Qualifying Factors

• Financial Situation. Creditors are going to look at whether or not you can pay back both the debt as it stands and the debt that may be left after negotiating a settlement. If you can afford the debt as it is, you’re not going to qualify. In a negotiated settlement, it’s important that you can make the payments toward becoming debt free.
• Hardship. Creditors don’t just hand out settlements. Proving a hardship is often important to show that you didn’t just pile up debt irresponsibly.
• Negotiation. You need a good negotiator that has your interests in mind. This can be yourself or a professional that you hire. Creditors are a persistent bunch and don’t give up easy. The negotiation process won’t be fun if you do it yourself. What type of settlement you qualify for often comes down to how good of a job the negotiator does.

Other factors will come into play. It’s important to talk to someone, do your research and know exactly what you are getting into. It’s not for everyone but for those that do qualify, it can be a huge relief.

Factors for Qualifying

With programs like Making Home Affordable, the process is getting more streamlined and there are a few things we can look at to make a very good preliminary determination with regards to someone’s eligibility.

• Proof of hardship: Being able to show some kind of financial hardship is vital to your loan modification case. Lenders want to know that extenuating circumstances caused you to miss payments or have trouble affording your mortgage as it currently stands.
• Ability to pay back the modified amount. No lender will give you a modification if the numbers suggest you still can’t afford a reduced payment. Your financial worksheet that details your income and expenses tells a very important story.
• High debt to income on your mortgage payment. What you pay on your mortgage every month including taxes and insurance typically needs to exceed the level of 31% of your gross income.
• Late Payments. Like it or not, someone who has missed a payment often gets the attention of the lender first. However, it is never advised that you miss a payment on purpose.

Lenders will have their own set of guidelines as well as a few others imposed by the Making Home Affordable plan. Talk to someone knowledgeable about loan modifications and see what your options are. It can be complicated but it’s not impossible with the right amount of help.

That Solution is Debt Settlement (Also Called Debt Negotiation) –Good Old-Fashioned American Haggling.

Just imagine. If you could wave a magic wand and turn that $25,000 of credit card debt into $12,500, wouldn’t that make a HUGE difference to your financial future? You bet it would! Most people are skeptical that this approach is possible. But if you have a professional debt negotiator on your team, the odds are very good that he or she can cut your debt in HALF or less.

How is this possible? It’s very simple, actually. Put yourself in the shoes of a manager of a collection department for a major credit card bank. You know that bankruptcies are at an all-time high, that consumers file bankruptcy at alarming rates these days, and that the chances of collecting any money gets worse as the debt ages. You have the opportunity to close your books on a delinquent account by collecting 50 pennies for every dollar owed by the debtor, or take a chance on never collecting a single penny by trying to hold out for the full account value. You also realize that once the debt leaves your bank (usually after six months or so), it will go to a third-party collection agency. The agency will take at least 15%-20% commission right off the top of whatever they collect, and they are unlikely to collect more than 70% of the debt even with the most aggressive tactics. So you’ll probably never retrieve much more than half the money anyway. When you look at it this way, collecting 50% now doesn’t seem like such a bad prospect.

Is It Really That Easy?

Now, the way it’s been described it above, it sounds like a piece of cake. You might be thinking, “OK, I’ll get on the phone and do this myself.” What will happen? You’ll reach the “customer assistance team” described above, and the representative will inform you that other banks may settle for 50%, but their bank never settles for less than 85%, under any circumstances. Then they may talk you into joining their “hardship program”, but this is nothing more than their attempt to keep you paying – if you are lucky they will just lower your interest rate which will lower your monthly payment.  This makes you think you are getting a good deal but you still have to pay off the entire amount plus interest.

After you’ve called five or six banks and received the same treatment, you’ll probably end up with the idea that debt negotiation doesn’t work. The problem is that the banks will rarely take a debtor seriously. Unfortunately, they simply don’t believe you and they think your hardship story is phony. The banks are quite prepared for the amateur do it yourself negotiator. They have the telephone scripts all set up so that by the time the conversation is over, the caller feels guilty about the money owed, and their lame hardship plan sounds like a great deal after all.

Just having a third-party professional on your team makes all the difference in the world. There is something almost magical about this simple approach. Once the banks realize that they are talking to a professional, someone who knows the rules and regulations, they then quickly change their tune.  A negotiator will obtain better results than you could ever obtain on your own, simply because all of the bank’s tactics are stymied by the fact that they can’t talk directly to you. They can’t apply psychological pressure to you, since your representative filters this out.

Besides, there’s no shame in seeking help. Look at it this way: the banks pull out all the big guns when you fall behind. They have an army of collectors ready to pressure you with carefully scripted techniques. They have collection agencies and attorneys waiting in the wings to go after you full throttle. Doesn’t it make sense to level the playing field? Doesn’t it make sense to concentrate on improving your finances and let someone else deal with the aggravation of the incessant phone calls that start flooding in once you get behind?

Will that happen this time around? Only time will tell. But with the current loan modification options, the odds are certainly stacked in our favor.

Many hard working Americans watched, almost helplessly, as their savings began to dwindle last year. Many were forced to cash in 401k plans meant for retirement while others dusted off their resumes after corporate cutbacks and found themselves pounding the pavement looking to start their careers and their savings accounts all over again.

But help came in a big way as the government stepped in with numerous loan modification programs to help the nation save their homes in the midst of this financial crisis.

Now that the biggest wave of company closures, layoffs, and cutbacks are over, let’s take a realistic look at what our options are for “getting back on track.”

Loan Modification – A Way to Save Your Home

With the help of a qualified loan modification counselor, you can turn a financial mess into a brand new start by 2010.

President Obama’s ambitious mortgage stimulus plan is geared toward Americans who are at risk of losing their home to mortgage default or foreclosure. How does this work?

1. Making Monthly Payments Affordable

The main goal of the stimulus program is based on adjusting mortgage payments to make them realistically affordable according to the homeowner’s current income. The fact that an individual’s home has lost value or that they are upside down becomes a secondary issue. The stimulus program is based on the acknowledgment of a financial crisis. Do we want a good portion of Americans to lose their homes? Absolutely not.

2. Keeping Monthly  Mortgage Payments Low

In order to standardize what an affordable monthly mortgage payment is, mortgage lenders who are helping homeowners are adjusting payments so they will not exceed 31% of a family’s gross monthly income. There are many ways to achieve this goal, which can include lowering interest rates, extending the length of the loan, and more.

For full details on requirements for your particular state, contact a qualified mortgage loan modification consultant for your area.

3. Cash Incentives

Banks and mortgage lenders participating in the programs to help homeowners receive money from the government for every homeowner they assist. These incentives continue for up to five years, as long as the homeowner is able to make their agreed payments. This incentive plan encourages banks to realistically assess the homeowner’s financial situation and do everything possible to ensure that the rates and mortgage modification plan is feasible.

These cash incentives are not limited to the lender. The homeowner will also receive up to $1000 each year (for up to five years) for making their payments on time.

With all of these plans in place, it is very likely that one of them is right for your current situation. The sooner you call a mortgage modification consultant, the sooner you can have the stress of losing your home off of your plate and move on to a new year and a new beginning. Regardless of your level of financial hardship, call today, and begin your journey to recession recovery. You may come out even better than you were in the first place.

• Tried to refinance but got turned down. Many homeowners with adjustable rate mortgages are trying to refinance but simply can’t qualify under stricter lender guidelines. When the housing market began to decline and lenders were forced to cut back or even close the doors altogether, it became much harder to get a loan. As such, homeowners aren’t getting the help they need. Loan modification, however, is proving a viable way to work out an agreement when refinancing isn’t possible.
• Suffered a hardship. Hey, life happens. Sometimes, there’s just nothing you can do. In this tough market, people are getting laid off from their jobs and have no means to pay their monthly mortgage. Others are dealing with the issues that pop up throughout life. Family illness, accidents that cause injuries, a decline in income and unexpected events are all legitimate reasons for falling behind on a mortgage that would otherwise be getting paid on time. Lenders are pretty open to workouts for hardships, especially when you show an ability to pay in the future. You’ll need a hardship letter as proof of your difficulty.
• Home value has dropped. With a declining market, many homeowners end up owing more than the home is actually worth. In many cases, loan modification may not be an option when you get upside down on your home loan. You may be better off with a short sale. We can help you determine which program is better for your situation.
• Simply can’t keep up with the mortgage. As the economy and individual markets suffer, many people are seeing once stable and predictable income decline to a point that they can’t afford their home any longer. It’s possible a mortgage loan modification agreement can be reached that would bring payments to a more affordable level. This is an especially attractive possibility if you can show your income will again rise to previous levels.

Questions to Think About If Doing a Loan Mod on Your Own

• Are you prepared for the long, drawn-out process? Lenders take upwards of 4 months in many cases and sometimes longer to come to a decision. This is going to require a lot of your valuable time.
• Are you properly representing your financial situation? I’ve personally seen people try this on their own and get turned down because they didn’t do their financials correctly. If you don’t know what the lender is looking for, it is very easy to get rejected on account of a poorly constructed financial worksheet.
• What happens if the lender says no? You might get to the end of the process, put together a good case for yourself and still get turned down. What do you do? No isn’t the final answer and you have to pursue a result to the dying end.
• Do you know how to explain your hardship? Like your financial worksheet, a poorly constructed hardship is a major reason people get declined. You have to craft a convincing letter that is true to your situation and describes why you are struggling to pay your mortgage.
• Can you get around the collections department and others at the lender that don’t have your best interests in mind? A lot of the time, people call up thinking they are getting loan modification help and end up with a collections agent whose primary goal is to get you to pay everything you owe right now. It can be very frustrating. Third party companies have all the inside contacts at your lender and can get right to your loan modification case.
• Are you prepared for a disorganized lender? The submission process itself can be a nightmare if you don’t stay on top of it. It can take a long time for a lender to even assign it to someone and it’s very easy for you to get lost in the shuffle.

If you find the process too difficult and have questions, you can apply on our website.

• Market value of the home has dropped. Most people looking at a short sale as an option have experienced a drop in home value to the point they now owe more than the home is worth.
• The mortgage is in default status or could be in the near future. With the current market being as it is, lenders are becoming more willing to consider a short sale even before the home goes into default. This helps them cut the problem off before it costs them more money.
• The seller has a hardship. With any loss mitigation program, documenting the hardship that has caused your current situation is required. Lenders might be particular about the hardship so it’s best to rely on our expertise to help you with the letter.

If you think you qualify for a short sale, contact a loss mitigation specialist to begin determining a course of action. It’s important to remember that time is not on your side in these situations and the quicker you act the better chance you have of achieving a successful short sale.

Yesterday: Don’t Walk Away | Today: Short Sale Candidates | Tomorrow: Short Sale Drawbacks

• Home value has dropped. This is a classic short sale trait. The market has dropped off considerable and left thousands of homeowners with a mortgage debt that exceeds their home’s appraised value. It makes refinancing impossible and often times, a short sale is the best option if you just can’t keep the home.
• The mortgage has defaulted or will in the near future. While it’s more common to see a short sale approved when in default status, it’s becoming more common to see lenders approve a short sale earlier in the process to mitigation their future losses.
• The seller has a hardship. You’re much more likely to get approved for a short sale if you have a documented hardship of why you simply can’t afford to stay in the home and make payments. The hardship letter is an important document that should be carefully crafted.
• Simply can’t afford the home. If it’s just not possible to afford the home even with a loan modification, a short sale is the right option. It’s unfortunate if this is the case as no one wants to lose their home, but at least with a short sale, you can limit your credit score damage and responsibly reach an agreement that gets you free and clear of the situation.

If any of the above characteristics fit your situation, you should at least have a conversation with a professional about your options. Time can become a real critical factor and you need to stay ahead of the problem in order to reach the best possible resolution.

This is the advantage that a short sale presents and can be an especially attractive option when you’re looking to get rid of the home, but owe more than what you can sell it for. For this reason, short sales are skyrocketing in popularity and we’re sure to see more in the coming months.

The article can be read in its entirety at the wsj.com.