What Happens if a Loan Remodification Doesn't Go Through?

With the recent housing crash, increasingly more financial institutions are willing to grant loan modifications to strapped consumers. A loan modification is a modification in the mortgage's terms -- the interest rate, loan term or loan type -- to make the payment more affordable for the homeowner. Even if you apply for a loan modification and your request is declined, you have options if you're financially strapped by your mortgage.

Recheck Your Application

The most common reason a loan modification is denied is because of a mistake, according to loansafe.org. Loan servicers who misplace paperwork or make rudimentary mistakes are becoming more common because these workers are often stressed and overworked. A mistake could also be made by you, the homeowner, in your application paperwork or income and expense worksheet. You should receive a denial letter in the mail that cites generalized reasons for your servicer's decision, which can include delinquent credit, insufficient income, loan-to-value ratio and missing information. Call the servicer and ask for specific reasons so you know what next steps to take. Comb through your paperwork and ask the mortgage lender for copies of the modification paperwork so you make sure the numbers add up.

Analyze Your Financial Situation

Although no mortgage lender will tell you this, if you're not behind on your mortgage payments, your remodification request may be denied. The purpose of modifications is to help homeowners who are drowning in mortgage payments. Your remodification request may not be compelling to lenders if it appears you can make your payments with no impediment. On the other hand, if you are delinquent and you were denied, keep talking with your lender and argue your case. If you feel you'd be able to make your payments with a reduced interest rate, make that known. You can reapply for a modification if you were declined the first time, and getting a different servicer may make a difference.

Seek a Professional's Help

If you decide to reapply, getting the help of a nonprofit credit counselor can improve your chances of being approved. Make sure the credit counseling agency is nonprofit, legitimate and has no ulterior motive, such as charging you for services or getting you to purchase other materials.

Correct Any Issues

If you were denied because of other credit or debt issues, take a step back and correct those problems before you proceed with a reapplication. If you were turned down because of too much debt, think about taking a second job and putting all your extra income toward paying down the debt. If your income is insufficient, a second job could also solve that problem, as would decreasing your expenses. Steps toward addressing these issues show the lender that you're serious about obtaining a modification. Outline the items you've corrected and the steps you've taken in a face-to-face meeting with the lender. If the answer is still no, talk with him about alternatives or other types of modifications for which you could be approved.

 

About the Author

Lisa Carlson works as an associate director of recruitment and graduate programs at a public university, and has experience in management, marketing, personal finance and nonprofit organizations. She is a peer-reviewed author on publications for higher education recruiting and holds a B.S. in marketing and a M.B.A.