a message already, you can go into the general line and speak with anyone in the hopes of an update. Often their information will not be as current as yours – don’t get frustrated by this – sometimes however, they’ll give away a couple of nuggets or clues that they shouldn’t have, given their pay grade. The more you find out, the more pressure you can apply.
Next Part 4: Foreclosure and mod offers.