You've been going back and forth with the bank for many weeks now. Family members are asking if you've heard any news and now everybody's walking on eggshells. Emotions are running high, and you haven't been sleeping well. If the bank accepts the loan modification application, it can mean saving the house instead of facing foreclosure. Its a big gamble choosing this route because of the time required to process everything. Finally your cell rings and its the bank. You have the same feeling in the pit of your stomach as when you're pulled over by police. You hear the person say your loan modification got denied.
We're going to cover the top reasons why loan modifications get denied. The stress of facing the possibility of foreclosure is intense enough. To have the bank reject your loan modification package on top of everything else can be staggering. Sometimes having a clear picture of what the bank is looking for can help you when talking with them. There are many reasons why banks refuse a loan modification package. Let's take a look at some of the more common ones.
1) Having An Incomplete Loan Modification Package.
The first reason and probably the most common is having an incomplete application. If you make a mistake leaving out a signature or even put a number in the wrong place, it's enough of a reason to stamp the form as incomplete. The process involves Underwriters to review the application and can eat up weeks of valuable time. Even worse, if your application crosses over a fiscal year, you may be required to update additional information. All these little things can stall the process creating a headache for any person. If you experience an increase or decrease in income, you will need to amend the information potentially causing even further delay. Sometimes a document deficiency can be quickly resolved. Other times it may be a better option to get an experienced attorney to assist.
2) The Inability To Pay Modified Payments.
The second most common reason is the inability to pay the modified payment. In almost every instance the bank will look to do a temporary structure. The lender is not in a position to lose money on a legally binding contract. If they do consider approval, it's usually aimed towards temporary relief. The money will still need to be paid back at some point. If the bank feels that you cannot pay the modified amount for the temporary term, they will deem you high risk. The situation often comes up when the hardship you're dealing with is ongoing. If this is the case, a better solution might be a short sale and let the property go.
3) You Do Not Meet The Bank's Criteria For Hardship.
One element in this entire process requiring a lot of your attention is the financial hardship letter. If you miss something in your letter and you're unable to convey a clear message, the bank will refuse your claim. If you present information in your letter without supporting hard facts, you will face difficulties. You want to provide documentation backing up everything stated in your letter.
4) Your Lender Feels You Can Afford Your Current Payment Structure.
An area the bank will look into heavily is whether you are prioritizing your payments in a way that benefits them. In this scenario, your lender may feel you haven't exhausted every possibility to cover your obligations to them. This could mean not having sold certain possessions first before negotiating the terms of your mortgage. They may interpret this to mean you may not even be facing foreclosure but instead just want to renegotiate for a lower rate.
In conclusion, the situation is complicated all around. It's especially hard when you go through this entire process, and your application doesn't come through. You quickly discover you've wasted a lot of time in the process when you may have had tips from an investor with other options to pursue. The most important thing is to stay focused and find a way out of the situation.