Loanmod Approval

Most banks are currently offering loan modifications in one form or another and many are participating in the Government’s MHA – Making Home Affordable modification program. Also known as the Obama Plan or the HAMP – Home Affordability Modification Program. As many of you already know under the MHA, banks are required to set borrowers up on a 3 month trial plan while they review the account for the MHA permanent modification. What’s should you expect during the trial plan period and why is the trial plan scheduled for 3 months?

The MHA Trial Plan is almost always scheduled for 3 months. All borrowers are set up on a trial plan based on preliminary financial review. The review process depends on the bank. Sometime the review is done in the form an interview, where the borrower calls the bank and provides the bank a breakdown of their income verses their expenses. The bank will then plug in the figures you provided verbally into their system and the system will recommend a trial plan payment for the next 3 months. Or, the system may decline the trial plan if the borrower’s financial do not fall within the MHA guidelines. Other banks will qualify you based on preliminary review of the financial documents they have asked you to fax over. The preliminary review is normally done very fast. Especially, if done verbally. It is possible that you can get set up on the MHA trial plan in the same day, or, within the hour.

Ideally, the trial plan payments was meant to be your projected modified payments. But, that is rarely the case. Normally the trial plan payments are much lower than the original payments as well as the approved modified payments (if approved). I’ve seen trial plan payments as low as half of the original payments. In rare cases, even lower than that. Borrower’s should be aware that the permanent modification is based on a detailed review of the total gross income that was provided to the bank. Therefore, the permanent modification could be significantly higher than the trial plan payments. You should consider the trial plan payments simply as a 3 month payment relief until they offer a permanent modification.

There are a few reasons why the MHA Trial Plan is scheduled for 3 months.

1. One reason is to verify that you have the ability to pay your mortgage before the bank permanently modifies your loan. If you are unable to make the trial plan payments then you are basically telling the bank you are unable to afford the loan. No need for the bank to offer you a permanent modification is you will end up defaulting on the loan.

2. Another reason why the plan is for 3 months is because they need to see how committed and serious you are about keeping your home. The 3 payments must be made on time…not too early and not a second too late. You will need to follow the instructions per the trial plan agreement. Making all 3 payments at once will not help. That tells the bank you can afford your current payments and you don’t need a loan modification. Making your payments late, tells your bank you are not responsible enough to be given a permanent modification as you may fall behind and eventually default on your modified loan.

3. One of the biggest reasons why the trial plan is scheduled for 3 months is because your bank needs time to review your account for a permanent modification. The 3 month trial plan does not guarantee that you will get a permanent modification. Banks are required to go through an extensive review process to determine if you are qualified and what you are qualified for. The documents you provided the bank will be closely scrutinized. A BPO – broker price opinion (Similar to an appraisal) will take place to see if you have any equity on the property. The banks will need to run an NPV test to determine if the investors will benefit more when modifying the loan or letting the property foreclose. During the trial plan the banks may discover that they are missing items. If the banks are missing any items from the borrower, they are required to request the missing items from the borrower and allow a specific period of time to obtain those documents. Which could very well delay the review process much longer. The sad truth is, even if you have provided all the documents to the bank initially, they may repeatedly ask for the either the same documents or updated documents. I personally think it’s more of a delay tactic to stall for time. But, you still need to provide the documents again when they ask. Otherwise, they can and will decline you for the permanent modification.

So, what you should expect after you have already made the 3 trial plan payments is to make an additional 3 month trial plan payments. That’s right! You may be making as many as 6 trial plan payments before the bank approves or denies you for a permanent modification under the MHA. There will be a lot of anxiety during the 6 months. Unfortunately, the banks are just too far backed up to get these turned over in the 3 month time span. Fortunately, the government is very well aware of this delay and have implemented a very important change that should have a positive impact on the process and time line. more on this soon…

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