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Do it Yourself
Loan Modification Guide
Stop Foreclosure
Learn how to get the banks to lower your mortgage payment


Pathway To Financial Freedom for the Faithful!
"Beloved, I pray that you may prosper in all things and be in health, just as your soul
prospers." (3 John 1:2 NKJV)
Copyright © 2009 by State Financial Services, LLC all rights reserved
Table of Contents

CHAPTER I ▪ About the Writer and Publisher

CHAPTER II ▪ Main Street Statistical Data
CHAPTER III ▪ Wall Street and Your Mortgage
CHAPTER IV ▪ What are Homeowner Options
CHAPTER V ▪ What is a Loan Modification
CHAPTER VI ▪ Loan Modification Companies
CHAPTER VII ▪ What is a Forensic Audits
CHAPTER VIII ▪ How to Deal With Your Lender
CHAPTER IX ▪ Bankruptcy Information
CHAPTER X ▪ Beware of Foreclosure Scams
CHAPTER XI ▪ What is the Foreclosure Process
CHAPTER XII ▪ What is the Homeowner Affordability Stability Plan
CHAPTER XIII ▪ What is Hope for Homeowners
CHAPTER XIV ▪ What about FHA and VA Insured Loans
CHAPTER XV ▪ Information for Senior Homeowners 62 and older
CHAPTER XVI ▪ What you will Learn
CHAPTER XVII ▪ How Does a Loan Modification Work
CHAPTER XVIII ▪ Loan Modification Options
CHAPTER XIX ▪ How to Complete the Documentation
CHAPTER XX ▪ How to Analyze Your Numbers
CHAPTER XXI ▪ How to Create Your Package
CHAPTER XXII ▪ How to Negotiate With Your Lender
CHAPTER XXIII ▪ How to for the Self Employed
CHAPTER XXIV ▪ How to for Investment Property
CHAPTER XXV ▪ Conclusion
CHAPTER XXVI ▪ What is the Impact on Your Credit
CHAPTER XXVIII ▪ Bibliography
CHAPTER XXIX ▪ Lender / Servicer Contact Information

 Peace in your Life

 Terms and Agreements
 Disclaimer
 Forms

The information and notices contained in this guide are intended as general research and
information and are expressly not intended, and should not be regarded, as financial or legal
advice. We attempt to ensure that the material contained in the guide is accurate and complete
at the date first published, however you should recognize that information contained in this guide
may become out of date over time. Readers who have particular questions real estate financing
or foreclosure, or who believe they require legal counsel, should seek the advice of an attorney.

Our company was founded on one overriding belief of helping people. We assist people in
financial hardship through affordable loan modification information, while raising money for charity
to benefit our community at large.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER I ▪ About The Writer and Publisher

My name is Michael F. White and I have a passion for helping hard working American
homeowners who are feeling hopeless and in fear of losing their home. The current
financial crisis has made the American dream of homeownership feel more like an
American nightmare for so many.

Over the years I have worked closely with financial advisors, accountants, lenders, real
estate professionals, mortgage brokers, lenders and attorneys assisting homeowners. I
understand the industry and what lenders are looking for when it comes to loan
modification and will share this information with you in this eBook.

I would like to start by congratulating you for downloading this eBook and taking the first
step in improving your current financial situation! I have designed this eBook as a guide
to empower you with the knowledge and strategies to complete your own loan

You should always ask your lender to report you as “current” with the credit reporting
agencies while you are in negotiations. Be aware that most lenders/servicers will do
this. Your credit may be damaged, however with a successful loan modification the
damage will be less severe than the damage caused by foreclosure. The main reason
for doing a loan modification is to save your home, so that you can work on restoring
your credit after your loan has been modified. Visit www.Restore.YourDebt.org for
professional credit restoration.

Fannie Mae released updated underwriting guidelines for new mortgage loans:

Currently, there are no additional lender restrictions after loan modification on obtaining
future mortgage loans. Unlike the much stricter guidelines if your home is foreclosed,
you must wait five years from completion date, and you may have additional credit and
down payment requirements for up to seven years.

Deed-in-lieu-of-foreclosure has a four year wait with additional restrictions for up to

seven years.

Short Sales have a two year wait with no additional restrictions.

Bankruptcy Chapter 7 has a four year requirement from the dismissal or discharge date
and Chapter 13 has a four year restriction from the dismissal date or a two year
restriction from the discharge date. This makes a loan modification the best option for
most troubled homeowners.

Copyright © 2009 by State Financial Services, LLC all rights reserved

You of course can attempt to contact your lender yourself to modify your own loan. The
purpose of this eBook guide will provide you with information in order for you to prepare
and present your loan modification proposal when dealing with your lender/servicer
negotiating the terms of your loan modification. It is a stressful, aggravating and very
time consuming undertaking. You can expect to spend twenty, thirty hours or more on
the phone, being transferred from person to person. It is very frustrating, but you can do
it, just have patience. Lenders/Servicers will likely give you the runaround and waste a
lot of your valuable time. When you do initiate a call to your lender, block out a minimum
of 30 minutes for each call and expect to be put on hold and transferred many times.

You have one chance to properly prepare and present your loan modification package to
your lender/servicer and you do not want to lose your home to foreclosure, so it is
imperative that you get it right the first time. Less than 20% of homeowners negotiating
their own loan modification are successful.

If after reading this guide, you decide that you do not have the time, energy or
salesmanship and would prefer to have additional assistance, you do have other

The first option is to visit www.ModSoftKit.com and all forms will be professionally
prepared and submitted to your lender/servicer. You will then need to contact your
lender/servicer present your proposal and negotiate your loan modification.

The second option is to hire a professional loan modification company. It is important to

hire a company that has the experience and track record of successfully dealing with
lenders/servicers. It is important to choose a loan modification company that have full
time attorneys on staff who specialize in loan modifications, in addition to properly
preparing your case, they will conduct a forensic loan audit (we will explain this in
CHAPTER VII) which can add a great deal of strength to your case and can be well
worth the money considering that you home is at stake. If you would like us to refer
you, The Nationwide Law Group has the experience and track record helping
homeowners avoid foreclosure. If you prefer to have an attorney’s representation,
contact us at 800-882-5062 ext. 4357, send us an email: Help@ModSoftKit.com.

Don’t take this lightly, your home and credit are at risk, and it is up to you to take action
and not procrastinate. It is imperative that you read every page of this homeowner’s

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER II ▪ Main Street Statistical Data

The United States is in the midst of the worst crisis since the Great Depression, and it is
getting worse Wall Street is the main reason we are in this mess through its greed by
allowing homeowners to borrow money without proving the ability to repay their loans
and we are all paying the price as a result of it.

The Wall Street executives made billions of dollars allowing these high risk loans and
our Government is bailing them out, which really means that you and I, the tax payers
are the ones paying for this bailout from their gambling and greed, while they still have
millions and live in mansions.

The sub-prime mortgage practices deserve much of the blame for the current crisis.
Throughout the early part of this decade, mortgage lenders earned huge profits lending
money to borrowers with questionable credit histories, or with stated income or loans
originated without valid proof of income for folks with very good credit ratings. The
booming housing market and the availability of easy credit perpetuated a cycle of
refinancing whereby a borrower that could no longer afford their monthly mortgage
payment could simply refinance into a new mortgage; often at a low teaser rate.

Once the housing market stalled, the sub-prime borrowers found themselves unable to
refinance. This led to record numbers of foreclosures. As reported in a New York Times
article in December 2006,"about 1.1 million homeowners who took out sub-prime loans
in the last two years will lose their houses in the next few years. The article further
explains that, "foreclosure will cost those homeowners an estimated $74.6 billion,
primarily in equity."

Recently, a new wave of problems has arisen from so-called Alt-A loans. The Alt-A
loans were very popular over the past several years among self-employed borrowers or
those with stated incomes. Many individuals who obtained Alt-A loans have been un-
able to stay current on their mortgage payments, especially as those loans have
adjusted to higher interest rates. With housing prices dropping, borrowers are finding
themselves upside-down and actually owing more than the value of their home. On
December 14th 2008 Scott Pelley on CBS 60 minuets reported that the mortgage crisis is
far from over, expecting a second wave of defaults on the way that could deepen the
bottom of the U.S. recession. Watch CBS 60 Minuets Video

These are very hard times and you are not alone. The Mortgage Bankers Association
reported in January 2009 that 1 out of 10 homeowner’s are behind on their mortgage or
in foreclosure. RealtyTrac® reported in January 2009 that there were 3,157,806
foreclosure filings in 2008, and 80% increase from 2007 and a 225% increase form
2006. Nevada, Florida, Arizona and Florida accounted for over half of all foreclosure
filings respectively. The Federal Reserve Board predicts that there will be 2,250,000
new foreclosures in 2009.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER III ▪ Wall Street and Your Mortgage

Lenders are being inundated with a staggering number of requests to grant loan
modifications, lower interest rates, extend terms and reduce principal balances. The
financial crisis has caused lenders to cut staffing and they are not prepared to perform
modifications or workouts and probably don’t even own your mortgage and are legally
and contractually bound by the Wall Street investors that they sold your loan to. Even if
they wanted to modify your loan, they can’t because they may not own your mortgage
and are unable to make decisions regarding your mortgage.

Wall Street sees only numbers and is not sympathetic to the millions of individuals
asking them to take financial losses because of homeowners’ personal reasons for their
financial setback, loss of value, type of loan etc. and it is easier for lenders to proceed
with foreclosure as outlined in their agreements with Wall Street investors.

Many homeowners are dealing with a servicing company. A servicing company does
not own your loan. They are paid to collect your monthly mortgage payments for the
lender. They make more money when they foreclose because they charge your lender
fees and get paid if they foreclose on your home.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER IV ▪ What Are Homeowners Options
The majority of financial problems facing Americans today are the result of a failure to
obey God’s provision and guidelines concerning how He wants us to manage the money
He entrusts to us. This failure in turn limits His ability to bless us financially.

This ebook will arm you with the knowledge needed to prevent foreclosure. It is very
important you take this 2nd chance to educate yourself daily and prepare financially for
your future. People are destroyed from the lack of knowledge” (Hosea 4:6)” If what we
have been doing so far it isn’t working, we need to change direction. Change begins with
looking at God’s Word.

Fear and greed are the motivating advice being sold by much of Wall Street. This advice
can lead to financial ruin. Many become so confused that they choose to go it alone and
rely on the banks to tell them what they can and cannot afford.

Option One Not Keeping your home

 Pre-Foreclosure Sale – selling your home at fair market value before the
foreclosure date.
 Short Sale – The lender agrees to take less than you owe from a qualified buyer.
I would recommend that you use a local real estate professional who specializes
in short sales to assist you. You may be liable for a deficiency judgment for the
unpaid balance of what your loan. The unpaid balance may also be reported to
the IRS as taxable income on a 1099-A if it is not your primary residence. For
details, on the Mortgage Debt Relief Act of 2007 visit
 Deed in Lieu – The lender agrees for you to sign the deed over to avoid
foreclosure and you vacate the property.
 Foreclosure – This should always be your last resort. It is the most damaging to
your credit and your ability to purchase another home. You may be liable for a
deficiency judgment for the unpaid balance of the loan, as well as any legal fees
etc. The unpaid balance may also be reported to the IRS as taxable income on a
1099-A if it is not your primary residence. For details, on the Mortgage Debt Relief
Act of 2007 visit http://www.irs.gov/individuals/article/0,,id=179414,00.html
 Bankruptcy – This will only save your home temporarily and you will be back in

Option two keeping your home

 Refinance – You must be able to credit and income qualify and you must have
sufficient equity in your home.

Copyright © 2009 by State Financial Services, LLC all rights reserved

 Loan Reinstatement – You must bring your loan current by paying all past due
payments and late fees and resume making your existing mortgage payments.
 Repayment Plan – You resume your monthly payment and pay an additional
amount each month until your loan is current.
 Forbearance – The lender suspends your monthly payment for an agreed upon
period of time after which you resume your monthly payments plus and additional
amount until your loan is current.
 Loan Litigation – You hire an attorney who files a lawsuit against your lender and
stops all foreclosure proceedings and stops any reporting to credit reporting
agencies while your attorney performs a full forensic audit of your loan looking for
violations in state and federal predatory lending laws, violations in the Real Estate
Settlement & Procedures Act (RESPA), Violations in the Truth in Lending Act
(TILA), violations in the Home Mortgage Disclosure Act (HMDA), violations in the
Fair Housing Act (FHA), violations in the Equal Credit Opportunity Act (ECOA)
 Loan Modification – This is the most popular method which involves negotiating
and changing one or more of the terms of your existing mortgage agreement.
Such as capitalization which is adding the delinquent amount to the back of your
loan, extending the term of your loan, lowering your interest rate, reducing the
principal balance of your loan, and lowering payments for a specified period of
time. Once the specified term is over, you resume payments according to the
initial terms of your loan. Occasionally a loan is modified permanently!

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER V ▪ What Is A Loan Modification

A loan modification is one of the best options available for struggling homeowners as
well as lenders. Loan modification is a long-term solution that will help the borrower
make their loan payments and stay in their home. This can be accomplished by
decreasing the interest rate, or if an adjustable rate, changing it to a fixed rate. A loan
modification can also be lengthened in the period of time the borrower has to pay the
loan back, or modifying to a different type of loan all together and in some instances
lowering the principal balance (although the balance is rarely lowered).

A loan modification is beneficial to the borrower because it allows the individual or family
to remain in their home and grants them loan terms that work better with their particular
life style or situation. A loan modification in comparison to foreclosure, bankruptcy, or
some of the other options allows the borrower to keep their credit score intact.

Loan Modifications are also beneficial to banks and lenders, especially with foreclosure
rates sky rocketing in the last few years. Banks lose a lot of money in a foreclosure. Not
only does it cost money to go through with a foreclosure but it often results in an overall
loss for the banks, as the homes often sell for less than they are worth, or less than the
outstanding loan balance.

In a CNN report on March 6, 2008 Bob Moulton of America Mortgage said, "It's cheaper
for a bank to renegotiate payments than to chase someone and miss out on monthly
mortgage payments". This is entirely true; banks lose over 50 cents on the dollar on
homes that are sold through foreclosure auctions.

Types of loan modifications

Some forms of loan modifications are more easily obtained than others. One type is a
decrease of the interest rate. A decreased interest rate can save you anywhere from a
few hundred to a thousand dollars every month; depending on the amount of your loan.

Lengthening your loan term is another type. By increasing the number of years you
have to pay off a loan, a homeowner can decrease their monthly payment by a couple
hundred dollars. A principle balance reduction is the most difficult loan modification to
obtain. This involves the lender forgiving a portion of your debt. It is very difficult to get
a lender to agree to this type of modification, because the lender has to report that
money as a loss to upper management.

It is worth it to pursue a loan modification as they were designed to help the homeowner
and the lender, particularly in these troubled economic times. We would not recommend
taking out a personal loan to pay your mortgage; this is one way to sink further into debt.

Copyright © 2009 by State Financial Services, LLC all rights reserved

Loan Modification Overview

Loan modification is often referred to as loss mitigation and was established by the
Federal Government and the credit industry to help borrowers who can not pay their
debts for a variety of reasons.

A loan modification is a change of one or more of the terms of their existing loan
agreement, such as compounding which is adding the delinquent payments to the back
of the loan, a reduction in the interest rate, extending the terms of your loan and
sometimes a reduction in the principal balance of your loan. I have personally seen
loans modified where the interest rate was lowered from 8.625% down to 1% and 12.6%
lowered to 5%. I have personally seen payments lowered from $5,362.00 down to
$2,204.61 and $1,680.00 payments lowered to $306.27. I have seen principal
reductions of $61,168.44 and past due payments of $45,734.00 forgiven. These results
are not necessarily what you may expect, but these are real examples to illustrate what
can be accomplished.

“Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.”
(Proverbs 21:5 NLT)

You need to be able to prepare and present your case to your lender explaining why it is
in their best interest to modify your loan. You have one chance to do this so put your
best salesman hat on and be sure to get it right the first time and you my get your
payment reduced and/or change other terms of your loan, and in many cases the terms
are modified for the entire term of your loan. You see, 85% of lenders will negotiate a
loan modification if you present a solid case.

Step 1

It is amazing to me that there are thousands of delinquent borrowers who never have the
courage to take the responsibility to call and talk to their lender before losing their home
to foreclosure. Take action and call your mortgage company and ask to speak with the
loss mitigation department. Don’t waste your time talking to the customer service
representative, they cannot help you! Ask to be transferred to the loss mitigation
department. Before you are transferred ask for the direct number to that department.
This will save you time in your (many) subsequent follow up phone calls, or if you get

When you get to the loss mitigation department ask who you are speaking with, ask for
their full name, position and title (don’t be overly aggressive about it, stay friendly but
firm and inform them that you are keeping a record of your conversations and would like
to ensure that you are accurately documenting the conversation). Explain to the
representative that you have a mortgage with their company and are unable to make the
monthly payments and have become delinquent or will become delinquent on your loan
and need to modify it or there is a serious chance that you may fall further behind and/or
go in to foreclosure.

Copyright © 2009 by State Financial Services, LLC all rights reserved

You don’t want to say for certain you’re headed to foreclosure because lenders don’t like
wasting time with lost causes, but you do want to make it clear to them that the problem
is very serious and needs an immediate solution.

They will ask you some basic questions. Be honest in your assessment of your financial
situation. If you are a person that has a positive and optimistic outlook, now is not the
time to let it shine about your financial wherewithal. Within the bounds of honesty you
must show that you are in a bad financial place. If they assess that you’re situation may
qualify for a loan modification they will send you an information packet along with a
worksheet to calculate your monthly expenses. Think of this process as similar to when
you qualified for the loan but in reverse. You must be unqualified and prove that you are
financially incapable of making your current mortgage payment and prove that a loan
modification will make you an acceptable risk to them by improving your situation. If
they do not feel that you are a good risk if they were to modify your loan, you will be

Step 2

Create a worksheet that acts as a call log. This is where you will keep track of your
diligence in completing your loan modification, who you spoke with and what was
discussed. It is critical for you to keep accurate track of everything because you will be
talking to many different people in the loss mitigation department. They may record your
conversations and they will keep notes, it is important that you keep accurate notes of
conversations as well, so if you have problems (and you will) you can use the
information written in your log to help you. Being able to reference promises, comments
or details from previous conversations will help you overcome objections when you talk
to other people in the mitigation department. On your worksheet you will want to keep
track of the date, time, number called and the full name of each person you spoke with
as well as detailed notes of every conversation. This helps keep you organized and it
will help your situation should the lender initiate foreclosure proceedings. You will be
able to show that you have made a good faith effort to work out an amicable and fair
resolution your situation. Remember, most everything you say can and will be used
against you. So be sure to document everything that you say, as you can be sure your
mortgage company will be. If you don’t feel that you have the time, energy, or ability to
properly prepare and spend up to 40 hours on the telephone presenting and negotiating
your case, you should seek a professional attorney based firm to assist you.
Remember you have a great deal to lose, your home and credit is on the line.

If your mortgage company feels you may qualify for a loan modification, they will mail
you a mitigation packet for you to complete and mail back to them. You will go back and
forth with them many times working out a payment plan that your lender will accept and
a plan that you can afford.

Once you and your lender have agreed on the new terms of your loan, you will sign an
agreement similar to the paperwork you signed on your original loan. Congratulations,
you have just saved your home and thousands of dollars.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER VI ▪ Loan Modification Companies

“Plans fail for lack of counsel, but with many advisers they succeed.” (Proverbs 15:22

If you decide to use a loan modification company to assist you, you need to ask the right
questions before you choose. How long has the business been working with
homeowners in need of loan modifications? When choosing a loan modification
company it is always good to choose one that has been in the business for some time. If
they have been working on loan modifications for several years, they not only have
experience, but also probably have a decent reputation (many have only been in
business for a few months).

Are they an attorney based loan modification company? As described later in this guide,
attorney based loan modification companies often have more influence and power when
it comes to carrying out a loan modification.

What success rates do they have with modifying loans for other homeowners? A
legitimate company should be able to share with you their success rate. Do they have
samples of approved loan modifications that your company has done? This can serve
as a follow-up to the previous question.

What do they charge for their service? The fees of service providers vary slightly.
Attorney based loan modification companies may charge slightly more, but having an
attorney based company on your side is beneficial. The charges should never be more
then two mortgage payments.

Are there any hidden costs? It is good to ask this up front. Be sure that you read and
understand the agreement that you are signing.

Does the company have a money back guarantee? A money back guarantee can be a
good option, but make sure that you have a signed document stating this guarantee.

Attorney Based and Non-Attorney Based Loan Modification Companies

All Loan Modification Companies have a similar routine in that they analyze the hom-
eowner's finances, contact the lender, and will provide a market analysis to determine
the value of the home on the open market as well as in a foreclosure auction. There are
several differences between the two, and that is how much power they have. While they
are able to complete the same tasks an Attorney has quite a bit more strength.

With this said there is also a difference in the cost for each. A non attorney based loan
modification company will typically charge anywhere from $2,500 to $3,500, in many
states they are not operating within the legal requirements and you my very likely lose
your money and see no results. An attorney will generally charge a retainer anywhere
from $2,500 to $6,500 depending on how much work is required.
Copyright © 2009 by State Financial Services, LLC all rights reserved
Before working with either company it is important to do your research. Make sure loan
modifications is indeed what they specialize in. If working with an attorney make sure
they specialized in RESPA, TILA, and other predatory lending prior to the beginning of
the housing market crash.

Doing it yourself? Be Prepared!

A US Congresswoman tried to help three different home owners to modify their

mortgages. As usual, the banks did not even help the US Congresswoman. Watch the
video that aired on ABC NEWS. http://abcnews.go.com/video/playerIndex?id=6704983

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER VII ▪ What Is A Forensic Loan Audit

Most homeowners signed mortgage documents with out reading or fully understanding
what they were getting into. When you signed your loan documents, you not only
guaranteed to pay back the money you borrowed to purchase your home. You entered
into a long term obligation and agreed to the terms of that contract with the lender. Even
if you read every word of your contract, you may not have fully understood it especially
sub-prime loans. This is where a forensic loan audit may help.

Fortunately there are laws to protect borrowers and make sure everyone is treated fairly.
Lenders don’t want you to know about these forensic loan audits. The Real Estate
Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) were put into
place to prevent unfair lending practices. Knowing these two laws, and the rights they
give you, can keep you from making the wrong decisions and making a big mistake.

The Real Estate Settlement Procedures Act (RESPA)

The RESPA basically says that borrowers should be given all the pertinent information
when buying a home. The law is designed to prevent the parties involved in the
purchase from making kickbacks at your expense. These include your lender, realtor,
broker, and the construction and insurance companies. Before the RESPA was
enforced, these parties got huge kickbacks from undisclosed fees in the loan.

The RESPA requires mortgage companies to disclose all the expenses involved in the
transaction. This is called a good faith estimate. The estimate lists your expenses in six
main categories:

1. Loan fees
2. Reserves
3. Government charges
4. Title charges
5. Additional charges
6. Fees to be paid in advance

The law also gives you the right to dispute (in writing) any vague or unexplained fees.
This way, you know exactly where your money is going, and you can always speak up
when you feel you’re being cheated.

Copyright © 2009 by State Financial Services, LLC all rights reserved

The Truth in Lending Act (TILA)

This law was passed in 1968 to protect borrowers in credit transactions. Like the
RESPA, it requires maximum transparency from your lender in all aspects of the
transaction, from the actual costs to the payment terms. The law is not limited to
mortgage loans; it applies to all other credit transactions including car loans and payday

The TILA does not directly regulate the amount you pay on the
loan. Instead, it requires lenders to disclose certain costs so that
you can compare and shop around for the best deals. The
standard figure is called the annual percentage rate (APR), which
reflects the total cost of the credit including interest, discount points
and origination fees.

For refinancing and second mortgage loans, the TILA also allows you to cancel the
transaction within three business days. This is known as the “right of rescission.” It
basically serves as a cooling-off period—it gives you the time to go over the contract and
change your mind before it’s too late.

There may be violations of the above regulations in your loan documents. In most states,
attorneys are the only people qualified to conduct a forensic loan audit to determine if
errors have been made that could be used to effect a loan modification in your favor.

A forensic audit does not guarantee that state or federal violations will be found.
However, if you have a subprime loan or an adjustable rate mortgage especially an
option ARM, it is likely that there are violations. You will need to retain an attorney that
specializes in foreclosure defense who is up to date on recent Federal and State laws that
affect the loan modification process. The costs involved can be substantial but may be the
leverage needed to get your loan modified and avoid foreclosure.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER VIII ▪ How To Deal With Your Lender

The best way to approach your lender is by

retaining a professional attorney based firm,
however if you choose to attempt to obtain a loan
modification on your own you should educate
yourself and try to prepare your case taking the
same approach that your lender is taking when
enforcing the legal contract they have with you.
They agreed to lend you money to purchase or
refinance your property and they want the agreed
upon monthly payments or they want their secured
asset back, which is your home.

In this mortgage meltdown crisis, lenders want to keep their financial losses as low as
possible. This is often best accomplished by keeping you in your home and modifying
your mortgage. This keeps payments coming in. Agreeing to a mortgage modification
and reducing payments, is almost always better than the foreclosure option, where
lenders see no regular income and tend to lose a great deal while holding the property
as Real Estate Owned (REO) and losing more when the sell the property. It would then
seem easy for borrowers and lenders to come to an agreement, however reaching the
right person at your lender who can make decisions is very difficult. I am going to show
you how to make this a little easier.

As mentioned earlier, many homeowners make their payments to a servicing company.

A servicing company does not own your mortgage; they simply mail your monthly
statements and collect your mortgage payments. They are paid a fee by the owner of the
mortgage to collect monthly mortgage payments for them. Homeowners are calling their
servicing company, and trying to modify their loans. The servicing company strings
homeowners along, stalling and not allowing homeowners to talk to the right people. All
the while, the lender is filing a Notice of Default. Homeowners again call the servicing
company, and the servicing company stalls the homeowner and little or nothing is
accomplished to help you keep your home or get a modification that you can afford.

Should you fight to keep your home? That is for you to decide. If you want to keep your
home and are willing to do what it takes to fight to keep your home and take the
necessary steps to maintain your mortgage payments once you obtain a successful loan
modification, you need to be realistic based on your income, because your lender will
be looking at all of your income and assets when determining whether to grant you a
loan modification.

Copyright © 2009 by State Financial Services, LLC all rights reserved

“Patient persistence pierces through indifference; gentle speech breaks down rigid
defenses.” (Proverbs 25:15 TM)

Make sure you are completely honest, because they will be documenting everything you
say and want you to back up what you say with proof. Your lender will typically want
your debt to income ratio to be under 50%. So if your monthly income is $6,000.00 your
monthly debts need to be under $3,000.00. So if your mortgage is currently $2,000.00
and your other monthly debts are $1,500.00, you are hoping for the lender to lower your
mortgage payment by 500.00 per month so that your total monthly debts will be under

A loan modification is not stated income; you have to able to prove your income. If you
originally obtained a stated income loan and claimed you made more than you actually
did, watch what you say. Let your lender know that your income has decreased and let
them know what you are actually making now. They know that stated income loans
were abused and it is in no ones best interest to bring up the past.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER IX ▪ Bankruptcy Information

Filing for Chapter 13 or Chapter 7 protection, which will stop the foreclosure in many
cases this may only buy you a little time and you may still potentially lose your home to
foreclosure, depending on your financial situation..

A Chapter 13 bankruptcy proceeding can be used to prevent foreclosure and

restructure past due mortgage payments. The Bankruptcy Code requires that you
have enough disposable income to fund their payment plan. If you have past due taxes
or unpaid student loans, they can be consolidated in the payment also, and avoid your
wages being garnished. Many times you will be paying back less than of current total
outstanding balance of these debts.

A Chapter 7 bankruptcy may eliminate some of your mortgage obligation, credit card
debt and other bills. You will not be able to eliminate federal taxes or student loans or
child support. You will be allowed to keep some personal property. If there is a
second mortgage and your home’s value has fallen below the amount you owe, you
could also potentially reduce the balance of the loan equal to the current value of the

The bankruptcy courts may remove the second mortgage. This is commonly referred to
as stripping the lien in cases when a property is not your primary residence, or when
the payment structure on the second mortgage fails during the bankruptcy procedure.

Visit http://www.uscourts.gov/bankruptcycourts/bankruptcybasics.ht ml or Click

on the image below to watch a short video explaining bankruptcy

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER X ▪ Beware of Foreclosure Scams

Unfortunately in these tough economic times, mortgage foreclosure rescue scams are
rampant. Foreclosure rescue fraud preys on homeowners’ fear of foreclosure and they
convince you that they will help you save your home. Often they steal your home and
take your money

 Never sign your home over to anyone; even if they say they will save your credit
and pay you a fee, it is usually a scam.
 Never give anyone money to assist you in modifying your loan that is not attorney.
 Beware the “bait and switch” when the scammer has you sign documents for a
new loan and you are really signing over the deed giving them ownership of your
home and you are still liable for the mortgage but no longer own the house.
 Watch out for bankruptcy schemes as the scammer gives partial interest to one or
more people and each party can file bankruptcy, one after another and the
bankruptcy court will issue a stay order each time to stop the foreclosure
temporarily and may keep you from using bankruptcy laws legitimately in the
future. If the offer is too good to be true it probably is.
 Lease back scams are where the scammer has you sign the property over to
them and they will lease it back to you. They may collect rent from you and not
make the mortgage payment (that is in your name) resulting in foreclosure or
eviction you from the home while you are still liable for the mortgage.
 If you have been a victim of fraud, contact the office of your State Attorney
General http://www.naag.org/attorneys_general.php

Protect yourself from mortgage fraud video:


Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XI ▪ What Is The Foreclosure Process

Most residential FNMA mortgage forms state that when a borrower is delinquent 30
days, the bank can send 30 days notice and refer to a foreclosure law firm to file a
judicial foreclosure proceeding in the county where the real property is located. The first
step is personal service with the summons and complaint by a member of the Civil
Process section of the Sheriff's Department or a private process server. The homeowner
may be served at home, at work, at a social function or any other place that he can be
found. Other Defendants to be served usually include any of the homeowner's other
mortgage holders, judgment creditors, IRS lien, homeowners' associations and other lien
holders with the exception of County Code Enforcement Liens and the liens for Unpaid
Real Property Taxes. If not found, there can be service by publication in a local

After service, there are 20 days to respond in writing and then the Foreclosure Attorney
sets a Final Judgment hearing with 20 days written notice. At the hearing, any defenses
can be presented but financial hardship or inability to pay is recognized by the Courts as
defenses. At the hearing, the Judge sets the foreclosure sale wherein the Clerk of the
Court offers the property for public auction at the Courthouse following about 30 days of
publication in the newspaper.

At the foreclosure sale, the Foreclosure attorney bids only up the amount of the Final
Judgment including all court costs and attorneys fees and the public is welcome to bid
more. Whoever wins the bid gets the foreclosure property and has to pay the Clerk in full
on the same day as the sale. If no one outbids the Foreclosure Attorney, the Bank gets it
back and remarkets the property. A deficiency judgment representing the difference
between the fair market values of the real property as of the day of the sale and the debt
and added expenses to the Bank can be entered by the Judge against the former
homeowner original obligor as late as one year following the foreclosure sale. The
deficiency judgment remains in the Public Records against the former homeowner as a
lien for 20 years.

What is a short payoff? Can it be done if foreclosure is filed with the Court?

A short payoff is when the Bank accepts less than its full indebtedness including interest,
any prepayment penalties and late charges in order for the property to be sold. Also it
will include attorney fees if the matter is already at the Foreclosure Attorney. The Bank
will require a letter of hardship explanation, 3 months bank statements, 2 years W-2s
and tax returns, and a financial statement including a list of all other debts and financial

Copyright © 2009 by State Financial Services, LLC all rights reserved

If the short payoff is granted by either the 1st or 2nd mortgage holder, the property can
perhaps be sold at a price wherein the Seller does not have to bring in money to closing
and the short (or reduced) payoffs will be accepted. It is important to ask the Bank
whether the Bank will turn in their bad debt write-off to the Internal Revenue Service
which will result in income to the Homeowner who will be taxed on the amount of the
loss about 1-1/2 to 2 years later. This is commonly called "1099ing" the homeowner.
This "1099ing" can be negotiated away. Also, if there are no other liens, sometimes the
Bank will accept a Deed in Lieu of Foreclosure wherein the property is just handed back
to the bank. The Deed in Lieu counts against a person's credit but not as badly as a

Some states are judicial states and some are non judicial states. If you are faced with
foreclosure it is also important to become familiar with the laws in their state, visit
http://www.foreclosurelaw.org. Below is a list of each state's estimated time for the
foreclosure process; this is typically the amount if time it takes for a foreclosure to be
complete following the Notice of Default. (Typically a Notice of Default is sent 90-120
days after the account becomes delinquent).

Judicial Foreclosure

Judicial foreclosure, involves filing a lawsuit to obtain a court order to foreclose, is used
when no power of sale is present in the mortgage or deed of trust. Generally, after the
court grants a foreclosure, your home will be auctioned off to the highest bidder.

Using this type of foreclosure process, lenders may seek a deficiency judgment and
under certain circumstances, the borrower may have up to one year to redeem the

Non-Judicial Foreclosure

Non-judicial foreclosure is when a power of sale clause exists in a mortgage or deed of

trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the
borrower pre-authorizes the sale of property to pay off the balance on a loan in the event
of default. In deeds of trust or mortgages where a power of sale exists, the power given
to the lender to sell the property may be executed by the lender or their representative,
typically referred to as the trustee.

Copyright © 2009 by State Financial Services, LLC all rights reserved

The moment you feel you are falling behind it is always best to act fast, don’t delay.
Typically the sooner you catch the problem the better your chances of receiving a loan
modification. Once a foreclosure sale date is set, a loan modification is difficult to obtain.

Alabama 49-74 Montana 150

Alaska 105 Nebraska 142
Arizona 90+ Nevada 116
Arkansas 70 New Hampshire 59
California 117 New Jersey 270
Colorado 91 New Mexico 180
Connecticut 62 New York 445
Delaware 170-210 North Carolina 110
Washington D.C. 47 North Dakota 150
Florida 135 Ohio 217
Georgia 37 Oklahoma 90
Hawaii 195 Oregon 150
Idaho 150 Pennsylvania 270
Illinois 300 Rhode Island 62
Indiana 261 South Carolina 150
Iowa 160 South Dakota 150
Kansas 130 Tennessee 40-45
Kentucky 147 Texas 27
Louisiana 180 Utah 142
Maine 240 Vermont 95
Maryland 46 Virginia 45
Massachusetts 75 Washington 135
Michigan 60 West Virginia 135
Minnesota 90-100 Wisconsin 290
Mississippi 90 Wyoming 60
Missouri 60

Banks are in the business of lending money. They are not in the business of maintaining
properties or selling houses. What is surprising to many borrowers is that lenders do not
in fact want your property. Lenders do not want you to fall behind on your payments,
and subsequently lose your home. Lenders want you to stay in your home and continue
to make payments.

The foreclosure process can be expensive, especially when you tack on court cost and
attorney fees and is very damaging to your credit. Individuals with foreclosure or
bankruptcy are considered higher risk.

Copyright © 2009 by State Financial Services, LLC all rights reserved

Affects of Foreclosure:

 Difficulty renting an apartment - Landlords may deem you as a higher risk of

paying rent making you a higher risk of having to file eviction proceedings.
 Inability to obtain financing in the future - (Refer to CHAPTER I) A foreclosure
can destroy your credit profile, which may result in declined credit or higher
interest rates.
 Increased insurance premiums - Credit is one of the risk grades in determining
insurance premiums. An insurance carrier may feel that an individual under
financial stress may not be as alert when operating a motor vehicle. Since most
illnesses can be attributed to stress you may be considered a bigger risk of illness
and increased medical insurance claims.
 Increased taxes - A lender who loses money from the sale of a foreclosed home
must report the loss to the IRS. Subsequently, the IRS may require you to report
the lender's loss as income on your next tax return and you may be required to
pay taxes on it (refer to CHAPTER IV).
 Loss of employment - Some employers require their employees to maintain
good credit histories. Notification of a foreclosure may keep you from hired by
some employers, be grounds for dismissal, future promotions.
 Loss of prior investments and future equity - Time, money and sweat equity
you have in your home will be lost as well as any equity through appreciation and
principal reduction.
 Loss of self-esteem - Emotionally the stress of foreclosure can have serious
effects on your well being. The stress that foreclosure brings can lead to
depression, lack of motivation, shame and failure.
 Judgments - The mortgage company may file a law suit against you for damages
resulting in a deficiency judgment in addition to the loss of your home.

Loss Mitigation

Dealing with the mitigation department is sometimes difficult as they have an increasing
number of people asking for help due to the troubled economic status in our country, and
it may also be difficult to convince them of the severity of the problem you are facing.
You need to be educated on your options, have the time and patience and be confident
in your ability to properly present and sell your proposal to your lender/servicer”s loss
mitigation representative, otherwise you ought to have a professional attorney based
firm that specializes in loan modification represent you. They will outline any state or
federal violations found in the forensic audit as well as prepare a cost benefit analysis at
to how much the lender will lose if they go through with the foreclosure process.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XII ▪ Homeowner Affordability and Stability Plan

The Loan Modification part of the Homeowner Affordability and Stability Plan known as
HASP legislation involves assisting homeowners that will not be able to refinance but are
still experiencing financial difficulty.

Making Home Affordable modifications are intended for people that can no longer afford
their monthly loan payments but still desire to remain in their home. In order to qualify,
the affordability of your payment must have been impacted by a hardship.

A hardship that may qualify for modification could include, but not be limited to, a change
in your interest rate, decreased income, or increased expenses related to issues like
medical expenses, increased property taxes and/or hazard insurance.

To qualify for a modification under the terms of the plan, you must be able to answer yes
to the following questions:

1. Is your home your primary residence?

2. Is the amount you owe on your first mortgage equal or less than $729,750?
Based on area confirming loan limits.
3. Are you having trouble paying your mortgage? Reference above for hardship
4. Did you obtain your mortgage before January 1, 2009?

In addition, the loan must be a Fannie Mae or Freddie Mac loan. (That just eliminated
most of the homeowners that weren’t already eliminated by 1 through 4 above) –Most
ARM’s, Stated, No Doc, Reduce Doc, Alt-A, Sub Prime, Jumbo, Government Insured
mortgages don’t fit within the guidelines.

One item to note is that the program is not available for jumbo loans. In many areas of
the country, a jumbo loan is any loan amount between $417,000 and $729,750. Areas of
the country where the loan amounts exceed $417,000 and are still considered eligible
include high cost areas like parts of California, Florida, Washington DC, and the

Loan modifications included in the program are designed to assist homeowners obtain a
more affordable mortgage payment, inclusive of principal, interest, property taxes,
insurance and homeowner's association fees of not more than 31% of gross monthly
income. In order to arrive at this number, participation from both the lender and the
government may be involved. The HASP guidelines state that the lender must first take
the mortgage payment to 38% and agree to take down to 31% and the government will
split the additional 7% (difference between 38% & 31%) loss with the lender 50/50.

Copyright © 2009 by State Financial Services, LLC all rights reserved

What's Needed to Qualify for the Program?

In order to qualify, the homeowner needs to know that full qualification will be needed to
ensure the borrower can meet the new payment. This will include supplying full income
documentation and disclosure of assets. They will also be required to provide
documentation proving the property is a primary residence. This can include verification
through a credit report or other documentation such as utility bills.

To qualify for the modification program, evidence of additional housing expense items
will be required including car loans or leases, credit cards, student loans regular
household expenses and a hardship letter detailing your situation and inability to make
your payment.

Finally, all lender and loan servicers' participation is voluntary. Just because the
programs are now available does not guarantee you will be able to find relief. Not all
people in distressed situations will be helped. In these cases, there is a website detailing
additional options that can be found at the government website by visiting

Final Recommendation

The details of the legislation released March 4, 2009 may not assist everyone in need of
relief. However language in the legislation suggests you reach out to your lender directly
however the first step you should take would be to contact a professional who can assist
you in navigating the waters and provide you with information that is pertinent to your
individual situation. Every homeowner needs to go through an approved counseling
course. Remember it is optional for your lender to offer a HASP loan modification
program and the qualifying guidelines are very narrow.

Let’s look at what I would consider an average homeowner:

Mary and Joe Homeowner have a hardship on their Fannie/Freddie loan… Their
income has dropped from $6,000.00 per month to $3,500.00 per month, their monthly
mortgage P&I is $1,300.00 and their T&I is $400.00 = $1,700.00 PITI (based on a
$195,400.00 - 30 year fixed rate loan at 7%), all of their other bills total $2,400.00,
putting them upside down $600.00 per month.

The lender would need to drop the PITI to 31% $1,085.00. $685.00 PI + $400.00 TI =
$1,085.00 PITI (half of what their current PI is (not likely)). $1,085.00 PITI + $2,400.00
other bills = $3,485.00. Income $3,500.00, monthly debt $3,485.00

The lender must take the payment to 38% = $1,330.00 and then the government will
share in the loss to take it 31% = $1,085.00. Which means the lender takes $370.00 off
of the payment + ½ of $245.00. So of the $615.00 payment reduction, the lender will
take $492.50 off of the original PI payment of $1,300.00 and the government will be
responsible for $122.50.

Copyright © 2009 by State Financial Services, LLC all rights reserved

Assuming that the original loan has 28 years remaining, the balance would be
$191,102.47 which is assuming that the borrower has no delinquent mortgage payments
that would have to be added to the existing loan balance. The lender would have to re-
amortize the loan to a 31 at 2.0% to reach a target payment of $1,085.00.

If the homeowner has missed 6 months of payments, there would be $6,685.29 in

interest payments added to the $191,102.47 loan balance making the new balance
$197,787.76, which would need to be re-amortized to 33 years at 2.0%. Now if we also
have to capitalize 6 months of unpaid escrows, that is another $2,400.00 added to the
loan balance making the balance $200,187.76 re-amortized 37 years at 2.0%

Their new debt to income ratios, known as DTI would be 31% front and 99.57% back.

Would Mary and Joe Homeowner, struggling with their $200,000.00 mortgage balance,
who have little or no experience in this area, they are no well versed in RESPA, TILA,
ECOA, HOEPA, Predatory Lending, State and Federal Laws or how to properly prepare
a financial package, current market analysis of their property, a cost benefit analysis, a
cross cut analysis or have the efficiency and expertise to present them to their lenders
loss mitigation department in order to get the best outcome? This eBook guide is
designed to help you be better equipped to handle your loan modification yourself.

Remember you get one chance to modify your loan, so if you feel that you need the
assistance of a professional, don’t delay. An experienced team of attorneys, mitigation
specialists and processors with the knowledge, understanding, experience with proven
track record may be presenting your loan modification case along with many other
homeowners cases to the same lender, for example fifty $200,000.00 loan modification
cases with the same lender potentially moving $10,000,000.00 of delinquent mortgages
to the positive side of the lenders balance sheet will get a lenders attention.

Where does your state rank?


Americans everywhere are feeling the recession’s pain – some more than others.

Reach out and help someone else in need. “A generous man will prosper; he who
refreshes others will himself be refreshed.” (Proverbs 11:25 NIV)

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XIII ▪ Hope for Homeowners

The HOPE for Homeowners (H4H) program was created by Congress to help those at
risk of default and foreclosure refinance into more affordable, sustainable loans. The
program is effective from October 1, 2008 to September 30, 2011.

There are four ways that a distressed homeowner could pursue participation in the
HOPE for Homeowners program:

1. Homeowners may contact their existing lender and/or a new lender to discuss
how to qualify and their eligibility for this program.
2. Servicers working with troubled homeowners may determine that the best solution
for avoiding foreclosure is to refinance the homeowner into a HOPE for
Homeowners loan.
3. Originating lenders who are looking for ways to refinance potential customers out
from under their high-cost loans and/or who are willing to work with servicers to
assist distressed homeowners.
4. Counselors who are working with troubled homeowners and their lenders to reach
a mutually agreeable solution for avoiding foreclosure.

Step 1: Cost-Benefit Analysis

Given their fiduciary responsibilities and financial obligations, lenders will assess their
portfolio and perform a cost-benefit analysis to determine the feasibility of offering this
program to struggling homeowners.

1. Affordability versus value: lenders will take a loss on the difference between the
existing obligations and the new loan, which is set at 96.5 percent of current
appraised value. The lender may choose to provide homeowners with an
affordable monthly mortgage payment through a loan modification rather than
accepting the losses associated with declining property values.
2. Borrower eligibility: Lenders that determine the H4H program is a feasible and
effective option for mitigating losses will assess the homeowner’s eligibility for the


 The existing mortgage was originated on or before January 1, 2008;

 Existing mortgage payment(s) as of March 1, 2008 exceeds 31 percent of
the borrowers gross monthly income for fixed-rate mortgages; For ARMs,
the existing mortgage payment(s) exceeds 31 percent of the borrowers
gross monthly income as of March 1, 2008 OR the date of the new loan
 The homeowner did not intentionally default, does not have an ownership
interest in other residential real estate and has not been convicted of fraud
Copyright © 2009 by State Financial Services, LLC all rights reserved
in the last 10 years under Federal and state law; and
 The homeowner did not provide materially false information (e.g., lied
about income) to obtain the mortgage that is being refinanced into the H4H

Consumer considerations:

The lender will disclose to the homeowner the benefits of the program:

 Home retention
 New affordable mortgage based on current appraised value
 3.5 percent equity

The lender will also disclose to the homeowner the costs of the program:

 3 percent upfront mortgage insurance premium and a 1.5 percent annual

 Equity and appreciation sharing with the Federal government
 Prohibition against new junior liens against the property unless they are directly
related to property maintenance

Step 2: Negotiations Between Borrowers and Lien Holders

If the lender refinancing the loan does not hold the senior mortgage lien, it will need to
secure an agreement from the existing lien holder to waive all prepayment penalties and
default fees on the existing loan and accept the loan proceeds from the H4H loan as
payment in full. The loan amount (including the 3 percent UFMIP) for the new H4H loan
cannot exceed 96.5 percent of the current appraised value of the property.

The lender will engage existing subordinate mortgage lien holders to extinguish all
subordinate liens on the subject property. To entice subordinate lien holders to
participate in the negotiation process and release their liens, FHA has the authority to
share its future appreciation entitlement with them or offer an upfront payment option.

Step 3: Originating an H4H Mortgage

The lender will qualify the homeowner for the new H4H mortgage using the guidelines
established under the terms of the program’s unique statutory requirements, ensuring
the homeowner has the capacity to make the new payment on the H4H mortgage in a
timely manner.

Copyright © 2009 by State Financial Services, LLC all rights reserved

During underwriting of the loan, the lender will calculate the future appreciation interest
amount or upfront payment for each subordinate lien holder in accordance with
instructions provided by FHA.

At settlement, subordinate lien holders who choose the future appreciation share option
will receive a certificate that evidences their interest as an obligation backed by HUD,
with payment conditional on the value of HUD’s appreciation share.

Following funding of the loan the lender will record, in addition to the typical security
instrument and note for the first mortgage, a shared equity note and mortgage (SEM)
and a shared appreciation note and mortgage (SAM). These mortgages will be serviced
by FHA.

The lender will also submit the new mortgage for insurance to FHA, certifying that it has
been originated, underwritten and closed in accordance with the H4H program

Step 4: Fulfilling H4H Mortgage Obligations

Upon sale of the property, the homeowner will use

their sale proceeds to pay off the H4H mortgage as
well as the shared equity and shared appreciation
mortgages. You will share 50% to 100% of your
home’s equity and future appreciation with the

Is it working?

Watch this MSNBC News video.


FHA will provide instructions to the settlement agents regarding subordinate lien holders
who are entitled to a portion of any appreciation. The lien holder that previously held the
highest priority will receive payment up to the full dollar amount of its interest, not to
exceed the amount of available appreciation, and so on, until all prior lien holders are
satisfied or the amount of available appreciation is exhausted. All remaining
appreciation is remitted to FHA.

In instances where the homeowner failed to make the first payment on their new H4H
mortgage, the H4H statute prevents FHA from paying claim benefits to anyone holding
the mortgage.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XIV ▪ Government FHA / VA Loans

If you have one of these government loans, your lender may not be as responsive to
your requests for a loan modification. If your loan is insured by the FHA (Fair Housing
Administration), it means that FHA covers much of your lenders potential loses in the
event of foreclosure. If your loan is a (VA) Veterans Administration, it is a similar
situation except that the VA uses its own funds and limits financial risk to your lender in
the event of foreclosure.

If you have an FHA loan and are in this unfortunate position, you will have to file what is
referred to as a partial claim with the (HUD) Housing and Urban Development. In order
to obtain a partial claim, in order to clear your delinquent payments. You must submit a
complete loan modification package to all lien holders at the same time.

For additional information visit http://www.hud.gov/offices/hsg/sfh/nsc/faqpc.cfm. The

basic guidelines to qualify for a loan modification or special funding on an FHA or VA
insured loan are:

1. You must be more than four and less than twelve months delinquent on your
2. You must be able to make full payments again
3. You are no longer in hardship
4. You must be able to prove to your lender that you now have the ability to
make your payments as well as future payments

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XV ▪ Information For Senior Homeowners
If you are 62 years of age or olde,r a reverse mortgage may rescue you if you are in
danger of losing your home to foreclosure. Reverse Mortgages are not short term, hard
money, bridge or balloon loans. You may be in a position like many seniors who are
faced with the rising cost of living and their fixed incomes can not keep pace. Rising
costs of food and gasoline, medical expenses, property taxes, insurance or possibly an
adjustable rate mortgage because too little explanation on the part of the loan originator
or because they felt they had no other choice to keep their payments as low as possible.
Do you make your mortgage payment, or rather purchase food and medicine you need
each month? These decisions have placed many seniors near foreclosure.

There is HOPE! A reverse mortgage requires no income or credit qualification. What

this means is that if you are behind in your payments, even if the lender has filed a
notice of default, you may still get a new reverse mortgage loan. Once you close on
your reverse mortgage, you will never make another payment for the rest of your life.
You still have to meet the other reverse mortgage criteria, but if you do, a reverse
mortgage may be just the right thing for you or your loved ones to live payment free and
worry free for life.

You must meet the following criteria to qualify for a reverse mortgage. The youngest
borrower has to be aged 62 or older for the HUD government insured reverse mortgage.
Some programs even go down lower, but they also lend much less in relationship to the
overall value of your home. Your property must meet minimum requirements as set forth
by HUD and must be an acceptable property type, such as a single family home,
townhomes, modular homes on a permanent foundation, and condominiums are
generally acceptable. Your property has to be in reasonable condition with no major
repairs needed (some repairs can have funds set-aside to be completed after you
receive your new reverse mortgage). The only real credit requirement is that borrowers
cannot be in default on a federal obligation or a federally insured loan.

Copyright © 2009 by State Financial Services, LLC all rights reserved

This means that if you are in default on an SBA loan, an FHA insured mortgage, income
taxes or other federal obligation; you would not be eligible for a reverse mortgage.
Therefore, if the current mortgage that is delinquent is an FHA loan but has not had a
notice of default filed yet, you can still qualify for a reverse mortgage. Once the notice of
default has been filed, you would need to bring the loan current and satisfy the default
before you can proceed with a reverse mortgage. The money could come from a family
member, church, etc. Once your reverse mortgage is completed and funded, you will
never have to make another mortgage payment for the rest of your life.

When applying for a reverse mortgage, you must go through an approved counseling
course, the loan has to be processed including a property appraisal, all title issues
including trusts, conservatorships, etc must be reviewed and approved. If you are going
to use a reverse mortgage to stop a foreclosure you must take action now and
remember it is a long term solution. To see if a reverse mortgage may be the right
solution for you or a loved one visit www.StateFinancialServices.org. To see how much
you may qualify for. Try this free reverse mortgage calculator: visit
www.reversecalculator.com. You may also be interested in AARP’s educational website

“Dear brothers and sisters, when troubles come your way, consider it an opportunity for
great joy. For you know that when your faith is tested, your endurance has a chance to
grow. So let it grow, for when your endurance is fully developed, you will be perfect and
complete, needing nothing.” (James 1:2-4 NLT)

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XVI ▪ What you will Learn

What you will learn in this eBook guide?

The goal of this eBook is to inform, educate and provide the necessary tools for
preparing and negotiating a loan modification with your lender. Once you finish reading
this eBook, you will:

 Know how to prepare your own loan modification package

 Understand the government’s affordability calculation
 Understand what the lenders are looking for you to qualify for a loan modification
 Be able to come up with a proposal acceptable to lenders
 Understand why you should not necessarily accept the first offer from the lender
 Better understand how to negotiate for the best possible modification

You also have access to a FREE Demo of MODIFICATIONSOFT™, the first of its kind
online application to prepare and prequalify your loan modification package before you
send it to your lender.

Remember what we stressed earlier, you only get ONE CHANCE with your lender.
Therefore, it is important to get it right. That is why YOU MUST NOT send anything to
your lender until you have understood the lender’s and government’s guidelines with
regard to your loan modification.

You now have access to the best tools like MODIFICATIONSOFT™, which until now
has only been used by professionals in the industry.

As we mentioned in chapter I homeowners who prepare their own loan modification

package and negotiate directly with their lender have a low success rate because most
homeowners are not prepared and do not know what information to provide, what to say
or how to package their proposal. Let’s face it, you don’t know what you don’t know.

Caveat Emptor – Let the buyer beware: There has been a dramatic increase in the
number of companies offering loan modifications for a fee. Many of these companies
are not operating in accordance with state regulations. If you choose to retain a
company to represent you with your loan modification and the negotiation process, it is
critical that they are experienced and have experienced attorneys on staff.

Attorneys can perform a forensic audit (see CHAPTER VII), this is often very helpful
when negotiating a loan modification.

Modification assistance is available through some government subsidized non-profit

organizations. Our findings show that although these resources are free of charge, they
have a tendency not to be very flexible with their criteria.

Copyright © 2009 by State Financial Services, LLC all rights reserved

Hybrid Method: With this type of restructure, you the homeowner, use the lender and
federal government guidelines to ensure that your budget fits within the requirements
and you negotiate with your lender directly. When you have the right tools and
knowledge, this method can be effective since you are in control. Although this book
has the proper forms, formulas and information you need to do it yourself, using
additional calculators can simplify and expedite the steps in preparing a proposal that
has the highest probability of success. There is fabulous online software called
MODIFICATIONSOFT™, which prequalifies and prepares the complete loan
modification package and proposal from you to your lender. For more details, please
visit www.ModSoftKit.com

If you choose to get professional help, whether fee-based or non-profit, We recommend

that you should still use this software application so that you can direct your entrusted
representative with your knowledge to ensure that they can best assist you on a
successful loan modification.

“The tongues of wise people use knowledge well. But the mouths of foolish people pour
out foolish words.” (Proverbs 15:2 NIRV)

What next?

You are probably anxious to learn how to put a convincing package together.

1. Use the formulas in this eBook guide to best present your hardship situation
2. Provide the lenders with all necessary documentation
3. Know what to say and what not to say
4. Be honest

Play by the rules

The Treasury Department along with Federal Housing Finance Agency (FHFA),
Government Sponsored Enterprises (GSEs) and the Homeownership Preservation
Foundation (HOPE NOW) have set forth guidelines to significantly streamline the loan
modification process. Homeowners can now utilize and follow these guidelines to boost
the chances for a loan modification.

According to the U.S. Department of the Treasury, “The program, implemented on

December 15, 2008, creates sustainable monthly mortgage payments by targeting a
benchmark ratio of housing payments to monthly gross household income (38%).
Additionally, on November 20, 2008, Fannie Mae and Freddie Mac announced that they
would suspend foreclosure sales and cease evictions of owner-occupied homes to allow
time for implementation of the modification program.” (2)

Copyright © 2009 by State Financial Services, LLC all rights reserved

Please note: Although these are the government’s guidelines, each lender will also
have its underwriting guidelines as well.

Please visit www.ModSoftKit.com for the latest updates.

Here is an example proposal from MODIFICATIONSOFT™, the following example is

for illustration purpose only. Once you read this eBook guide, you will have the blueprint
to prepare a winning and convincing proposal like this for your loan modification.

Pre-Mod Post- Mod

Principal Balance $411,147.00 $313,500.00
Disposable Income ($785.55) $225.00
$2,735.37 $1690.95
Mortgage Payment (Including First,
Second, HELOC, Taxes, Insurance)
Mortgage Payment / Gross Income 55% 34%
Late Fees & Penalties Waived
Past due Balance Included in New Balance
Market Value $219,500.00

I can rent similar property for $1,595.00/month

Requested Next Payment Date Feb-09

Credit Bureau Reporting As Current

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XVII ▪ How does a loan modification work?

First, there must be a financial hardship that the homeowner cannot get corrected
without the help of the lender. You will need to write a hardship letter which is a written
explanation as to what caused you to fall behind on your mortgage. This letter is very
important in avoiding foreclosure and getting your loan modified.

A Hardship is an outline of the events and issues that are affecting your ability to meet
your financial obligations. Keep in mind that you are composing the hardship letter not a
book so keep is short and compelling (preferably one and no more than two pages). Due
to the current foreclosure crisis, lenders are extremely back logged and a mitigation
employee will not take the time to read a novel. An example of hardships that lenders
consider are; adjustable rate mortgage (ARM) that have resulted in payment shock,
damage to property (natural disaster or other), death of spouse/co-borrower, new child,
illness, disability, excessive medical bills, retirement (fixed income), loss of employment,
reduced income, failed business, job relocation, divorce or separation, military duty,
incarceration, delinquent taxes that are now required to be paid back, decrease in
property value.

You will need to prepare a package to send to your lender(s) consisting of the details of
the situation, which you have explained in your hardship letter as well as other
financial data for your lender(s) to review, such as your financial statement. This
includes proof of income and assets, including the last two paycheck stubs and two
months of statements from their checking, savings, retirement and stock brokerage
accounts. If you also want to give someone else access to the information, you will need
to submit a letter of authorization. Your lender will review the documentation and
determine if it meets their investors’ criteria to modify the terms of the existing loan or if
they should proceed with foreclosure. The process can take from 30 to 120 days, so
you need to be persistent and diligently call your lender for updates.

Loan Modifications are typically not credit-score driven. This means that your lender
usually will not look at your credit score to determine your eligibility. Many lenders
require you to be late before assistance is offered. Remember though, that imminent
default caused by loss of income, divorce, death, etc., may replace actual default as a
reason for requesting a modification. Lenders look at the borrower’s ability to repay the

It should be noted that having no income means that you will not qualify for a loan
modification. No lender will grant a loan modification if you have no income.
Conversely, if you have too much income, you will not qualify.

The federal government has set the housing affordability guidelines at 38%, which
means that they want homeowners to spend around 38% of the gross income towards
housing costs and the initiated loan modification efforts will target to bring the mortgage
payment to that ratio. Remember, you need to use the other 62% of your salary

Copyright © 2009 by State Financial Services, LLC all rights reserved

towards other debt obligations, living expenses, income tax and savings.(2)

Please note that these are only guidelines and if it does not make financial sense to the
lender, they can forgo the modification, call the note and foreclose the property. That is
why you have to submit a convincing and complete package that makes sense to both

What Lenders are looking for to Grant a Loan Modification

Banks do not want to take a home through the foreclosure process. Foreclosure costs a
lender tens of thousands of dollars in legal fees. If the property gets sold through a
trustee auction, the lender might receive a lot less than the balance owed. If the
property does not sell, they must assume the monthly cost of maintaining it as well.
The last thing lenders want is more inventories on their books. They are already
overwhelmed with foreclosed properties so you have a better chance right now of
negotiating a modification. By modifying a homeowner’s loan, lenders avoid
unnecessary foreclosure and losses associated with them and they don’t have to
show a nonperforming asset on their books.

When a borrower is no longer able to make their payments and the loan becomes a
non-performing asset, as the loan is no longer bringing money to the bank. Turning
the non-performing asset into a performing asset is a matter of income; if a loan
modification is possible a bank wants to be certain that following the modification the
loan will remain a performing asset.

If the bank modifies a loan and the borrower is still unable to make the payment the
bank loses out even more. What they are looking for is proof that you want to keep the
home, and you are willing and able to repay the bank what they owe in the terms they
have agreed to. This is why it is important to report all of your income. If the bank
does not believe you can make the payment they will not modify your loan. It is also
important to show that the homeowner is willing to give up luxury items (extra cars,
boats, etc.) in order to keep their home.

What can be modified?

 Principal
 Inte rest R ate
 Paym ent am ount
 Term of the loan
 Late fees
 Attorneys costs
 Accumulating Interest and Penalties

Copyright © 2009 by State Financial Services, LLC all rights reserved

Time frames

Latest loss mitigation practices indicate that homeowners no longer need to be

delinquent on their home loans in order to initiate a Loan Modification request. However,
the more delinquent you are with your payments the more motivated the lender may be
to help you get you back on track. Also, make note that if you are too close to the
trustee sale date you may not have the time needed to complete the process. It is
important not to procrastinate and get started with the process right away.

Differences by state

Remember that each state has its own regulations governing loan modifications, so it is
important to check which banking laws are in effect where you live before proceeding with
your application. Your lender will provide you information on what programs are available in
your state. A very useful site is http://www.hud.gov/local/.

Interesting Facts

 Given the situation that is now facing so many homeowners nationwide, lenders and
lending institutions have already had to modify their approach when handling
borrowers with distressed loans. Here are a few statistics that demonstrate the shift
in thinking currently taking place:

 In a press release from HOPE NOW dated October 2, 2008, mortgage servicers
provided loan workouts for approximately 189,000 borrowers in August 2008.
Borrowers received both loan modifications and repayment plans.(3)

 Nearly 53 percent of homeowners with subprime loans who received workouts through
mortgage services received modifications.(3)

 1 in 10 Home Owners are at least 1 month past due or in foreclosure reported January
2009 by The Mortgage Bankers Association.

 There are approximately 80,000,000 homeowners in the U.S., 56,000,000 and

6,000,000 delinquent or in foreclosure.

 2008 there were 3,157,186 U.S. Foreclosure Filings

up 81.24% over 2007 and up 224.80% over 2006.

 2008 Nevada, Florida, Arizona and California accounted for over ½ of the U.S.
Foreclosure Filings with 1,615,671 and Florida was #2 with 501,396.

 2009 The Federal Reserve Board Predicts 2.25 Million New Foreclosures.

Copyright © 2009 by State Financial Services, LLC all rights reserved

Why loan modifications are not successful for everyone

The number one criteria that lenders are looking for when it comes to approving a home
loan modification is to demonstrate that you will be able to support the payments on a
newly modified loan, both now and in the future. Therefore, only people who are able to
provide their lenders with solid documentation that they will be able to afford their mortgage
under the new terms will be approved. Some ways to prove affordability of the post-
modification payment includes:

 Proof of stable employment.

 The consolidation of any debt.

 A financial statement listing all of your income and expenses.

Although it may sound obvious, many people who believe that they are able to make
their payments are turned down by lenders simply because they are either unable to
prove their repayment ability, or because they have omitted and/or miscalculated their
income and expenses. You can avoid these expensive mistakes by using a software
application such as the MODIFICATIONSOFT™, www.ModSoftKit.com that not only
itemizes the various possible income and expense items, but also automatically
compiles the numbers and clearly highlights the areas that can greatly improve the
chances of loan modification.


 Loan modification is the altering of one or more terms of an existing home loan in
order to make it possible for the homeowner to remain in the property while
making affordable monthly payments.

 In order to qualify for a loan modification, you need to prove to your lender that
you have the income needed to cover the post-modification monthly mortgage
payment now and in the future.

 Loan modification is beneficial for the homeowner and the lenders because they
allow the homeowner to remain in their home and provide the lender with long-
term and sustainable cash flow.

Whether doing it yourself or hiring a professional, using the tools from this eBook and
MODIFICATIONSOFT™, www.ModSoftKit.com could be the difference between getting
a loan modification and getting the maximum benefit from a loan modification.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XVIII ▪ Loan Modification Options

In this chapter you will find a BLANK package with forms that provide a clear idea of how
a complete loan modification package should look. The examples are for illustration
purposes only. Although it may look daunting, do not let the details overwhelm you – we
will proceed carefully and explain each step clearly to clarify and simplify the application

Understanding your Options

Before you start preparing a loan modification application, it is important to understand

your options. Weighing the short and long term impact of each option on your credit
score is critical. Fair Isaac Corporation (FICO) uses a proprietary formula and there are
many variables impacting the credit score. However, doing nothing and going to
foreclosure is rarely the best option.

1. Refinancing: Attempting to secure a new loan from a different lender typically

involves origination, appraisal and closing costs. The most popular and most
likely to work during these times is the new FHA short refinance product called
FHA Secure. (From July 2008, FHA Secure began to provide additional
assistance to subprime borrowers) However, you must be current on your
mortgage and have sufficient income to make the mortgage payment to be
eligible. If you are delinquent, the default must have been due to the payment
shock of an interest rate reset or, in the case of an Option ARM, the recasting of
the mortgage to full amortization. More details are at the FHA Website
2. HOPE for Homeowners (H4H): HOPE for Homeowners will offer 30-year fixed
rate mortgages. This program will maintain FHA’s long-standing requirement that
new loans be based on a family’s long-term ability to repay the mortgage. Only
owner-occupants are eligible for FHA-insured mortgages. More details are at the
FHA Website (http://portal.hud.gov).
3. Selling your property in order to pay off your creditors IN FULL. This is your option
if your property is currently worth more than you owe, unless you can come up
with the cash for the difference of the sale price and what you owe.
4. Loan Modification: A loan modification involves changing one or more terms of a
mortgage, which may include spreading the delinquent amount you owe over the
remaining term of the loan.
5. Repayment plan: You may qualify for this program if you recently experienced a
temporary reduction in income or an increase in your living expenses. Repayment
plans allow you to repay the past due amount over an extended period of time.
This was the preferred method used by lenders, which is really of no help to most
borrowers. It causes the monthly payment to increase and the terms to remain the

Copyright © 2009 by State Financial Services, LLC all rights reserved

6. Forbearance: You may be able to suspend or reduce your mortgage payments for
a short period of time. Afterwards, the lender would examine other options to
assist you in getting the loan current without causing future financial distress. In
most cases, lenders add the past due amount to the principal balance.

Deed in lieu of Foreclosure: As a last resort, you may be able to voluntarily give your
property back to reduce or cancel your mortgage debt. The lender will record this in your
credit history and may have a similar effect as a foreclosure.

Short Sale: The lender will accept a sale price that is less than what the borrower still
owes on the mortgage. It is a procedure sometimes agreed to by lenders, who would
rather take a small loss than go through the lengthy and costly foreclosure process.

Visit www.YourHome.org for more information.

We would like to recommend for you to read

Believe That You Can
Pastor Jentezen Franklins' New Release

Living out your dreams isn't always easy. It takes persistence and tenacity, along with
belief in yourself, God, and the message He has given you. In this book, New York Times
best-selling author Jentezen Franklin brings readers a powerful message of hope using
examples from biblical characters who knew the power of taking hold of the dreams and
visions God gave them and not letting go until they came to pass.

Above all things the Lord wants for you to be in good health and for you to prosper
spiritually and financially. 3 John 1:2

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XIX ▪ Documentation

The key to success whe n it comes to loan modification is being

prepared. This chapter will help you to compile the necessary
information to complete your package. It will also provide you with all
of the necessary guidance you will need when you call your lender.
We will also give you a few tips on how to present yourself to get the
kind of positive results you need

STEP 1: Get organized

Your lender will require all of your income and expense documentation to determine your
affordability. All the effort you put into gathering t his information will not only speed up the time it
takes to fill out the actual documentation, but it also ensures that you do not omit items that
could be crucial. These items will become your reference points in the process. For example,
having your account statements or credit card statements readily available will clearly identify
the income and expenses for the past few months.

 Current mortga ge state me nt

 Proof of property taxes & hazard insurance if not included in loan payment (property tax and
insurance declaration page)
 Home Owners Association (HOA) bill (if applicable)
 1 mo nth pa y stubs
 Most recent 2 months bank/credit union statements (for all checking, savings, CDs, money
markets, etc.)
 Auto mo bile loa n pa yme nts
 Cr e dit c ar d bills
 U tili t y bi lls
 All o t he r bi lls
 Most current cash value life insurance state ment
 40 1k, IRA and other retirement savings accounts statements
 Stock brokerage and annuity statements

STEP 2: Fill out the documentation (refer to the included forms)

Borrower's Info (PART A) – Enter borrower and co-borrower’s personal information. Often,
lenders will ask for the last 4 digits of the social security number. When calling the lender, please
ensure that either you or the person calling on your behalf remembers the co -borrower’s details.

Subject Property Details (PART B and C) – Enter the property information for which you are
requesting the loan modification. Be sure to enter the type of loan you have.

Market Value – We suggest http://www.zillow.com as a resource to check property value.

Number of dependents – Should include you, your spouse, children, elderly parents and others.

Copyright © 2009 by State Financial Services, LLC all rights reserved

Schedule of Real Estate Owned....; Assets and Liabilities (PART D and E) – Enter the list
of properties you own, OTHER TH AN the subject property. Indicate clearly the STATUS of the
property, whether it is FOR SALE, LEASED, PENDING SALE, VACANT, etc. Please make sure
to calculate rental income minus expenses and mortgage payment to determine net income/loss.

Under the Assets and Liabilities section, the first part captures the liquid assets: Lenders want to
be able to see the total amount of cash which you have quick access, such checking and savings
account balances. Lenders want to know about the 401K and how much you can bo rrow right
away and the cash surrender value of your life insurance policies. Remember, your lender may
want you to use these monies as a down payment toward your modification.

Monthly Income (PART F) – Please do not leave any income out. It is our experience
that you will need to show all of it and lenders may require documentation. For example,
lenders may ask for a cancelled check as proof of a room being rented out.

If you are self-employed, the income documentation requirements vary by lender and you s hould
use a profit and loss statement which is typically provided to you by your accountant. If you have
been provided the above statement, then input the profit or loss in this section. If not, use the
detailed Profit and Loss Statement provided in the Ap pendix. Lenders may also want to see your
Profit and Loss Statement supported by a business bank account.

Monthly Debt Payment (PART G) – This section seeks to compile your monthly debt
obligations. Please indicate only the minimum monthly obligation on your credit cards.
Do not omit any debt from this section as the lender will see all from your credit report. If
you plan to stop making payments on any of these debts in order to keep your home, please
explain it in your hardship letter. One example, if you trade your SUV to purchase a
smaller, less expensive vehicle in order to save money and your home, write it in your
hardship letter.

Be as detailed as possible. Refer to your loan and credit card statements as points of reference for
all income and expens es, if needed.

Hardship letter

Your hardship letter is one of the most important elements of your loan modification application.
Writing an honest and forthright hardship letter will allow your lender to understand what
circumstances led to the position in which you find yourself. You must state whether you believe your
current circumstances are temporary or permanent. You should also outline the steps you have
taken to remedy the situation up to now. Basically, with this letter you must convince your lende r
that you are a responsible homeowner and that they should give you the opportunity to keep your
loan current. While it is important to make your letter descriptive, it should not have more than one or
two paragraphs.

Copyright © 2009 by State Financial Services, LLC all rights reserved

Some of the common hardships quot ed are:

Military Service Business Failure Divorce/Separation Incarceration

Death of Spouse Disability Reduced Income Too Much Debt

Unemployment Medical Bills Job Relocations Illness

Use the questions below to analyze and brainstorm your hardship.

 What changes or events have occurred since your loan originated that have caused
you to fall behind?
 When did the change(s) and/or event(s) occur?
 How did this impair your ability to afford you mortgage payments?
 Do you anticipate any improvement in your financial situation in the near future? If
yes, please explain.

Sample hardship letters are in the pages that follow. You will need to modify your
letter to fit your situation.


 Before you sit down to fill out the Loan modification paperwork, it is important to
gather all your papers that are pertaining to your income and expenses.
 Use the forms and checklists included in this chapter to complete the borrower
financial information. This will lay the foundation to pr epare the proposal for the
loan modification.
 The hardship letter is a critical component of a complete package. This is your
chance to state your story to the lender. Make it count.
 Consider using a solution like www.ModSoftKit.com. This will simplify the process
and greatly improve your odds of lowering your monthly mortgage payments.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XX ▪ How To Analyze Your Numbers

In this chapter you will find information on how to analyze and present your
numbers to the lender. This will introduce terms like debt to income ratio (DTI),
disposable income, liquid assets, and loan to value (LTV) and prepare the
proposal that you will be comfortable with.

Do I qualify for a loan modification?

The short answer to this question is: MAYBE.

Your lender is looking for legitimate reasons for modifying your loan – after all, if
word got around that they were modifying loans for just anyone nothing would
stop everyone with a mortgage from trying to renegotiate better terms. Lenders do
have a list of what they consider legitimate hardships. Situations such as the death
of a spouse or co-borrower, divorce/separation, a failed business venture, injury or
illness, job relocation, military duty, job loss/work reduction, or payment shock
due to the resetting of an adjustable rate mortgage (ARM) are all considered valid
cause for loan modification. Lenders have SET GUIDELINES for affordability and
your case needs to fit.

However, if you simply want a loan modification because the value of your home
has fallen and you want your mortgage adjusted to reflect the new property value,
you are out of luck. Lenders consider a home purchase like an investment, and
there is an element of risk. Assuming that risk is not the lender’s responsibility; it is

To determine whether you will qualify for a loan modification, you need to look at
your income and expenses critically and also seek to understand the lender and
federal guidelines. The following are the key numbers you will be looking at:

A: NET Monthly Income – This is the total take home pay (income
AFTER taxes and deductions). For self-employed individuals, it requires
more legwork as you need to come up with a profit and loss (P/L)
statement and deduct their estimated taxes to come up with the net
income. This is normally done by your CPA or accountant. You can also
use our attached form. However, some lenders such as JPMorgan
Chase will not require you to provide a P/L statement; they will just take
50% of your average deposits for the last 4 months as your net income.
Please note that all income would be the total household income for the
borrower and co-borrower.

B: Current TOTAL Monthly Expenses – including current mortgage

Copyright © 2009 by State Financial Services, LLC all rights reserved
C: Pre-Mod Disposable Income – This is the total amount left over
after paying your monthly debt obligation and living expenses. A general
rule of thumb is that if this number is not negative, the lender may not
perceive a true hardship. On the opposite extreme, if you have too much
negative disposable income, your case is beyond help and will not
entertain a loan modification. The best way to stay balanced is by using a
tool like www.ModSoftKit.com that can proactively prepare you with this
critical section.

D: Debt to Income ratio (DTI) – It is the ratio of the current

mortgage payment – including principal, interest, property taxes and
hazard insurance (PITI) – to the gross household income (of the
borrower and co-borrower). This is one of the core indicators that is
used by most lenders to determine whether you fit in their guidelines for
a loan modification, and is the ratio that various government agencies
are encouraging lenders to use for affordability calculations. It is by far
the most important factor that you need to understand and stay within.
The DTI uses the GROSS INCOME (income before taxes) and total
dollars used towards housing expenses. It is not one size fits all. For
example, of major lender buckets the target affordability ratio by the
income range.

E: The Target Housing Ratio is the best kept secret. For example, if
you make $6,000 GROSS per month, the lender would want to see you
pay around 37% x $6,000 = $2,040 for your monthly mortgage
expenses. This is for a primary home. For rental properties, it is 50%.
The Target Housing Ratio varies slightly from lender to lender.

Inco me Range Target Housing Ratio

$0 - $2,499.99 31%
$2,500 - $4,999.99 34%
$5,000 - $9,999.99 37%
$10,000.00 + 40%

The table above is worth all the time you invest in reading this book when you
understand the DTI ratios and what lenders are looking for.

Another example: If your gross income is $10,000 per month and your current
monthly payment – including principal, interest, property taxes and hazard
insurance (PITI) – is $3,500, then your DTI is 35%.

Here is a little chart with an example of what your debt-to-income ratio would
look like:

Copyright © 2009 by State Financial Services, LLC all rights reserved

A: Gross Inc o me $10,000
B: Total Mo nthly Mortgage payme nt (Pre - $6,000
C: DTI = B ÷ A 60%

If you are having trouble calculating your ratio, go to our website at

www.ModSoftKit.com and use the software. It will automatically calculate the
ratios for you.

Remember that in our present economic climate the government is now

encouraging lenders and borrowers to turn to loan modification before heading
into foreclosure, so the chances of you qualifying for a loan modification are
better than they have ever been in the past. If you follow our simple steps,
there is no reason why you cannot benefit from lower payments, a reduced
interest rate, or some other form of modification designed to ease your financial

F: LOAN to VALUE (LTV) – This is the ratio of how much you owe on
the property versus what the property is worth.

To calculate LTV, you will need two values:

 The total outstanding mortgage debt – This value can be gathered

from the mortgage payment coupon.
 Market Value – There are multiple sources to obtain this value, such
as a local real estate agent, an appraiser, or by using websites like
http://www.zillow.com and http://www.cyberhomes.com. The topic of
determining the current property value can get subjective and could
be used to secure an upper hand in negotiating a principal reduction,
especially if your property value has dropped significantly.

Rental comparisons

Along with finding your property’s value, you should also know how much it would
cost you per month to rent a similar residence. Again, knowing the figure will help
you to negotiate with your lender – especially if rental values are lower than
what you currently pay on your home loan. You can use a local real estate
agent, or websites like http://www.craigslist.org and http://www.rentals.com can
help you get a list of similar homes in the area.


PITI) BASED ON CURRENT GROSS INCOME – This value needs to be
calculated based on the lender’s DTI guidelines. Please review the DTI section

Copyright © 2009 by State Financial Services, LLC all rights reserved

about the specific definition. The government guidelines are set at 38%.
However, please note that each lender is different and we have seen a range
between 28% - 40% for primary homes and up to 50% for investment
properties. Although we do not provide every lender’s guidelines in this book,
as long as you stay within the federal guidelines of 38% for primary homes and
50% for investment properties, you will have a good chance of doing well.

Here is an example for illustration purposes:

Pre- mod Post-mod

Gross Income $4,107.90 $4,107.90
Mortgage payment: Includes First, Second, $2,200.00 $1,561.00
HELOC, Taxes and Insurance)
DTI 54% 38%

In the last example, the Pre-Mod DTI is at 54%. It is obtained by calculating

$2,200.00 ÷ $4107.70.

The easiest way to interpret this is the borrower is spending 54% of the gross
income towards the monthly mortgage payments. The lender clearly sees this as
an excessive amount, based on the recommended 38% DTI. Therefore, they will
consider this case and may be willing to bring the payment down to $1,561.00
per month, which causes the Post-mod ratios to be within the government
guideline of 38%. Remember that this can only be successful if the borrower is
able to complete the other aspects of the package and submit all
documentation. This is only one piece to the puzzle. Other pieces must also fit
to make a convincing case.

G: Liquid Assets – Lenders look at the accounts that can be

quickly converted to cash to determine if you are able to afford to
bring the loan current, which can be considered as a down
payment (also known as a good faith payment). Many people try
to misrepresent the liquid assets. The lenders critically look at your
submitted paperwork to determine if the numbers make sense.

Example 1: If the total income you show on your pay stubs is not getting
deposited into the checking/saving account you submitted, and it is not
accounted for, they will ask you to comment on that. They may need to
see the paychecks coming into one of the accounts you list.

Example 2: If you have 401K deductions showing on your pay stub and you
did not disclose that you have a 401K account, the lender may question your
package and will want to scrutinize it even more.
Copyright © 2009 by State Financial Services, LLC all rights reserved
Remember that your documentation and financial statement should be able to
stand up to cross-referencing each other with no gaps: That is the key to making
your case airtight.

H: Number of Late Payments – Indicate the FULL 30-day

periods for which no payment has been made. Note: A payment
is NOT considered late in reference to your credit history if you
are 10, 15, 25 days late. It ONLY becomes late once you have
reached the next payment due date without a payment. Some
lenders DO NOT require you to be late in order to request a loan
modification. Check with your lender directly to understand their

I: I. Post-mod Disposable Income – Our experience shows

that Post-mod disposable income should be slightly positive.
Lenders want to make sure that you will be able to consistently
make payments with the least hardship going forward from the
modification. At the same time, they will want to be sure they are
not granting unnecessary surplus.
Example for illustration purposes:

Pre- mod Post-mod

Disposable Income ($785.55) $225.00

J. Principal Reduction – With home values declining as they

are, many borrowers are requesting that the lender lower the
balance to be more in line with the current market. This could be
achieved with the borrower understanding the logic behind why
lenders would do this.

The main motivation:

 To retain the borrower and resume a sustainable cash flow.
 To negate foreclosure and mitigate further losses.

There is a difference between the first lien holder granting the modification
and the second lien holder allowing it. It also makes a difference when the
mortgage notes are held by the same lender or by two different lenders.
When the mortgage notes are held by the same lender you have the best
chance. In order to keep the first and larger debt current and profitable, the
lender may be more willing to reduce or forgo the second note. If both loans

Copyright © 2009 by State Financial Services, LLC all rights reserved

are with the same lender you will only deal with one person and they will
work out the deal with the internal second mortgage contact. With some
lenders the first mortgage servicing department is completely different. In
that case you will be negotiating with different teams from the second
mortgage servicing department, and you will have to deal with them as two
separate entities, which may require you to submit separate files.

When there are two or more lenders involved the second lien holder will
review the request more carefully as it is all they have. They will consider
whether your situation is temporary or if you have a high probability of going
to foreclosure. They will be concerned with potentially getting nothing. In this
scenario, we suggest you contact the second mortgage lender first. Let
them know you have a hardship and that you need help. Tell them you
need to modify the principal and the payment as your situation does not
allow you to continue as-is anymore. If applicable, tell them you are
possibly going to foreclosure and you are seeking serious help. You need
to understand that the second mortgage lender is in a unique position. If you
negotiate with the first mortgage lender first, the second lien holder has no
reason to negotiate because you have already gotten help from the first. If
you call the second mortgage company first, they may say they want to wait
and see what happens with the first mortgage company before taking action.
It is our experience that you will benefit more if you can get the second
mortgage company to take action first.

Guidelines state that if you have an OPTION ARM loan, also known as a
“pick a payment” loan, lenders could reduce your principal balance to 90% of
the current market value. If you have other types of loans, our suggestion is
to always ask for a reduction of principal to 100% of the current market
value. If you have a second or third mortgage, offer the lender a lump sum
to negotiate a reduced payoff.

Pre- Post-mod
Second Mortgage mod
$57,000 $8,550 lump sum payment and write off
Principal the difference.

Remember that for the lump sum option you need to have the cash available
to send to the lender. We have seen subordinate mortgage holders reduce
the principal balance down to 10% of the original debt.

NOTE: The software will automatically review your input and provide you

Copyright © 2009 by State Financial Services, LLC all rights reserved

instant feedback.

When negotiating your modification don’t get caught up on the interest rate or
any one aspect of the modification. Look at the whole picture and analyze
the benefits.

Example 1: This is an example of an excellent loan modification, but if you look

at the interest rate, you might frown, even though the payment and balance
have been reduced to an affordable range.

Primary residence Pre- mod Post-mod Offer

Interest rate 6.50% 8.47%
Principal $400,000 $300,000
Mortgage Payment $2,529 $2,300

Now that the principal balance has been reduced, the owner may be able to
refinance for a better loan or even sell the property.
Example 2: This is an excellent loan modification where no principal reduction
was given.

Investment Property Pre- mod Post-mod Offer

Interest 6.50% 2.00%
Principal $400,000 $400,000
Mortgage Payment $2,529 $1,479
Rental $1,500 $1,500

Now that the rental income will more than support the mortgage payment, the
borrower can retain the property for a longer term and create wealth.


 Make an effort to understand all the variables that the lenders are looking for;
like the Pre-Mod Disposable Income, Total Liquid Assets, and Number of
Late Payments, Affordability Ratios with DTI, and Post-mod Disposable
 If you are having difficulty analyzing the property manually, use the online
application that will prompt and make the analysis very simple.
 When preparing to negotiate, do not be overwhelmed by the details, but
think in simple terms like, “How much can I afford per month?”

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XXI ▪ How To Create Your Package

Approaching your lender with a sob story will not win you any reprieve. In order to get
them to take you and your situation seriously you have to present them with a winning

The whole loan modification process is essentially the same as applying for the loan,
except this time, you must prove to them that you can no longer afford to pay your loan.
You have to show how you cannot meet the original loan conditions but how you
can afford to make lower monthly payments.

Your loan modification package, along with your ability to sell yourself, is what will ultimately
determine whether you succeed. That is the reason it is imperative that you put together the
best possible package at the start. Having the corr ect documents filled out properly will
shorten the processing time and limit the times you will be asked to revise your application.
Worst yet, the lenders will reject any drastic changes from the original application and deem
that you are misrepresenting or omitting pertinent facts.

Required supporting documents

 Any documents pertaining to your income and your expenses.

 Pay stubs for the last 2 months.
 W-2s and tax returns for the last 2 years. (Some lenders require it.) If you
have not filed tax returns or unable to provide them, inform the lender so
that they might provide you with an exception.
 Bank statements for the last 2 months.
 Hardship letter (this is a ver y im portant part of your package; it
should preferably no longer than one page. It should not be
accusatory, needs to factual with som e em otion e xplaining w hat
caused your hardship as w ell as why you are a good candidate for
a loan m odification and is a in the lenders best interest.)

Optional supporting documents

Any additional documents that you can provide your lender to support your case
should also be included in your package. They can include the following:

 Utility bills, car payments, and credit card statements

 Student loans
 Medical bills
 Documents proving hardship, if any. Example: Notification of reduced
hours or a job loss.

Copyright © 2009 by State Financial Services, LLC all rights reserved

In essence, you want to provide your lender with all of the information they might
need to fairly and accurately assess your situation.

The right strategy for your situation

Coming up with the right plan for yourself depends entirely on your financial situation.
If you expect your hardship to last longer than a few months, there are several
courses of action you may request:

 A reduction in the principal balance.

 A reduction of the interest rate payable on the loan.
 An extension of the repayment period.
 Changing from a variable rate mortgage to a fixed rate.
 Another type of loan altogether.

When you approach your lender you should already know how much you can afford
to pay towards your loan each month and have a clear picture of what you want from
your lender.

Cover Letter
As part of your package, you will need to include a cover letter for your application to
look complete and professional. While the letter does not have to be overly long or
elaborate, it should introduce your package and state your purpose. The following
page has an example of how a cover letter should look. The software
www.ModSoftKit.com will automatically generate this cover letter for you.

NOTE: You will need to prepare a separate cover letter and package for each lien


 Putting together a winning package involves analyzing

your situation and coming up with a proposal.
 Provide all required documents that are required by the
lenders to avoid delays with the file.
 Prepare a professional c oversheet and proposal that the
lender cannot refuse. Lenders would move much faster
when you submit a package with proposal on what you are
looking to achieve.

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XXII ▪ How To Negotiate W ith Your Lender

Have a plan in mind before you start negotiating. To qualify for a loan modification,
you will need to demonstrate that you are making just enough money to pay the
post-modification payment – NO MORE and NO LESS. You need to have your
own plan ready when you talk with the lender. If you have a plan that you
believe you can achieve and you are able to prove to them that you can make it
work, you will most likely get what you need. Besides, by coming in with a plan
you are opening up the negotiation that places you in control.


 Always be consistent with your information. Your lender may pull your credit
report and see all of the major purchases you have made.
 Always be polite.
 Be firm but cordial.
 Never lose your temper.
 Do not let yourself become intimidated.


1. Have all your documentation prepared and printed.

2. Find the customer service number from your mortgage

coupon/statement. NOW YOU ARE READY TO CALL!

3. Call and say, “I am requesting a LOAN MODIFICATION and have a FULL

MODIFICATION package ready. Where and to whom do I send it?" They
will offer their forms, but tell them that you already have a full package
prepared. Our experience shows that most lenders will accept our forms.
If it is mandatory for you to fill out their specific forms, the information they
are looking for is similar to what you already have, so you can simply fill
out their forms.

4. Explain your position to them. (This step may occur on the first or second
call.) When you are transferred to the right person, introduce yourself and
tell them that you are delinquent or are in danger of becoming delinquent
on your home loan.

Copyright © 2009 by State Financial Services, LLC all rights reserved

Explain that your payments are too high and that if nothing is done to modify
the situation, there is the very real possibility that you will fall into
foreclosure. Put a lot of emphasis on the fact that you are in trouble or
headed for trouble, otherwise they may not take your concern seriously. If
they judge that you do have a case, they will open a case number. If your initial
package is not complete, they will request more documentation. Remember
that this will delay the process.

You want to avoid saying that you are definitely heading into foreclosure and
have no money or job, because lenders want to know that they will not be
wasting their time working with someone who has no chance of being able to
make the payments.

Ask questions and build rapport. Examples:

 Is the lender aggressively helping their borrowers?

 How long has the negotiator you’re talking to been doing loan modifications?
 Where is the negotiator located?
 How is the weather over there?
 Are they following the FHFA guidelines?

5. Once you have their fax number, fax your package immediately and ask them if
you can stay on hold to have them acknowledge the receipt of the fax. If they
can hold, GREAT! Otherwise, call back the next day or two and check if they
received the fax. It usually takes 48 to 72 hours for the package to be entered
into their system. Sometimes lenders never seem to get faxes through and you
might have to fax again and again. Do not be upset if the lender keeps telling
you that they did not receive the fax. Keep faxing.

TIP: Fax the documents at NIGHT TIME as the lines are less likely to be tied

6. Document every action in your LOG. You usually will get a different person on
the phone until a loan negotiator is assigned. Also, in most instances, you will not
get to speak to the negotiator directly. Your first goal is to establish rapport with
each person you get on the phone.

tell the lender you will call back. DO NOT provide any information without your
documentation in front of you! If the lender catches you giving conflicting
information, it will impact your outcome.

7. Remember that you DO NOT have to accept the lender's first offer. This is a
Copyright © 2009 by State Financial Services, LLC all rights reserved
negotiation process and there needs to be mutual agreement. Your plan must fit
into the lender’s guidelines, which means your square pegs have to fit into the
lender’s square box.

Don’t be foolish. The lender still has the right to foreclose during the negotiation
process. Dealing with your lender takes some tact. You do not want to come
across like a used car salesman, but presenting your home loan modification does
require that you be persuasive. You have to know how to get your lender on
your side. Get them to trust you and believe that you are a good risk for a loan

In this case, the old adage, “You can catch more flies with honey” is certainly
true. You have to be cordial and polite, yet firm and consistent with your lender
representative. Even if things are not going your way, never lose your temper
and always keep an even keel. Always have a smile on your face when talking
with your lender on the phone, because the person on the other end will hear it
in your voice. As trite as this advice might sound, it will go a long way towards
accomplishing your objective.

Some lenders have started having face-to-face meetings. If you decide to go

and meet with the lender representative, ensure that you are well-dressed,
properly groomed and present a responsible and friendly demeanor to your
lender. You want to make them feel secure that if they take the chance of
modifying your loan, you will be able to continue meeting your payments.

After you have made all this effort, if the lender comes back with a response,
GREAT! Review it in detail. Sleep on it; then respond. DO NOT ACCEPT THE
OFFER RIGHT AWAY. Think through it and make sure you can honor the
modification. Of course, this does not mean that you should be a pushover and
let your lender intimidate you into accepting the first offer they make. Always
remain firm but polite during your negotiation.

Knowing whether or not to accept your lender’s loan modification offer is another
quagmire for many homeowners. Sometimes a lender will unjustly determine that
you will be able to support higher payments in the not too distant future and only
offer you a short reprieve before the payments once again increase. If you are
not comfortable with the offer do not accept it. The process will continue until
you feel comfortable with what you are being offered.

TIP: Do not get hung up on the interest rate and amortization schedule when

Copyright © 2009 by State Financial Services, LLC all rights reserved

negotiating. Our experience shows the payment and the balance is what

Lenders and Servicers

It will be useful to understand the difference between a servicer and a lender. Each
of them has their limitations on what they can and cannot do. A lender who makes
the loan charges the “origination fee” and then sells the loan to a servicer. The
servicer is the company you have to deal with regarding your loan modification. If
you have a servicer, they are controlled by investors. Some lenders do not sell the
loans they originate, and it is possible that the same lender may be still holding and
servicing the loan. Such lenders have greater control to grant loan modification.

Even though some loan modification providers might claim that all lenders are the
same, our experience has been to the contrary. The simple fact is that no two
negotiators, even with the same institution, are alike. Therefore, there are no
guarantees. There is no single rule in regards to what you can and cannot
accomplish, but there are certainly guidelines that you can follow to boost your
chances for a successful loan modification. Some lenders and servicers will be more
flexible with principal reduction, but harder with interest rates, and vice versa. They
will work with you as long as your argument stays rational and reasonable.

One of the most important things to remember when you begin building a loan
modification package yourself is that you should carefully document everything. Make
sure you keep a detailed log of everyone you speak with. Keep a record of all your
conversations and track the dates, times and most importantly, the names and titles of
the people you speak with! Keeping a log of everything and everyone will help you to
quickly and easily remember what you have done. It is also a good way to ensure that
in case of any mix-ups (it happens!), you will have a record of what took place and when.

The following is an example of a contact log.

Date/time Spoke to Phone/Ext Outcome Next follow

12/29/2008 Sarah Jones 1-800-555- Submitted In 5
1212 ext. mod package days
12/30/2008 Sarah Jones 1-800-555- Asked for Tax In 2 days
1212 ext. returns

With www.ModSoftKit.com, you have an online log that you can use to keep track.

Copyright © 2009 by State Financial Services, LLC all rights reserved


Negotiating is something that can be very intimidating, especially when you are the one
with so much at stake. However, it is important to keep in mind that your lender has much
to lose. Foreclosure is never a happy option, either for the lender or for the borrower.
There are costly fees and legal expenses involved with foreclosure that a lender must
assume. If they are unable to sell the property, the lender must take on the responsibility
of maintaining it, which means it is in your lender’s best interest to mitigate the loss by
working with you.

To recap the finer points of negotiating with your lender:

 Always be polite.
 Be firm but cordial.
 Never lose your temper.
 Have a plan in mind before you start negotiating.
 Do not accept their first offer unless it is what you really want.
 Do not let yourself get intimidated.
 Always tell the truth!
 If all else fails, look into retaining a forensic loan audit attorney.

You have the power to get this done for yourself and your loved ones. As long as you
are prepared, have a plan of action in mind, and remain focused on your objectives,
negotiating with your lender should be easier than expected.

“It's better to be wise than strong; intelligence outranks muscle any day. Strategic
planning is the key to warfare; to win, you need a lot of good counsel.” (Proverbs 24:5

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XXIII ▪ How To For The Self-Employed

If you are self-employed this chapter provides tips that can boost your chances of loan
modification. Most lenders have specific formulas to assess these situations.

Using an accountant’s simple financial statement

If you are self-employed, in order to ensure a better outcome, you should be doubly
prepared. Your best bet is to have your accountant prepare a simple
financial statement for the last six months, which is called a profit
and loss statement. You would take whatever profits you show and
use that as your adjusted gross income.

Basically, what you will be doing is using this profit as your income
when determining your debt-to-income ratio. By doing this, you will be
circumventing the intricacies that would otherwise be involved in
trying to calculate business expenses and other costs. You are
simply stripping the numbers to their most basic level and using
what is really needed – your income as shown by your profits. The
best part of having your accountant put together a simple financial statement is that it
will work for you even if your business is mainly cash-based.

You do not have to worry that these numbers will be audited and you will face any kind of
repercussion, since these statements are for the lender’s documentation only and are
used as proof of income. The lender needs to have some form of documentation to show
that you have an income stream and will be able to pay back your loan.

Preparing your own financial statement

If you do not have a regular accountant to whom you can turn for the preparation of a
simple financial statement, here is a strategy that generally works:

 Review a minimum of 4 months business checking account statements. Using

your personal account is fine in cases where a dedicated business account is
not maintained.
 The lender takes an average of 4 months’ worth of deposits.
 They multiply that average by 75% to obtain your GROSS INCOME.
 They multiply the average of the deposits by 50% to obtain your NET INCOME.
 They DO NOT NEED to get tax returns.

Use the numbers above to plug into the Debt-to-Income ratio and you will know whether
you can qualify for a loan modification. The software has forms that can help you
dynamically prepare the profit and loss statement.
Copyright © 2009 by State Financial Services, LLC all rights reserved
CHAPTER XXIV ▪ How To For Investment Property
There are lenders who are doing loan modifications on investment properties, even if you
have heard otherwise. The question of whether you can have a loan modification done
for your investment property really depends on your financial situation and the hardship.
Be aware that there are some lenders who categorically deny even accepting any loan
modification applications on investment properties. In the past, it may have been a more
difficult proposition, but with the current real estate market, lenders are more likely to
consider your situation, whereas in the past they might have shut the door almost
instantly where loan modifications on investment properties are concerned.

The right calculations

When you are looking to modify a loan on your investment property, being prepared before
meeting your lender is a step in the right direction. Here is how you would calculate your
Housing Ratio:

 Take your gross monthly income.

 Calculate your primary residence mortgage payments (including PITI and HOA).
 Count 100% of rental credit on the subject property to determine rental surplus
or deficit.
 The deficit is then added to your Primary Mortgage Amount. Any rental surplus is
added to your Gross Monthly Income.
 Knowing these numbers will help immensely when you contact your lender, as they
will be able to determine just what kind of financial hardship you find yourself in.
 The affordability housing DTI ratio for investment properties is around 50% versus
34% for primary residence.

Example of how the Debt to Income ratio affects investment properties:

Pre-Mod Post-Mod
Primary Residence $2,500 $2,500
Rental (subject property) PITI ÷ HOA $2,100 $1,800
Rental Income $1,200 $1,200
Deficit from Rental $900 $600
Gross Monthly Income $6,200 $6,200
Computed Mortgage amount (Mortgage amount + $3,400 $3,100
rental deficit)
Affordable housing ratio (DTI) 54.84% = $3,400 ÷ 50% = $3,100 ÷ $6,200

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XXV ▪ Conclusion

By being proactive, determined and keen on showing the lender that you are serious about
paying off your debt, but just need a little help, you will meet with far greater acceptance,
and possibly a highly favorable outcome to your request for a modified loan.

Loan modifications are gaining in popularity and acceptance both among homeowners
and lenders, given our nation’s current dismal economic outlook. The federal government
also understands the implications of continuing down the destructive path which the
mortgage industry was headed. The government is now encouraging financial
institutions to exhaust every option available, and to work with homeowners before
turning to foreclosure.

Homeowners who are strapped each month or have lost their jobs, and are delinquent,
need not despair. There is hope that you can and will be able to stay in your home as
long as you take action and request a loan modification. By creating a plan and properly
preparing a package that is acceptable to your lender, you may be able to save
thousands of dollars.

Post Loan Modification: Now What?

As a responsible citizen of this great country, we owe it to ourselves to communicate to

our representatives in government on what is working and what is not. We earnestly
request you to send a quick message to your federal state elected representatives to let
them know which lender you worked with, whether your loan modification was successful,
and your overall experience working with the organization. Please go to


Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XXVI ▪ What Is The Impact on Your Credit

By Gayle Mickey and Glenda Sher, HUD Certified Foreclosure Intervention


The information in this chapter is intended as general research and information and is
expressly not intended, and should not be regarded, as financial or legal advice. We
attempt to ensure that the material contained is accurate and complete at the date first
published, however you should recognize that information may become out of date
over time. Readers who have particular questions about real estate financing or
foreclosure, or who believe they require legal counsel, should seek the advice of an

If you are behind on your payments, or owe more than the value of your home, you might
think it a good solution to do a short sale or just walk away. With a foreclosure, and
depending on your states laws, you might be able to stay in the house rent-free for four
months up to a year before being forced to vacate. But that fact alone does not
mean a foreclosure is better than a short sale.

We will look at the advantages and disadvantages of doing a short sale, foreclosure or
loan modification.

Basics of a Short Sale

Short sales occur when a lender agrees to accept less than the amount owed because
there is not enough equity to sell and pay all the costs of sale. Not all lenders will
negotiate a short sale, so it is very important to consult a short-sale specialist or a real
estate attorney who can negotiate for you.

A short sale has many financial and legal implications. You can't just wake up one
morning and decide you're going to sell your home at a loss by asking for a short sale. It
used to be that lenders wouldn't even consider a short sale if your payments were
current, but that is changing. However, realize that lenders will be more agreeable to a
negotiation if your payments are consistently late. Plus, if you have cash assets, the
lender can gain access to those accounts. Doing a short sale is not for the faint of

A short sale involves offering your home for sale, generally by listing it with a realtor
through the Multiple Listing Service (MLS). Potential homebuyers or investors will
make appointments to view your home. Some will make lowball offers. Qualified
offers must be reviewed, negotiated and approved by your lender. In the mean time,
agents might hold open houses, and generally your life will be disrupted. All of this in
the hopes that the buyer will purchase your home and this can take from 3 to 9 months,
sometimes more.

Copyright © 2009 by State Financial Services, LLC all rights reserved

Also, if you are dealing with second mortgage holders, you must negotiate with them
successfully as well for you short sale to go through. On top of this if your short sale
request is due to a cash-out refinance, then, the banks can come after you for the
shortfall if they wish or they may have you sign a promissory note. If your property is an
investment property then it gets even more complicated and more difficult to get the
lender to cooperate.

Let me end with this, as time goes on and this recession/depression gets worse we are
seeing more and more banks willing to cooperate.

Credit impact: "Short Sales require a two-year wait with no additional requirements."

Basics of a Foreclosure

Foreclosure proceedings vary from state to state. In states where mortgages are
used, homeowners can stay in the property for up to a year; whereas in states where
deeds of trust are used, trustee sales allow up to four-six months before the
homeowner needs to vacate.

Foreclosure means more than just losing a home though. It can haunt a person for
years down the road. Other problems that may result from foreclosure include:

 Loss of equity – The value of your home may increase each year. In many
cases the combination of the equity and the increased value of your home can
translate into losing thousands of dollars.

 Increased taxes – A lender who loses money from the sale of a foreclosed
home must report the loss to the IRS. Subsequently, the IRS may require you to
report the lender's loss as income on your next tax return and you may be
required to pay taxes on it.

 Inability to borrow money in the future – A foreclosure can destroy your credit
profile almost overnight. This can result in declined applications for credit, the
inability to rent an apartment, limited employment opportunities, and a host of
other implications that can follow you for a long time.

 Lawsuits – The mortgage company can go after you for damages.

 Loss of employment – Some employers require their employees to maintain

good credit histories. Notification of a foreclosure may be grounds for dismissal or
loss of a chance for advancement and better pay.

 Loss of self-esteem and self-worth – Emotionally the stress of foreclosure

can have serious effects on your well being. The stress that foreclosure brings
can lead to depression, feelings of worthlessness, lack of motivation,
embarrassment around family and friends, and the list goes on.
Copyright © 2009 by State Financial Services, LLC all rights reserved
A foreclosure has adverse effects on your credit and your ability to obtain credit in the
future. The length of time that the foreclosure remains on your credit report is seven
years, labeling you as a bad credit risk. People with foreclosures and bankruptcy are
placed in a different risk pool.

Try this, find someone with a foreclosure who has reestablished their credit and someone
with the same credit score but no foreclosure. The one with no foreclosure will get a
better interest rate even though they have the same credit score because of the

In order to prevent foreclosure, we strongly recommend taking action if your finances begin
to appear unstable. Contact your lender.

How is My Credit Affected?

If you are trying to decide whether to let a home go through foreclosure versus
attempting a short sale, salvaging your credit may not be an advantage to doing a short
sale. There is no credit score advantage to a short sale over a foreclosure. The only
advantage is being able to buy another home within two years over the three- to five-
year period required for foreclosures. But seek legal and tax advice before making that

It absolutely is to your advantage to consider a loan modification. Use the book and
www.ModSoftKit.com to save your home and your credit.

When will I be able to Purchase a Home Again?

New Fannie Mae Guidelines Encourage Short Sales and Loan Modification. Fannie
Mae recently released updated underwriting guidelines for new mortgage loans that
directly address individuals with various types of foreclosure history.

"Potential borrowers with a foreclosure on their credit record must wait 5 years to be
considered for new funding, and are subject to additional credit and down payment
requirements for 5 to 7 years." (2)

"Deed-in-lieu-of-foreclosures warrant a 4 year wait with additional requirements for 4

to 7 years." (2)

What is happening to your Credit?

No one can answer this question specifically because a piece of negative information
affects each person's credit history differently because of all the other pieces of
information in it. Just exactly how mortgage late payments, foreclosure and a short
sale affects your credit, really depends on your credit history as well as how a lender
Copyright © 2009 by State Financial Services, LLC all rights reserved
reports your situation to credit bureaus. Lenders have the ability to report late
payments up until the sale of the foreclosed property. That being said, make sure you
check your credit after the foreclosure is complete.

Some people might say that your score will drop 300-350 points, but there isn't a set
100-point or 150- point drop for a short sale or deed-in-lieu of foreclosure, or
foreclosure. You don't necessarily get hit with a 50-point drop every time you're late
paying a bill. Some of these negatives are cumulative, meaning that the point drops get
steeper every time you do it, and some of them are based on length. For example, you'd
get a sharper drop if you're 90 days late on a payment than if you're 60 days late.

Visit www.Restore.YourDebt.org

How are your Credit Scores Calculated?

Here's how credit scores are generally calculated, according to http://www.myfico.com,

the website owned by the Fair Isaac Corporation, which invented the credit score:

 35 percent of your score is based on your payment history;

 30 percent is based on the amounts that you owe on various types of loans;
 15 percent of your score is the length of your credit history;
 10 percent is new credit that you've opened; and the final
 10 percent is based on the various types of credit used. (7)

If your score is regularly around 750, a deed-in-lieu might decrease your score
significantly. It could be a 100 point drop or more. The methodology to computing a
credit score is proprietary; there are 3 bureaus and the each use a different formula,
but you have to assume that a major event in your credit history would have a major
impact on credit score.

As you can see, there are many solutions and strategies and saving your home is

Yes, you can even lower your interest rate, lower your monthly payments, and in some
cases even get the value of your loan balance reduced.

Once you have reviewed this kit in full, you might also see that there are several manual
processes involved that can lengthen the amount of time it takes to save your home.

Copyright © 2009 by State Financial Services, LLC all rights reserved

If you’re ready to save your home now, as quickly as humanly possible, then I invite you to
have a look at a new, cutting edge, loan software program called www.ModSoftKit.com.

This powerful application does EVERYTHING for you. In fact, see below for a fraction of
what this program can do:

 Figure out how much you owe

 Build your financial analysis statement
 Determine your best option for maximum savings of interest and payments (software
helps you determine what’s best!)
 Send documents and reinstatement figures to lender or lender attorney
 Order a current property valuation
 Create your hardship letter (this is where many people go wrong and in
www.ModSoftKit,com it is point and click easy)
 Submit complete package to your lender

I’ve only touched on a small part of what

www.ModSoftKit.com can do for you – frankly; this makes
your loan modification painless and fast.

Of course you can do all of this yourself, especially with the

step by step instructions in this eBook.

But, if you want to get started saving your home and lower
your interest rate and monthly payments,
www.ModSoftKit.com will eliminate the manual processes,
allow you to communicate and negotiate with your lender
directly and it will expedite the loan modification – allowing
you to get those lower payments and save your home –

Click the image above to register for a free demo or to purchase www.ModSoftKit.com now.

“I give you all the credit, GOD— you got me out of that mess, you didn't let my foes gloat.”
(Psalm 30:1 TM)

Copyright © 2009 by State Financial Services, LLC all rights reserved

ARM: Adjustable Rate Mortgage

Acceleration Clause: A provision in a mortgage that gives the lender the right to demand
payment of the entire principal balance if any monthly payments are missed.3

Amortization: The gradual repayment of a mortgage loan by installments.

APR: Annual Percentage Rate.

Beneficiary: The person or entity lending the money.

BK: Bankruptcy

Debt-to-income ratio: The percentage of a consumer's monthly gross income that goes
toward paying debts.4

Deed of Trust: It is a security document where the borrower promises the lender to repay
the loan and to ensure that takes place; the title of the property is conveyed to a neutral
third party until the loan is paid in full5.

Escrow: Escrow is a way of transferring or exchanging property and/or money using a

neutral third party. In many jurisdictions, escrow agents constitute a distinct profession with
its own training and accreditation requirements 6 .

FHA: Federal Housing Administration.

Forbearance: An authorized period of time during which the lender agrees to temporarily
postpone a borrower's loan repayment obligation. At the borrower's request, an extension of
time or smaller monthly payments may be authorized by the lender. 7

Gross Monthly Income: Income before taxes.

Guarantor: Someone who is jointly responsible for the loan should the borrower default.

HELOC: Home Equity Line of Credit


Copyright © 2009 by State Financial Services, LLC all rights reserved


HOA: Home Owner’s Association

H.U.D: Department of Housing and Urban Development

Interest Adjustment Date: The date from when the loan begins and interests starts to

Mortgage Agreement: Essentially the same as a Deed of Trust, except that a third
person called a Trustee holds the property title until the loan is repaid. The agreement used
when purchasing property differs between states.

PITI: Acronym for principal, interest, taxes, and insurance, the four components of a
mortgage payment. Principal Amount: The total amount of the loan owed by the
borrower to the lender.

RESPA: Real Estate Settlement Procedures Act; U.S. Department of Housing and Urban
Development has issued long-anticipated mortgage reforms that will help consumers to
shop for the lowest cost mortgage and avoid costly and potentially harmful loan offers.
HUD will require, for the first time ever, that lenders and mortgage brokers provide
consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan
terms and closing costs8.

Second trust: An additional loan imposed on a property with an existing mortgage.

TIL: Truth in Lending Act; A US federal law designed to protect consumers in credit
transactions, by requiring clear disclosure of key terms of the lending arrangement and all

Trustee: A neutral third party that holds the property in trust for the lender until the full
balance of the loan is paid in full.9

Trustor: Person borrowing money by using property to get a loan.

VA: Veterans Affairs.8

http://nhl.gov/offices/hsg/sfh/res/respa_hm.cfm 9

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XXVIII ▪ Bibliography

Fannie Mae. Announcement 08-16. Washington, DC : s.n., June 25, 2008.

1. U.S. Department of the Treasury. RESPONSES TO QUESTIONS OF THE FIRST

STABILIZATION. Washington, DC : s.n., December 30, 2008.

2. HOPE NOW. PRESS RELEASE: 2.3 Million Foreclosures Prevented In Past 14

Months. Washington, D.C. : s.n., October 02, 2008.

3. Foreclosure Radar. PRESS RELEASE: California Foreclosure Sales Jump 22.5

Percent Since June. ForeclosureRadar. com. [Online] August 12, 2008. [Cited:
December 15, 2008.] http://www.foreclosureradar.com/press_release_080815.php.

4. U.S. Department of Housing and Urban Development. Loan Modification

Frequently Asked Questions. U.S. Department of Housing and Urban Development
Web Site. [Online] August 29, 2008. [Cited: December 05, 2008.]

www.myfico.com. [Online] February 01, 2008. [Cited: December 01, 2008.]

Visit www.Free.YourDebt.org

Visit Credit-Aid@YourDebt.org

Copyright © 2009 by State Financial Services, LLC all rights reserved

CHAPTER XXIX ▪ Servicer Contact Information

Servicer Hotline

Aurora Loan Services 800-550-0509

Avelo Mortgage, LLC 866-992-8356
Bank of America 800-846-2222
Carrington Mortgage Services 800-790-9502
CitiFinancial/Citi Trust Bank 800-422-1498
CitiMortgage Conv/FNMA 800-695-0384
CitiMortgage/Gov't & Freddie Mac 866-272-4749
CitiResidential Customer Care 800-430-5262
Countrywide Home Loans 800-669-6650
EMC Mortgage, Inc. 877-362-6631
First Horizon Home Loans 800-364-7662
GMAC/Homecomings/ResCap 800-799-9250
Home Loan Services, Inc.
(dba First Franklin Loan Services and NationPoint Loan Services) 800-500-5022
HomEq Servicing 888-270-6663
HSBC Consumer Lending 800-333-5848
HSBC Mortgage Services 800-365-6730
HSBC Mortgage Corporation 888-648-3124
IndyMac Bank 800-880-6848
JPMorgan Chase Prime Loans 800-446-8939
JPMorgan Chase Non-Prime 877-838-1882
JPMorgan Chase Home Equity 866-582-5208
JPMorgan Chase Default HPO Help Line 866-345-4676
Litton Loan Servicing 800-999-8501
National City Mortgage Corporation 800-523-8654
Nationstar Mortgage, LLC 888-480-2432
Ocwen Loan Servicing, LLC 877-596-8580
Option One Mortgage Corporation 888-275-2648
Saxon Mortgage Services 888-325-3502
Select Portfolio Servicing 888-818-6032
SunTrust Mortgage, Inc. 800-443-1032
Washington Mutual, Inc. 866-926-8937
Wells Fargo Home Mortgage 877-216-8448
Wells Fargo Financial 800-275-9254
Wilshire Credit Corporation 888-917-1050

Not sure who your servicer is?

Visit https://www.mers-servicerid.org/sis or www.loanlookuo.fanniemae.com

Copyright © 2009 by State Financial Services, LLC all rights reserved

"For what does it profit a man if he gains the whole world, and loses his soul?" (Matthew
16:26 NKJV)

Regardless of where you're at today or where you've been, you're reading this for a
reason. I hope it's because you're searching for some peace in your life.

Maybe you're tired of the same old "day in & day out" without having anything really
special that you can look back on or look forward to. Maybe you feel that you're living
your life for "things" and "people" or you feel you are missing the real purpose of life?

Nobody is perfect! - You maybe thinking, "Oh yeah, I've seen how Christians can act!"
You may feel preachers are constantly asking for your money, you may have a Christian
neighbor who borrowed something from you and never returned it, or you may have been
cut off on the freeway by some guy with a little chrome fish on his car.

Yes, it's true! Christians make mistakes too! We are not any better or different than you,
except that we have a relationship with God and so can you. Read on and find out how!

Put simply: Having a relationship with God means, He forgives us for the bad and stupid
things we do. It means that His love for us is greater than anything you could've done in
your past. God exists. He's real! He cares about you! He loves you! Jesus is real! You've
probably been to Church before or gone to a Sabbath school or Sunday school when you
were a kid.

God isn't some celestial being that wants to keep you from having fun. Ever since Adam
& Eve ate the apple, this whole world has been cursed, and all of us along with it. God
didn't want it that way, but that was man's choice. God always gives us the freedom to
choose. But God loves us so much that He's provided a way out to everyone who wants
it. The way to eternal life is through His son Jesus Christ.

Jesus was a man who lived a sinless life and paid the price for you and I, by dying on the
cross for our sins.

Copyright © 2009 by State Financial Services, LLC all rights reserved

What next?

1. Realize that you're a sinner and that you're not perfect. It’s not easy. For
example: Many who are addicted to alcohol or drugs or any other sin, do’nt think
they have a problem until it is to late and sometimes not even then. Sometimes
people believe if they're "not a bad person" they can continue will their addictions
and sins. The Bible says, "All have sinned and fall short of the glory of God"
(Romans 3:23). It also says "There is no one righteous, not one" (Romans 3:10).

2. Repent of your sin Which means to commitment to changing your life 180°.
Confess your sins to Jesus and accept Jesus into your heart. Peter said "repent
and be baptized, every one of you in the name of Jesus Christ for the forgiveness
of your sins" (Acts 2:38).

3. Receive Jesus as your Lord & Savior Give control of your life to Jesus. The Bible
says: "That if you confess with your mouth, Jesus is Lord' and believe in your heart
that God raised Him from the dead, you will be saved" (Romans 10:9).

If you would like Jesus to come into your life, pray the following prayer aloud:

"Lord Jesus, I repent of my sins. Please come into my heart, I make you my Lord and
Savior, In Jesus Name, Amen."

If you prayed this prayer, then the Bible says you have been saved. Now that you have
given your life over to Jesus, you will need to get a bible and read it every day. You also
need to find a Bible based church that believes in the word of God and the power of the
Holy Spirit. Please email us and let us know of your decision to follow Jesus Christ.

Congratulations we are happy that you have decided to begin your Journey! The right
choices in life are usually harder to make than the wrong ones. It's always easier to get
into trouble than to stay out of trouble. You will face opposition from those who want you
to join in their misery because after all, misery loves company.

Sometimes you fall down, sometimes you backslide but God is there with you at those
times to pick you back up and keep walking with you. He never leaves you, even in your
darkest hour. He's there, every year, every week, every day, hour and minute of your life!

Find a ministry to serve in and remember to always pray before you act and the Lord will
lead you. May the Lord bless you and may you be a blessing to others!

Economic Rescue Plan!
Copyright © 2009 by State Financial Services, LLC all rights reserved
Terms and Agreements



By ordering our products, Buyer warrants that he or she is over 18 years of age, not
subject to the Child Online Privacy Act, of legal age to enter into contractual agreements
in the state in which he is present when he makes this purchase, and is the true and
authorized owner of the credit card used to make this purchase.

The author and publisher shall have neither liability nor responsibility to any person or
entity with respect to any loss or damage caused, or alleged to be caused, directly or
indirectly by the information contained in any products or information. The information,
methods and techniques described by the author are based on his own experience,
opinion and /or research. They may not work for you and no recommendation is made to
follow the same course of action. No representation is made that following the advice in
product will work in your case. The author and publisher expressly disclaim any and all
warranties, including but not limited to warranty of fitness for particular use.

Everyone's financial situation is different. They are sold with the understanding that the
publisher and author are not engaging in rendering legal, accounting, financial planning,
or other professional services. If legal or other expert assistance is required, the services
of a competent professional should be sought. It is not the purpose of any product to
reprint all the information that is otherwise available to the author and/or publisher, but to
complement, amplify and supplement other texts. You are urged to read all the available
material, learn as much as possible about loan modification, and to tailor the information
to your individual needs. For more information on this subject ask a trusted certified
financial professional or an attorney where you can locate more details pertaining to your
home loan. Every effort has been made to make all products as complete and as
accurate as possible. However, there may be mistakes; typographical, mathematical or in
content. Therefore, each product should be used only as a general guide and not as the
ultimate source of information. Furthermore, our product contains information on this
subject only up to the printing date. The purpose of our products is to educate and
entertain. Buyers are hereby warned to take any and all necessary precautions when
entering into any business.

Buyers and/or Readers should perform their own due diligence check and/or background
check. Buyer agrees that the Seller's total liability, even from harm caused to the Buyer
or to others from use of the product or even for erroneous product content that causes
damage to the Buyer or for any other injury, harm, or torture of any kind, whether
foreseeable or unforeseeable, shall be limited to the purchase price paid for the product.
By taking the affirmative step of purchasing of a product, you, the Buyer, attest that you
have fully read, understand, and accept the terms of this Purchase Agreement contract,
and warrant to the Seller that said affirmative digital acceptance shall be deemed to be
the same as if you had affixed your signature to this Purchase Agreement contract. If
you do not agree to the terms of this Purchase Agreement, you may contact the seller
within three (3) days of purchase and request a return authorization and full refund.
Copyright © 2009 by State Financial Services, LLC all rights reserved

While the authors have used best efforts in preparing the information, there are no
representations or warranties with respect to the accuracy or completeness of the
contents. The publisher and author specifically disclaim any implied warranties of
merchantability or fitness for a particular purpose. No warranty may be created or
extended. The advice and strategies contained herein may not be suitable for all
circumstances. An attorney should be consulted where appropriate. The publisher and
author shall not be liable for any loss of profit or any other commercial damages,
including but not limited to special, incidental, consequential or other damages. Materials
available on and throughout this website are prepared as a public resource. The
information provided is not intended to be, nor should it be, considered legal or tax or
financial advice. Readers are advised not to take, or refrain from taking, any action based
upon materials within the website. Confidential information or materials should not be
sent to any individual. In the case of foreclosure proceedings, readers are advised to
consult a tax specialist or your personal certified public accountant to discuss the tax
implications of whatever option is pursued whether it is a short sale, deed in lieu of
foreclosure, or actual foreclosure. Depending on which choice is pursued, a borrower
could experience both recognition of ordinary income from the cancellation of debt and
capital gains. Please check with your tax specialist. At no time should a payment be
missed intentionally. The loan modification industry is constantly changing. Theories and
ideas are applicable to change and or rendered outdated at any point without notice. The
author / publisher / owner do not guarantee a successful loan modification. Plagiarism:
You DO NOT have permission to duplicate this material or to pass it to anyone, or to
resell. You understand and agree that if you violate this agreement, you will face the
maximum legal action and will result in you paying damages and all attorneys' fees.


Copyright © 2009 by State Financial Services, LLC all rights reserved

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