The possibility of foreclosure is terrifying. A loan modification is typically one of the first steps homeowners take towards saving their homes, but the loan modification process can also be stressful and tedious. Although discouraging, all hope is not lost if your loan modification request is denied. It is not the end of the road. You can still qualify for a modification or consider other foreclosure alternatives.
Address the Reason
Contact the lender's loss and mitigation department to discuss the reason you were denied. Possible reasons for a modification rejection include insufficient income, high debt-to-income ratio, missing documents, or delinquent credit history. According to LoanSafe, the main reason loan modifications are denied is due to a mistake on the loan officer's side. Verify that all the information entered was correct and accurate.
Fix the Problem and Reapply
If the denial was due to credit, the lender is required to send you a copy of your credit report. You can boost your credit score by settling past-due accounts. Continue paying your bills and other accounts on time. Each missed mortgage payment adversely affects your credit score, and payment history accounts for 35 percent of your credit score. If your debt-to-income ratio is too high, you may want to boost your income. Try putting in extra hours or taking on a part time job. After making changes, contact the lender again to report a change in circumstances and request to reapply. The New York Times states that some borrowers need a second or even third attempt to gain approval.
Local Help Options
State and county assistance programs can help you prevent foreclosure and get back on track. If you are in a state that was hit the hardest by the foreclosure crisis, your state may offer additional HUD programs to help homeowners. For instance, the California Housing Finance Agency offers a program to help unemployed homeowners by paying the mortgage payment for up to nine months. There are also nonprofit organizations, such as the Salvation Army, that offer help to struggling homeowners in danger of losing their homes. If you are able to bring your loan current with assistance, you may qualify to refinance at a lower interest rate.
If you simply can't afford the modification, you may want to explore other options. When foreclosure can't be avoided, it is best to exit the home gracefully. A deed in lieu of foreclosure allows you to sign over the deed and release your liability. The lender will be unable to seek a deficiency judgment for the difference between the sale price of the home and balance you owe on the mortgage. Ask the lender about the federal Home Affordable Foreclosure Alternatives program. The program helps homeowners who willingly give up ownership by paying relocation expenses up to $3,000.
- The New York Times: After a Rejection
- Mortgage 101: What to Do if Your Loan Modification Was Denied
- Loan Safe: What to do if my Modification is Denied?
- Making Home Affordable Program: Home Affordable Foreclosure Alternatives (HAFA) Program
- Mortgage Loan: Reasons a Loan Modification Might Be Denied
- California Housing Finance Agency: Hardship Assistance