POWER TOOLS for Investor Denials, the NPV Discussion, and Pushing a Servicer to Modify a Loan
Anyone who has applied to have their loan modified knows the process is no fun, but having talked at length to literally thousands of homeowners who have gone through the process, the worst part is the uncertainty. As I’ve heard many express before, it’s the uncertainty inherent to the loan modification process that drives homeowners to distraction.
Well, there are now some tools that were never available before… for example, now you can know things about your loan and the Residential Mortgage Backed Security or RMBS TRUST that holds it, that you couldn’t have know in the past. Now you can change the outcome of the NPV test and really know what’s in the best interests of investors. Now you can use these answers to push your servicer to modify your loan, as simply wasn’t possible… until now.
Now, before we go any further, let’s talk about a few things that are important to know.
- Will any of the new tools guarantee that your servicer will modify your loan? No, absolutely not. Make no mistake about it, nothing can do that, in fact, I don’t even think your servicer can guarantee what it will do from one day to the next. But, the tools I’m talking about are those you’d want to bring into battle if you could.
- Will the new tools make the loan modification process better? In some ways, yes… you’ll have less uncertainty with which to contend, and that’s always a good thing. But, it won’t stop your servicer from being… well… a servicer. And nothing will make the loan modification process fun.
- Will the new tools improve your chances for getting your loan modified? It depends on a lot of different variables, but if everything else is as it should be… your income is right, your expenses are in line, then I would say the answer is yes… these tools do improve your chances.
- Can you take the new tools into mediation or court? Yes, you absolutely can. The tools I’m talking about utilize the same data that investors in mortgage backed securities access when making investment decisions related to millions, or even tens of millions of dollars. In fact, mediation can be one of the most effective places to use them.
#1: The RMBS TRUST Loan Modification Report
The first tool is called the RMBS TRUST Loan Modification Report, and it allows you to see exactly what’s going on inside the specific REMIC trust that holds your mortgage, as related to the modification of loans, since the trust was first established and up until the 30th of the prior month.
With the RMBS TRUST Report, you’ll have the answers to questions that include…
- How many loans were in your trust at its inception, and how many remain today.
- How many loans in your trust have been modified
- How loans in that trust have been modified, including how many were principal reductions.
- How many were interest rate reductions only, term extensions only… or both.
- How many loans were modified, and how were they modified, by time period.
- How loans that resemble yours were modified as recently as last month, and how specifically were they modified.
With the RMBS TRUST Report, you’ll know with certainty what’s possible in terms of a modification, and there’s simply no other way to know.
Modifications come in all shapes and sizes, but the bottom line is that they are based on what the trust will allow. If the trust that holds your loan allows principal reductions, then it’s possible that you can get one, but if the your trust doesn’t, then you won’t.
Trusts place other restrictions on how loans can be modified as well. Some limit term extensions after a certain percentage of loans in the trust are modified, others don’t. And some trusts don’t allow modifications at all.
The RMBS TRUST REPORT will show you all of the different ways that your specific trust has modified loans since its inception, so you’ll know what’s possible and what isn’t. And because the report also comes with your trust’s Pooling & Servicing Agreement or PSA, the Prospectus, and the trust’s SEC filings, if there are restrictions placed on modifications, you’ll be able to find out exactly what those restrictions are, and how they will impact what you’re hoping to accomplish.
And should your servicer deny your loan modification because “they couldn’t create an affordable payment in line with investor guidelines,” with the RMBS TRUST Loan Modification Report, you’ll know whether what you’ve been told is accurate, and if it’s not… you can push back by saying… “Well, you did it 72 times last year.”
The RMBS TRUST Loan Modification Report doesn’t help you get your loan modified. That will be based on your qualifications, such as your documented income, expenses, and whether you pass the Net Present Value Test, which shows whether it’s in the best interests of the investors to modify your loan, but it does do something nothing else will do… it shows you what’s possible and what isn’t before you even apply for a loan modification.
And that means you’ll know whether what you’re hoping for from your modification is a real possibility… or just a pipe dream. Most people agree… it’s better to know, than not.
#2. The RMBS TRUST Loss Severity Report
The next newly available tool for homeowners who are hoping to get their mortgages modified is called the RMBS TRUST Loss Severity Report, and it show you how much the trust that holds your loan is expecting to lose if your home is taken back and sold at a trustee sale or as an REO. (The report also comes with your trust’s Pooling & Servicing Agreement or PSA, the Prospectus, and the trust’s SEC filings.)
Loss severity is the accounting term used in conjunction with RMBS and other mortgage-backed securities. It refers to how “severe” the loss is expected to be if your home is taken back in foreclosure and ultimately re-sold to a new owner.
In the days before the financial crisis, it wasn’t uncommon to find that by the time a home was taken back through foreclosure and re-sold, its value had increased, so there was no loss severity to be concerned with, but today that’s essentially never the case. Today, the loss severity is the factor that creates the largest potential loss for investors.
It’s not uncommon for a borrower to stop making his or her mortgage payments, and still be living in their home two, three, four or even sometimes even five years before they either lose the home to foreclosure, or end up getting their loan modified. Sometimes it’s bankruptcy that causes months of delay, other times it’s the result of litigation.
Also, because of federal regulations, and in many instances, state laws that protect borrowers from losing homes to foreclosure without being considered for a loan modification, short sale or Deed in Lieu of Foreclosure, it can take two or three years even under the best of circumstances to foreclose on and repossess a home.
And in today’s housing market, even once the home is repossessed, there’s no telling how long it will take to repair and re-sell it as an REO property, nor is there any way to tell how much the home will sell for when it finally does. In some cases, homes sit empty for years and sell for a fraction of the borrower’s original loan amount.
It shouldn’t be hard to imagine that with the delays often being measured in years, and the associated legal and home maintenance costs that can easily mount into the tens of thousands and more, that the loss severities reported today can be 50 to 100 percent of the loan amount, and in some cases loss severities are even higher. In extreme situations, loss severities can add up to 150 or even 200 percent of the amount of the original loan.
But no one has ever been able to prove how much your specific trust is expecting to lose by repossessing and re-selling your home as an REO… until now.
Knowing what the trust that holds your loan is expecting to lose after taking your home back as a foreclosure and reselling it as an REO can be invaluable information when push comes to shove or when in mediation or litigation, because the servicer is bound by the terms of the PSA to act in the best interests of the investors at all times. Obviously, if the loss severity for your home is expected to be 70, 80 or even 90 percent of the loan’s value, it should be in the investor’s best interests to modify your loan.
Since the data that is used as the basis for the RMBS TRUST Loss Severity Report comes directly from the trust’s filings with the SEC, it’s not just what you’re saying the loss will be, it’s what the Master Servicer is reporting to trustee that the expected loss will be, based on actual experience of the trust foreclosing and re-selling loans like yours. And the report is always up to date, as of the 30th of the prior month, so it’s not something that anyone would find easy to refute.
According to HAMP guidelines, the PSA, and even some state statutes, when it’s in the best interests of investors to modify, then loans are supposed to be modified, and when it’s not… they’re not. But, only the RMBS TRUST Loss Severity Report can establish which is the case… everything else is nothing more than a best guess by the servicer.
The RMBS TRUST Loss Severity Report is the only tool that can definitively put an end to the guessing game over whether investors come out ahead or not by modifying your loan.
Finally, there’s a way to establish authoritatively that the investors in the trust that holds your loan will not come out ahead by foreclosing, should that be the case, and that’s the kind of information that can prove to be a game changer in mediation, litigation or when just in negotiations with your servicer over a loan modification.
#3. The Loan Modification Application Quality Check-Up
Believe it or not, in most cases, 90 percent or more of getting your loan modification approved by your servicer, will depend on your application and supporting documents. If what you submit is found to be correct, that is to say within servicer and/or program guidelines, your chances of getting your modification approved go way up.
But even more importantly, if what you submit as your application is not within program or servicer guidelines, your chances of getting your modification approved are almost nil.
Unfortunately, as so many homeowners have learned the hard way, it’s not easy to figure out what’s right and what’s not about your loan modification application, and so many homeowners fail when they could have succeeded had they known what needed to change on the documents they submitted to their servicer when they applied.
If you’ve never applied for a modification before, it can feel a little like the game, “I’m thinking of a number between one and 10.” You reply, six. And the servicer says, “Wrong, try again.” I can’t even count the number of homeowners who have been denied the first time for too little income, and the second for having too much.
Well, now I can offer an answer to this frustrating conundrum that’s been allowed to go on for far too long, with the Loan Modification Application Quality Check-Up. You put your own application together and once it’s done, you submit it to Mandelman Matters for review, so that an expert in successfully preparing loan modification applications can review it and tell you what’s wrong, if anything, before you send it in to your servicer for a decision.
The difference can be night and day. And by getting your application and supporting documents right the first time, you’re likely to save yourself months of frustration as you await a decision that only sends you back to the drawing board after you appeal their decision to deny you the modification.
Year ago, when the HAMP program started, or in its early years, such a service couldn’t have been offered, because no one knew exactly what a homeowner’s supplication should or shouldn’t include, but today… having seen thousands of homeowners get approved and thousands more get denied, there are experts that can look at your application and supporting documents and tell you very quickly what you should fix before sending it to your servicer.
I have to tell you that I’ve seen way more than my share of loan modification applications and still, if I were submitting my own application to my servicer in the hopes of getting my mortgage modified, I wouldn’t send it in without having an expert review it first.
To submit your loan modification application for a Quality Check-Up, send an email to:
SUBJECT: QUALITY CHECK-UP
And that’s not all…
There are other tools and best practices that you can employ today that will improve your chances of getting your loan modified, and when homeowners contact Mandelman Matters for assistance, we let them know everything we know, so that they have the very best chance of succeeding the first time around.
For more information on any of the RMBS TRUST REPORTS, send an email as shown below and be sure to include your contact information including the best way to reach you.
SUBJECT: INTERESTED IN RMBS TRUST REPORTS
ALSO… IF YOU”RE LOAN IS WITH BANK OF AMERICA…
I can often help, when others perhaps could not. Just email me at Mandelman@mac.com.
If I can help… and I usually can… I certainly will.
(Oh, and I never charge a nickel for helping a homeowner get their loan modified.)
OTHER IMPORTANT TOOLS HOMEOWNERS SHOULD KNOW ABOUT…
Is Your Loan Owned by Fannie Mae and Freddie Mac?
One very important and free service that all homeowners should use before applying for a loan modification is Fannie Mae’s and Freddie Mac’s online loan look-up tools. You simply type in your personal information, and within just a few seconds, you’ll know if either Fannie or Freddie are owners of your mortgage.
This is important for several reasons. For one thing, neither Fannie nor Freddie will grant principal reductions at this time. There’s much speculation over whether Mel Watt, the new director of the FHFA, which is the federal agency serving as conservator for both Fannie and Freddie, will change that long-standing policy, but as I write these words, nothing has changed.
So, if getting your principal reduced is critical to your goals of getting your loan modified, there’s no point to applying if Fannie Mae or Freddie Mac own your mortgage.
In addition, Fannie and Freddie have their own guidelines for modifications and they tend to be fairly strict on deadlines and other requirements, so if your loan is owned by either, you need to read up on their sites what their rules are, and make sure you don’t fall asleep at the switch… in my experience, dealing with either Fannie or Freddie is never easy.
To find out if Fannie Mae owns your loan, click here: KNOW YOUR OPTIONS
To find out if Freddie Mac owns your loan, click here: LOAN LOOKUP TOOL
Will You Pass the Net Present Value (“NPV”) Test?
To qualify for a loan modification, you must pass what’s called the NPV test, which was designed by Treasury, but can be slightly different at each servicer when approving borrowers for in-house, or even HAMP modifications. The test is designed to determine whether investors come out ahead by modifying your loan, or if they’d be better off foreclosing and re-selling the home as an REO.
The most significant factor related to passing the complicated calculation is whether you have equity in your home or are underwater. The more equity you have the less likely it is that you will pass the NPV test, because that will make it easier for the investor to recoup his or her investment when re-selling the home as an REO.
There’s no point in trying to figure out the details of the test, because as of a couple years ago, Treasury made an online calculator available that will at least come close to telling you whether you passed or didn’t. Treasury’s online test isn’t perfect, but it’s close enough to make it worthwhile to apply. You can find the online NPV test here…
However, for those that want to read more about the NPV test, Treasury has an online information resource that makes everything fairly easy to understand, which you can find by clicking below…
And if you’re the type that wants to read even more detail about the NPV test, Treasury has also published a white paper, which you can download here…
And before you start using Treasury’s online NPV tool, it might be helpful to read the Quick Start Guide, which you can download by clicking below…
And if the terminology seems overwhelming, not to worry, Treasury has a Glossary available here:
For general information about the Making Home Affordable programs, click below…
And, although different servicers can request different things for various reasons, in general you will need the following documents to apply for help from the Making Home Affordable Program…
- Monthly mortgage statement.
- Information about other mortgages on your home, if applicable.
- Two most recent pay stubs for household members contributing to the mortgage payment.
- Last two years of tax returns.
- If self-employed, the most recent quarterly or year-to-date profit and loss statement.
- Documentation of income from other sources (alimony, child support, social security, etc.)
- Two most recent bank statements.
- A utility bill showing homeowner name and property address.
- Unemployment insurance letter, if applicable.
- Account balances and minimum monthly payments due on all of your credit cards.
- Information about your savings and other assets.
- It may also be helpful to have: A letter describing any circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.)
Getting your loan modified is never going to be a good time for anyone… after all, loans were never written with the idea that they would be written down, and certainly not by the millions. But, it’s also much better today than it’s been in the past, so you shouldn’t be afraid of applying for a loan modification either.
For example, I rarely hear that servicers lost the paperwork these days, and I haven’t seen a trial modification not convert to a permanent modification in at least two years, assuming the borrower made their trial payments as agreed, of course.
That being said, however, all servicers are not created equal, so some are better than others, and the process will never be known for its consistency, so be patient prepared for things to go slower than you think they should… and try not to take whatever happens personally.
Servicers have hundreds of thousands of homeowners that need assistance, so whatever happens, it’s not like someone is doing something to intentionally harm you. (Personally, I’d be surprised if any of the servicers were even organized enough to single someone out of the crowd.)
The loan modification process is also an example of when the old adage, “You catch more flies with honey than you do with vinegar,” applies. The person you’re talking to on the phone isn’t the problem, so yelling at them isn’t likely to get you any further than had you been nice. Remember, they talk to homeowners all day, and many are stressed out and upset, so being nice can often make them want to help you before someone else who is being rude.
Again, for more information on any of the RMBS TRUST REPORTS, send an email as shown below and be sure to include your contact information including the best way to reach you.
SUBJECT: INTERESTED IN RMBS TRUST REPORTS
ALSO… IF YOU”RE LOAN IS WITH BANK OF AMERICA…
I can often help, when others perhaps could not. Just email me at Mandelman@mac.com.
If I can help… and I usually can… I certainly will. (Oh, and I never charge for helping a homeowner get a loan modified.)
You can read more about the RMBS TRUST REPORTS by clicking on either link below…
For more about loan modifications, my most recent article is here:
What I Know About Loan Modifications – 2014
By the way, you’ll find lots of success stories written by homeowners on Mandelman Matters, and below are a few of the personal letters I’ve received from strangers who have become friends…
I hope this has been helpful…
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