Modifying a loan: Ask and you shall recieve

Many homeowners in the Baltimore metro area may be under the impression that their lender may only want to modify the terms of their existing loan if they are behind in payments. For the most part, that is probably true. But here is a real-life case of a lender that was willing to modify a loan when there was really no specific need to take action.

The tale begins with a borrower who was in the fifth year of a seven-year adjustable rate mortgage.

As the story goes, the borrower received a call one evening in June from a “portfolio manager” at Impac Funding, a California-based lender that specializes in non-conforming, reduced documentation loans that Fannie Mae or Freddie Mac had no appetite for.

This borrower, being skeptical, couldn’t understand why he was getting a call from someone at Impac Funding about his mortgage. The portfolio manager explained that although Countrywide was the company that serviced the mortgage by taking payments and paying taxes and insurance on behalf of the account, Impac actually held the note and was in charge of that loan. The call was being made to ensure that the homeowners were aware that Countywide was now Bank of America Home Loans and that payment would continue to be made to the servicing arm of Bank of America Home Loans.

He said that Impac had noticed that some borrowers whose notes they held were not making that connection and were going 30 or even 60 days late on payments. That was not the case with this borrower, so again, why the call? The Impac portfolio manager confirmed that payments were on time but added the company was just being proactive in making sure that everyone was aware of the change.

The conversation then turned to what else he did for Impac, and that started a discussion on loan modifications, since he was a portfolio manager for the company. He said that the company was very aggressive in modifying loans for homeowners who were late in payments, and even on occasion would modify loans for customers who were current but could demonstrate that hardship may be on the way.

That caught my borrower’s attention.

He asked if Impac would consider him. He was nearing the end of his current adjustable rate mortgage and was unsure if in the remaining two years he would be eligible to refinance.

The portfolio manager said that a modification was possible — it doesn’t hurt to ask. The terms of the modification would be a five-year modification with a rate of 3.625 percent, and, if the borrower wanted, it could remain an interest-only payment. When the five years was complete, the modification would end and the rate would be calculated based on the terms of his current adjustable rate mortgage.

The cost to handle the modification, if approved, would be $1,995 and paid after receiving confirmation documents. The modification seemed to be the right move. It would lower his monthly payment, remove any adjustment concerns for the next five years and cover enough time to — hopefully — see both the economy and home values in his neighborhood recover.

He applied, and the modification was approved within 72 hours. As part of the modification, the borrower could defer his July and August payments, with those payments added to the new principal balance. A successful modification was performed.

The moral of the story is that there are lenders willing to do modifications to existing loans if the circumstances are just right. That is not saying that all react as liberally and quickly as Impac, but the lesson is nothing ventured, nothing gained.

A borrower has to understand that when a mortgage gets sold, it is possible that the servicing side can be sold and then the actual note can be sold as well. This borrower thought that Countywide held the note as well as the servicing. As he later learned, that was not the case. So that means, if a homeowner wants to start a modification process, he must learn who owns the note, because ultimately it is that entity that will decided to modify, or not.

The question a borrower has to ask the company that he is making the mortgage payments to is, “Who holds the note on my property.” It would not be unusual for the front-line customer service person to not understand the question, let alone be able to answer it. So the best course of action is to immediately ask for a supervisor and ask the question again.

Once you find out who holds the note, seek out that institution to start the process. It is very possible that homeowners who are current on their mortgage will be told that there’s no reason to modify because they haven’t gone late. However, if you can show impending hardship, you may get somewhere.

Homeowners also need to be aware of scams that are taking place. If someone offers to negotiate a modification for you or to negotiate a delay in a foreclosure for an upfront fee, stop right there. A homeowner can accomplish the same by just keeping in touch with the lender or the servicer. Do not allow a third-party to take over the payment of your mortgage with the promise that they will help with a modification or stop a foreclosure.

If you need help you can find a counselor by contacting the U.S. Department of Housing and Urban Development at 800-569-4287 or 877-483-1515.

For this borrower, the modification worked out and it showed once again that these are extraordinary times in the lending industry and it proves one thing: If you don’t ask, you don’t get.