Loan Modification Guide EBook

A STEP BY STEP GUIDE TO DO‐IT‐YOURSELF LOAN MODIFICATION
The Little Known Bailout
A Step by Step Guide to Do‐it‐Yourself Loan
Modification

By: Stan M. Steele, CMPS


Page | 2
Step by Step Loan Modification Guide

Table of Contents
I. About the Author Pg.3

II. What is a Modification? Pg. 4

III. First the Good News Pg. 5

IV. Why Banks Want to Modify Pg.6

V. Who Can Modify Pg.7

VI. Types of Modification(Determining your desired outcome) Pg. 8

VII. Starting the Process Pg.9‐10

VIII. Dealing with the Bank Pg.11

IX. A Few Words of Caution Pg.12

X. Free Bonus Section (Tips Forms and Sample Letters) Pg.13‐23

Copyright ©2008, Wealth Evolution, LLC www.wealth‐evolution.com


About the Author

I’m a decorated, partially disabled Persian Gulf War veteran. I have 13 years of combined
experience as a mortgage originator and a fulltime residential and commercial real estate Page | 3
professional/advisor. As a real estate investor specializing in urban revitalization, I have
assisted numerous single mothers and young families in realizing their dream of home
ownership. As a Sr. Mortgage Banker and Branch Manager, I utilize my practice to assist
individuals and families of all income levels to accumulate wealth and improve cash flow. I
teach a mortgage finance and debt management course that is approved by the Certified
Financial Planners Board of Standards for C.E. credits to Certified Financial Planners
nationwide. I serve as a member of the finance committee for the Partnership for Community
Action’s ( www.pcaction.org )"Micro Enterprise Initiative" where we provide loans to
entrepreneurs who have been forced to relocate due to natural disasters and those looking to
start or expand a business. I have hosted real estate related talk shows on 640WGST, the FOX
radio network In Atlanta as a Mortgage and Finance expert. I’m proud to say that some of the
Real Estate Brokers and loan officers who have learned how to structure loan modifications
from me have gone on to establish successful loan modification businesses. The purpose of
this eBook is to offer an alternative to the often costly and for many homeowners prohibitive
fees associated with hiring an attorney or attorney-based loan modification company. If you’re a
fast learner and generally do well following simple instructions you should have no trouble
putting together a successful loan modification proposal.
All the best!
fA `A fàxxÄx


Disclaimer:
This Do-It-Yourself Guide to Loan Modifications was written to share basic information
about pursuing a loan modification. The author does not claim to be an attorney or tax
professional. The e-book is not intended to replace the services of a competent legal or
tax advisor. If legal or other expert assistance is required, the services of a professional Page | 4
should be sought. Furthermore, while the publisher has made every effort to offer the
most current, correct and clearly expressed information possible, inadvertent errors can
occur and the rules and regulations governing mortgage loan modifications, accounting
standards, and tax laws often change. Further, the application and impact of rules and
laws can vary widely from case to case based upon the unique facts involved.
What is A Loan Modification?
Modification:
The amendment of the loan to re‐amortize (schedule) the remaining
balance, and/or extending the current term of the loan in order to possibly
reduce the monthly payment, the interest rate and/or loan balance for the
borrower to remain in the loan.


First the Good News
Many consumers are having a hard time coming to grips with the recently announced 700 billion
dollar “bailout” or “rescue” plan that the government has implemented to try and shore up the
U.S. credit markets and prevent another “great depression”. Many argue that the government
has no right to use our tax dollars to bailout large corporate entities and save them from the Page | 5
repercussions of their own greed and mismanagement. There are countless average citizens
who have lived lives reflective of the same kind of financial reckless abandon that’s believed to
be the cause of the mess that we find ourselves in as a nation. It’s not an unreasonable
expectation to think that Uncle Sam would extend this same sort of leniency to the average
citizen. Well, good old Sam has done just that with the passage of HR 3221. Strangely of
enough the mainstream media is either unaware of this recently enacted legislation or they just
don’t find it news-worthy. Here’s the skinny:
Section 1403 of the new housing bill that was signed into law on July 30, 2008 as part of
(HR 3221) requires mortgage servicers to modify loans for homeowners and help them to
avoid foreclosure as long as three requirements are met:
1. Default on the mortgage either has already happened or is “reasonably foreseeable”

2. The home owner is living in the property as his or her primary residence
3. The lender is likely to recover more through the loan modification or workout than by
forcing the home owner into foreclosure
Armed with this new found information you should feel confident embarking upon your quest for
rapid relief through loan modification. As recently as a year ago getting a modification approved
by your lender was next to impossible unless you had some extremely unusual circumstances.
Not so today…… With the enactment of Section 1403 of HR 3221 you now have government
backing to support you in your efforts. Even more recently the FDIC issued an ultimatum to
lenders requiring them to work together with the federal government to standardize and
streamline the modification process to allow for more expedient processing and approval of loan
modification requests. This ultimatum must be met by the lenders within a 60 day time window
beginning October 1st with the deadline for completion of the proposal for standardization being
December 1st 2008. With the support of the FDIC and the U.S. Congress getting a loan
modification approved is no longer like pulling teeth. As the author previously mentioned,
lawmakers recently approved a 700 billion dollar bailout to prevent the collapse of our financial
system. The Treasury Department has announced that the first 250 billion of the money will be
used to directly capitalize banks. The reasoning here is that the cash infusion will bolster
confidence in the banking system and give banks even more of an incentive to lend to one
another as interbank lending has decreased due to fear caused by several recent bank failures.
Indirectly, this benefits you as a consumer as well because it affects rates (particularly LIBOR).
This unprecedented bank capitalization will cause the LIBOR rate to be reduced which means
banks charge each other less to borrow money and in turn they can charge you and I less. This
makes it easier for banks to modify your loan to an even lower rate!


Why Banks Want To Modify
As you can see from the previous page, banks have plenty of motivation to modify your loan.
Let me give you a little inside information that banks would probably not want you to be privy to Page | 6
regarding how delinquent loans affect banks.
When banks decide to foreclose on a home it typically costs the bank somewhere between 20
and 40% of the fair market value of the property. This money is eaten up in broker fees,
maintenance and repair costs, attorney’s fee, closing costs etc. In addition to that the influx in
foreclosures has created downward pressures on home values making it impossible for many
homeowners to refinance or sell to get out of a current loan. This is bad news for the banks.
Another alternative to foreclosure is the “short-sale”. This is when the lender agrees to allow the
homeowner to sell the property for less than the principle mortgage balance on the home.
Hence the term “short-sale”, you’re selling the home short of what’s owed on it. Lenders really
don’t like approving short-sales either because they typically end up getting a flat out dismal
return on investment (as low as 18%) once all the dust settles.
When banks approve a modification they realize that it’s helping you out. Most loan
modifications result in the bank going from a situation of carrying a delinquent mortgage on its
books to having one that is performing…….all of that is obvious. What is not so obvious is the
fact that banks know that delinquent loans have a low profitability rate (in the 30% range). Non-
delinquent (modified) loans have a profitability rate of around 87%.
As you can see, there are both intrinsic and incentivized reasons for banks to want to modify
your loan.


Who Can Modify?
Pretty much anyone who can provide a “documented hardship” or a change in the affordability
of their mortgage payment can qualify for a modification. This would include but not limited to: Page | 7
• Homeowners who are in an adjustable rate mortgage that is about to or already has
adjusted to a rate that makes the payment no longer affordable
• Homeowners experiencing a decrease in income due to job loss, reduced hours,
economic pressures on industry they’re employed in etc.
• Homeowners burdened with excessive debt or medical bills
• Homeowners of a spouse suffering with illness / death of a spouse or co-borrower
• Homeowners in a divorce situation or marital seperation
• Victims of mortgage fraud that was perpetrated by licensed professionals (i.e. loan
officer, realtor, appraiser, attorney etc.)
• Homeowners in a bankruptcy situation
• Homeowners with Damage to Property (natural disaster or unnatural)

• Homeowners with Failed Business
• Job Relocation
• Incarceration
• Military Duty
These are just a few of the more common reasons why a homeowner may need to modify their
loan. Your circumstances may be significantly different. No matter what your reason for needing
a loan modification you should not hesitate if you think that modifying will help you save your
home.
Note: YOU DON’T HAVE TO BE DELINQUENT TO GET A LOAN MODIFICATION.

IN FACT, THE AUTHOR RECOMMENDS THAT YOU DON’T WAIT UNTIL YOU ARE
MISSING PAYMENTS. IF YOU FEEL YOU DESPERATELY NEED RELIEF FOLLOW
THE INSTRUCTIONS IN THIS E-BOOK AND CONTACT YOUR LENDER NOW!


Types of Modifications
Determining Your Desired Outcome

Types of Modifications:
Page | 8
1. Forbearance- This is the type of modification that benefits the bank the most. It’s long
been the most common type and easiest modification to get approved—It’s basically a
postponement of loan payments for a short period of time to give the borrower time to
regain footing or make up for missed payments. The missed payments are tacked on to
the principle balance in this scenario
2. Temporary or Soft Modification- This is a temporary reduction in the monthly payment for
a short period of time this is the 2nd tier of lender favored modification scenarios. The
difference of the original payment and the temporarily reduced payment is usually tacked
on to the principle balance in this scenario – this is the type of modification that lenders
favor second
3. Permanent Rate Modification- This type of modification is usually the most beneficial to
homeowners. The rate is permanently reduced to create a monthly payment that the
homeowner can comfortably afford.
4. Principle Reduction- This is the type of modification that is least favored by lenders.
Especially in today’s market with homes depreciating in value. The concern that the
servicers (servicer = company that sends out your monthly statements and receives your
monthly payments when you take out a mortgage loan) have is that when the market
starts to improve and home values begin to appreciate there is no way for the investors
(investors = institutions who actually own the loan) to recoup the loss that was taken
when the principle amount of the loan was reduced. Example of principle reduction:
Current loan balance 500k – after the principle reduction modification agreement the
new balance will be 450k, 350k or whatever you negotiate with the lender.
5. Litigious Modification- This type of modification involves hiring an attorney or an
attorney- based firm and dealing with the legal department at the bank to seek a
modification based upon legal grounds associated with TILA (Truth In Lending Act),
RESPA (Real Estate Settlement and Procedures Act) violations as well as other
violations of laws designed to protect consumers during the process of obtaining a
mortgage loan. **Homeowners requiring a reduction in the principle balance of their loan
typically hire an attorney based firm to handle the modification proposal. This is the last
line of defense so lenders won’t often agree to the principle reduction without a fight.



Starting the Process
Use the attached “cash-flow worksheet” to Calculate your income and expenses. This part is
critical because the lender will utilize the information contained here to determine whether or not Page | 9
you can afford the requested loan modification.
Include all forms of income (boarder income is ok). If you have friends or relatives living with
you who are not on the loan you can still utilize that income as well. Include all of your
income! Be prepared to show bank statements to prove any additional income that you don’t
have documentation of (ex: cutting grass on the weekends, part time hairstylist). Don’t worry the
lender is not interested in reporting you to the IRS for not claiming this income when you filed
your taxes. If you don’t have bank statements to prove the additional claimed income don’t let
that deter you. It’s perfectly understandable why someone would not want to deposit all of their
money at the bank in light of all that’s going on in our banking industry. You want to show a
reasonable amount of cash left after all expenses are paid. As a rule of thumb lenders don’t
like to see more than 15% of your income being spendable (cash & incidentals)! So
hopefully your available cash after expenses (including your mortgage payment) doesn’t exceed
the 15% threshold.
Co-signed loans should be identified as such. Let the bank know how much of the payment you
are responsible for so that the difference will be off-set in their calculations. I cannot stress how
important it is for you to list all of your expenses! If you have expenses that are not showing
on your credit report that need to be eliminated to improve your chances of modifying your loan
you should eliminate them. You must be able to afford the newly modified loan payments
and other living expenses and have some cash left over for incidentals in order for the
modification to be approved!
Subtract all of your current expenses, with the exception of your current mortgage
payment from your income. Now you know how much of a mortgage payment you can
afford. Add the desired mortgage payment to your current expenses and the total should
be between 45 -50% of your income in order to be approved for a modification.
Once all of the income and expenses have been properly calculated you will know how much
cash you have available for the new mortgage payment. Here’s where you want to take extra
special care to make sure that you come up with the right calculations. If your spendable cash is
too high the bank will counter offer with a higher rate. If your available cash is too low your
modification could be denied because you don’t make enough money to afford the modification.
To make figuring all this out a little easier use the calculator on my website www.wealth-
evolution.com to determine the desired outcome. Example: If you need to have your interest
rate reduced so that your monthly payment is $990.00 just plug in the loan balance and play
with the interest rate until you get the desired payment.


Starting the Process (Cont.)
Now that you’ve crunched all the numbers you can begin the process of drafting your hardship
letter. This is an important part of the process because it gives the lender a detailed written
explanation of why you are in need of a modification. This letter comes across as most genuine
when it’s handwritten. However, if your writing isn’t legible then maybe you should have
someone else write it for you or feel free to just go ahead and type it. At any rate please be Page | 10
sure to write in your own voice. You don’t want it to read like a form letter. Make this letter as
long as you need it to be to clearly explain your hardship. Don’t try to truncate it. This is another
critical part of your package so be sure to thoroughly explain your situation. I have included a
“hardship letter guide” to help you extract what will be the key elements of your letter.
Now that you have gathered all of the necessary documentation, done the necessary
calculations and prepared a detailed hardship letter, the only thing left for you to do is decide
which type(s) of modification benefits you the most.
What is your desired outcome? It’s not at all uncommon to see an interest rate get reduced by
4% as part of a modification agreement these days. Are you looking to go from an adjustable to
a fixed rate? How about both? You could request a permanent rate reduction and a conversion
from adjustable to fixed rate. It’s happening for thousands of Americans as you read this
paragraph. You could be next.


Dealing with the Bank
Next, it’s time to contact your lender. Call the main number that’s printed on your monthly
statements and ask to speak with the loss mitigation department. Inform the rep that you want
to request a loan modification. They will instruct you as to their required procedures for
submitting the modification proposal. Take notes at this point because each lender has their Page | 11
own specific protocol. If you pay attention to detail during this initial phone call it could save you
several days or longer in the processing of your request. Despite the precarious position that the
banks are in nowadays don’t expect them to roll out the red carpet for you. In fact, expect just
the opposite and keep in mind that the person on the other end of that phone is working for the
bank and they only have the banks’ best interest in mind. Be patient but persistent. At each
juncture and during each phone conversation with the rep who’s handling your file be sure to get
an estimated turn time for completion, response and if they can’t offer you a time frame call
often (every other day). After you have submitted the initial package it’s possible that they will
request more documentation. If so, call to verify receipt of every single document you send
them. They should freeze your loan once you have submitted the necessary documents,
worksheet, and hardship letter. Freezing the loan means that any foreclosure process is halted
until your file is reviewed and a decision is made. Remember: you don’t have to be in
foreclosure to get a modification approved.
Providing the right information and documentation is key to a successful modification. I have
provided you with some great tools. One way of making certain that you give your lender
enough information to make a rapid decision to approve your request is to provide market data
relating to home values, foreclosure rates and inventory statistics for your area. I have included
some links to government web sites that will allow you to get the most accurate and up to date
data available.
Be prepared to negotiate the terms of your modification. Don’t just accept whatever they offer
you unless it’s pretty reasonable and you can live with the payments. If you cannot afford what
the bank is offering you then don’t accept it. You don’t have to agree to anything that doesn’t
make since for you and your family. Let them know that you cannot afford it and keep in mind
that the decision that the bank made was based upon the income and expense information you
provided. So if you find that you don’t have enough wiggle room it’s probably because you
painted yourself into a corner by miscalculating your finances. However, with the current market
conditions I think that you will find that the bank is willing to accept any reasonable offer. The
bank needs to work this out just as much as you do – even more.
They may just surprise you and offer exactly what you requested. If so, you have to sign get
notarized and return the documents accepting their offer as soon as possible so that the bank
can finalize your modification agreement. Congratulations! You have just claimed your share of
the “little-known consumer bailout”!


A Few Words of Caution
Use the instructions and tools outlined in the following pages to analyze your situation to see if
you meet the minimum criteria to qualify for a modification and if so, what type of modification Page | 12
would best suit your situation. Remember, go after what you want. Diplomacy is always the
most preferred method of approach. However, more important in this situation is competency.
The instructions and forms included in this little book will make you appear competent and make
the process a heck of a lot easier for the lender to analyze and make a decision. No matter how
diplomatic you are, if you come across as incompetent and unorganized the people handling
your case will grow frustrated. This could hamper your chances of getting the best possible
outcome. Also, keep in mind that your emotions should be thrown out of the equation. Even
though you love your house and desperately want to stay in it you should focus on the business
of negotiating to get the best deal for you and your family – nothing else. If this is a problem for
you then maybe you should let a professional handle your modification. Visit www.wealth-
evolution.com for a list of professional attorney-based modification companies.
Here are a few items to take special note of during and after the modification process:
• As part of your negotiation, indicate to the bank that you want to arrange the
modification so that you have a couple of months before the first payment of the
newly modified loan is due. This will help to facilitate your fresh start.
• Consult your tax attorney before signing the newly modified loan documents if
you will be getting a principal balance reduction.
• Maintain your records properly and be sure to keep a copy of all of your new loan
documents, especially the note. Verify that the new monthly payment and interest
rate coincide with what you negotiated with the bank


Free Bonus Section
(This section contains free sample letters, blank forms and helpful links)
Summary of Loan Modification Forms & Letters

Page | 13
Form 1: Sample Loan Modification Proposal
Be prepared to document any claims made on the proposal.
Form 2: RED Cornerstone Letter (INCLUDE THIS! YOU WILL WANT TO RETYPE IT IN BLACK)
Form 3: Sample Cover Letter
Form 4: Sample Hardship Letter
Form 5: Real Estate Cash-flow worksheet
Form 6: Monthly Expenses Worksheet
Your monthly expenses should also be filled out accurately. Do not leave off an expense that is
imperative to your daily life as it will cause problems on either your modification or your ability to pay your
mortgage after the modification. This list is pretty detailed. If you have other expenses, specify. Not all
lenders require the balanced owed so do not focus on that. Banks want to know what you pay out each
month vs. what you bring in.
Form 7: Monthly Income Worksheet and Total Disposable Income
When filling out the monthly income worksheet remember that it is based on NET INCOME. This means
after tax, take home income. If you are self employed, use what you actually make per year minus taxes.
Also, include tips and other non-documented income if needed. Rental income includes rooms or other
units that you rent out in your house or on your property. If you do not have income in any
section, leave it blank. A person does not have to be on the loan/mortgage to use their income to qualify.
As long as they live in the house their income can be included; but so must their expenses. This includes
older children who contribute. Monthly net income minus monthly expenses equals the monthly
disposable income. This is the number that is used to determine the mortgage payment and left over cash
for incidentals. If this number is negative the homeowner will get declined for a modification. This
is where one must adjust the interest rate, amortization and principal balance to back in to this number.


Sample Loan Modification Proposal

(Remove all blue text in parenthesis before submitting)
Page | 14
Current Existing Balance: $435,000
Current Fair Market/New Principal Balance: $395,000

(Have supporting documents)
Principal Balance Reduction: $40,000
Current Interest Rate: 9%
Requested Fixed Interest Rate: 5.5%
Amortization Remaining: 28 years
Requested Amortization: 30 years
Previous Payment: $3,500.00
New Payment: $2,242.00
Disposable Income for Housing: $2,750.00

(As determined from the Income vs. Expense worksheet)
Disposable Income Post Modification: $508.00
Comparable Homes Foreclosure Auction Price: $240,000

(Have supporting documents)
State Timeframe to Repossess Property: 4 mos. from first late

(Varies from state to state)
Late Fees/Penalties: Forgiven/Waived
Late Balance: Include in New Principal Balance
Market Rent for Similar House in Neighborhood $1,750 per month

(Should be accurate)
Requested Next Payment Date/Forbearance: Request 3 Mos. Away


**BE SURE TO INCLUDE THIS ENTIRE RED SECTION WITH YOUR
PACKAGE. THIS IS THE CORNERSTONE OF YOUR MODIFICATION
REQUEST!
Dear [mortgage servicer]:
Page | 15
I wish to call your attention to section 1403 of the new housing bill (HERA) that was signed
into law on July 30, 2008 (HR 3221, the Housing and Economic Recovery Act of 2008, P.L.
110-289):
SEC. 1403. FIDUCIARY DUTY OF SERVICERS OF POOLED RESIDENTIAL
MORTGAGE LOANS.
The Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended
by inserting after section 129 the following new section:
‘‘SEC. 129A. FIDUCIARY DUTY OF SERVICERS OF POOLED RESIDENTIAL
MORTGAGES.
‘‘(a) IN GENERAL.—Except as may be established in any investment contract between a
servicer of pooled residential mortgages and an investor, a servicer of pooled residential
mortgages—
‘‘(1) owes any duty to maximize the net present value of the pooled mortgages in an
investment to all investors and parties having a direct or indirect interest in such investment,
not to any individual party or group of parties; and
‘‘(2) shall be deemed to act in the best interests of all such investors and parties if the
servicer agrees to or implements a modification or workout plan, including any modification
or refinancing undertaken pursuant to the HOPE for
Homeowners Act of 2008, for a residential mortgage or a class of residential mortgages that
constitute a part or all of the pooled mortgages in such investment, provided that any
mortgage so modified meets the following criteria:
‘‘(A) Default on the payment of such mortgage has occurred or is reasonably foreseeable.
‘‘(B) The property securing such mortgage is occupied by the mortgagor of such mortgage.
‘‘(C) The anticipated recovery on the principal outstanding obligation of the mortgage under
the modification
H. R. 3221—157 or workout plan exceeds, on a net present value basis, the anticipated
recovery on the principal outstanding obligation of the mortgage through foreclosure.
‘‘(b) DEFINITION.—As used in this section, the term ‘servicer’ means the person
responsible for servicing of a loan (including the person who makes or holds a loan if such
person also services the loan).’’.


Cornerstone Letter (Cont.)
Additionally, I wish to call your attention to these two recent IRS Revenue Procedures:
http://www.irs.gov/irb/2008-31_IRB/ar13.html - Revenue Procedure 2008-47 Page | 16
http://www.irs.gov/pub/irs-drop/rp-08-28.pdf - Revenue Procedure 2008-28
Further, in the event that you are a member of the American Securitization Forum (ASF), I
call your attention to your obligations to comply with the ASF guidelines, including, but
limited to the Streamlined Foreclosure and Loss Avoidance Framework for Securitized
Subprime Adjustable Rate Mortgage Loans:
http://www.americansecuritization.com/uploadedFiles/ASFStreamlinedFramework7.8.08.pdf
According to Section 1403 of HERA that is effective immediately, you have a legal
obligation to modify the terms of my loan if the net present value you expect to receive (and
pass on to your investors) from the modified loan terms exceeds the value you would
expect to receive through foreclosure. Also, according to the recent IRS revenue
procedures listed above, the tax status of your investors (if they are REMICs or REITs) may
not be adversely impacted by modifying my loan provided that certain conditions are met
(as outlined by the IRS). With these things in mind, I am hereby requesting that you modify
the terms of my loan so that I can avoid foreclosure and so that you can fulfill your fiduciary
obligation to your investors.
I have enclosed a hardship letter outlining the details of my present situation and how the
current mortgage terms are obviously unaffordable for me. Unless you modify the terms of
my mortgage, default and foreclosure will be my only remaining option. Therefore,
foreclosure is “reasonably foreseeable” as outlined in the wording of Section 1403 of HERA.
I have also enclosed financial statements, tax returns, employment records and bank
statements that demonstrate how, under my present financial circumstances, I would be
able to afford the following terms:
_____% = Proposed Fixed Interest Rate
$_______________ = Proposed Mortgage Balance
$_______ = Proposed monthly payment based on _______ months to pay off the loan
Further, I have attached supporting appraisals/comparable sales from my neighborhood
demonstrating that my home is likely only worth approx. $_______________ and you will
probably only recover $_______________ before fees and real estate commissions if you
were to foreclose on my home and try to sell it under current market conditions. With these
things in mind, I request that you modify the terms of my mortgage loan as required by law.
If you fail to comply with this request, I will have no other choice than to pursue all remedies
available under the law in order to save my home from foreclosure.
Respectfully,


Important Information about the Sample Letters contained in the eBook:
This letter is simply being provided as a sample and does not constitute legal, tax or
investment advice. You are hereby advised to consult with properly licensed legal and tax
advisors for specific advice pertaining to your individual situation. This letter is not to be
used to avoid or evade the payment of any amount or the performance of any obligation
under your loan documents. You must comply with the request of your mortgage loan Page | 17
servicer for additional documentation, even if the same information is provided to the
mortgage loan servicer with this letter. Use of this letter may not result in the loan
modification that you request.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the
Internal Revenue Service, we inform you that any U.S. federal tax advice contained in this
communication (including any attachments) was not intended or written to be used, and
cannot be used, by any person for the purpose of (i) avoiding tax-related penalties or (ii)
promoting, marketing or recommending to another person any transaction or matter
addressed in this communication.
Helpful Links:
Determining rental rates:
http://www.nlihc.org/oor/oor2008/?CFID=27172540&CFTOKEN=13621127
Alternatively, you can obtain this information from an appraiser (for a fee).
Determining home values and foreclosure rates:

http://www.trulia.com
You can also obtain this information from a licensed appraiser. A realtor would also be a
good source by providing a CMA (Comparative Market Analysis). This report provides
information regarding recent sales of comparable properties as well as foreclosures and
tax assessors estimated value of your home.
Nationwide real estate trends:

www.pmi-us.com
Click the products and services link and look for the “economic & real estate trends” link
PMI is a valued & trusted source for mortgage lenders nationwide.


Sample Cover Letter
Joe & Jane Homeowner
123 Main St.
Bank of Reasonability
Loan Number(s)
Page | 18
Date
To Whom It May Concern:

Attached you will find my proposal and supporting documentation for a loan modification regarding loan
number ###########. Due the fact that my monthly payments have increased by $450.00 I am unable to
afford to make the monthly payments at my current income level. The proposal below illustrates the
desired monthly payment based upon a permanent interest rate reduction. I would be able to consistantly
maintain the proposed payment for the remainder of the loan term. Otherwise, I would be forced to give
up my home that I have worked hard to obtain and I really don’t want a foreclosure on my record.
New Principal Balance: $395,000

New Interest Rate: 5.5%
New Amortization Period: 30 years
New Payment: $2,242 excluding taxes and insurance
I have included a more detailed breakdown of the proposed modification request.

The following documents are also included:
• Proposal Form
• Real Estate Cash Flow Worksheet
• Income vs. Expenses Worksheet
• Most Recent 3 months paystubs
• Last Year’s 1040s/w2s
• Most Recent 3 months Bank statements
• Hardship Letter
• Value Assessment (from certified appraiser/online valuation company)
Sincerely,
Name
Signature


Sample Hardship Letter
Regarding:
Borrower: Your First and Last Name Page | 19
Subject Property: Any Street, Las Vegas, NV 89122
1st TD with Lender Loan # 38678763
2nd TD with Lender Loan # 36787638
Dear Lender/Servicer,
(Handwritten is best)
I am writing this letter to explain my husbands and my unfortunate set of circumstances that
have caused us to become delinquent on our mortgage. We have tried everything in our power
to keep current o n our mortgage payments but unfortunately we have fallen short and would
like you to consider working with us to reduce our payments The main reasons that caused us
to be late are the substantial Curtailment of both of our Income, Excessive Obligations and
our Inability to refinance. I work as a waitress and my husband works as a taxi driver. Our total
household income is generated mainly from tips. It has decreased dramatically due to the
unfortunate economic situation. People are not coming to Vegas as much as for those who are
they are not tipping much. We both are full time employees and can’t get a part time job since
we have a 3 year old son. For the past several months we did pay our mortgage from our credit
cards but now we don’t have sufficient money left on our credit cards to afford our mortgage
payments. W e are trying to save up some money to hopefully work a payment plan with you
after you reduce our rates to something we can afford. My husband and I consulted mortgage
professionals regarding refinancing our home to lower our current payments but we were told
that there was not enough equity in our home to do so. I have no other choice but to ask you to
please consider my request of a loan modification. My family and I would really be grateful if you
can help us work a payment plan because my family and I do not want to lose our home. I want
to keep making mortgage payments on time and not have this nervous tension that is over my
shoulder.
Sincerely,


Guide to writing hardship letter
Be very detailed in explaining the reason(s) for your hardship and remember to date the letter
Use the questions that follow as a guide to writing the hardship letter.
Request that the lender accept your offer as “payment in full” and not seek a “deficiency
judgment” so that you can truly have a fresh start. Page | 20
What was the reason you fell behind on your mortgage payments?
Medical reasons
Incarceration
Divorce
Lawsuits
Depression (or other mental health reasons
Accidents (auto, job, other)
Death of family member
Drug Abuse (spouse, you, siblings, roommate)
Collection Problems
Job loss
Addictions (alcohol, drug, gambling, etc.)
Abuse
Crime
Do you have evidence of problems with the neighborhood?

Decreasing resale values
Undesirable schools
High traffic
Overall bad neighborhood
Do you have any other remaining financial resources available? If you have the financial
resources (savings, investment accounts, etc.) the lender will require that you utilize them to
cure the default.)
What other bills have you fallen behind on?

(Provide verification using the following)
Cell phone, utility bills, etc.
Car notes
Credit cards, personal loans
Personal loans
What have you done to try and rectify these problems

Work nights/weekends
Second Job
Sell property or other assets
Better Job
Have you had any problems with the property?

Electrical, roof leaks, termites, hot water heater, flooding, foundation problems, etc.
Is there a lot of crime in the neighborhood? (drug dealing,

Real Estate Cash Flow Worksheet
Borrower: Co-Borrower:
st nd
1 Servicer/Lender: Loan# 2 Servicer/Lender: Loan#
Property Address: City State Zip
Please complete schedule of real estate owned for all properties you own or show on your credit profile in table provided below as
Servicer/Lender may request documentation pertaining to all properties.
Property Address Amount of Total

Type of Gross Insurance Rental
(enter S if Sold, PS if Pending Sale Mortgage & Mortgage Rental Loss
Property Rental Income Taxes & Misc Income
or R if Rental being held for income) Liens Payments
10
11
12
13
14
Total
Type of Property: SFR: Single Family Resident | PUD: Planned Unit Development | Condo: Condominium | Units | Commercial | Land
Amount of Mortgage & Liens: Add your total existing mortgage balances or liens on property
Gross Rental Income: Estimated property’s current market value
Total Mortgage Payments: Your total current mortgage payments. This may include Taxes and Insurance
Insurance Taxes & Miscellaneous: Leave blank if payments are included in your mortgage payment. You may add HOA fee to this field if applicable
Rental Income: If Gross Rental Income is greater than Total Mortgage Expenses
Rental Loss: If Gross Rental Income is less than Total Mortgage Expenses
Expense Worksheet
Monthly Expenses Monthly Payments Creditor/Bank/Servicer
Property Taxes
Homeowner Insurance
H.O.A Fees
Other Mortgages
Credit Cards/Unsecured Loans
Auto Loan
Auto Insurance
Child Care
Alimony/Child Support
Medical/DR. Expenses
Health Insurance
Life Insurance
Cell Phone
Other Phone
Gas/Heating
Electricity
Trash/Sewer
Food
Water
Transportation/Gas/Bus Fare
Cable/Satellite
Clothing
Other 1 (Specify)
Other 2 (Specify)
Other 3 (Specify)
Other 4 (Specify)
Other 5 (Specify)
TOTAL Household Expenses (A)

Income Worksheet
Source of Monthly Income Borrower Co-Borrower Sub-total Income
(After Taxes/Net)
Net Monthly (1040s, W-2s)
Commission (1099)
Overtime
Bonus
Tips or Undocumented Income
Earned Interest/Notes
Rental (Rooms/Units on Property)
Social Security
Pension/Retirement
Disability
Child Support/Alimony
Unemployment
Rental Property Income
Other 1 (Specify)
Other 2 (Specify)
TOTAL Household Income (B)
Disposable Income Calculation
TOTAL Household Income (B) - TOTAL Household Expenses (A) = Disposable Income
$ - $ = $

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A STEP BY STEP GUIDE TO DO‐IT‐YOURSELF LOAN MODIFICATION

Step by Step Loan Modification Guide

All the best!

What is A Loan Modification?

1. Default on the mortgage either has already happened or is “reasonably foreseeable”

• Homeowners with Damage to Property (natural disaster or unnatural)

Note: YOU DON’T HAVE TO BE DELINQUENT TO GET A LOAN MODIFICATION.

Determining Your Desired Outcome

Summary of Loan Modification Forms & Letters

Sample Loan Modification Proposal

Current Fair Market/New Principal Balance: $395,000

Principal Balance Reduction: $40,000

Current Interest Rate: 9%

Requested Fixed Interest Rate: 5.5%

Amortization Remaining: 28 years

Requested Amortization: 30 years

Previous Payment: $3,500.00

New Payment: $2,242.00

Disposable Income for Housing: $2,750.00

Disposable Income Post Modification: $508.00

Comparable Homes Foreclosure Auction Price: $240,000

State Timeframe to Repossess Property: 4 mos. from first late

Late Balance: Include in New Principal Balance

Market Rent for Similar House in Neighborhood $1,750 per month

Requested Next Payment Date/Forbearance: Request 3 Mos. Away

Cornerstone Letter (Cont.)

Determining home values and foreclosure rates:

Nationwide real estate trends:

To Whom It May Concern:

New Principal Balance: $395,000

I have included a more detailed breakdown of the proposed modification request.

Do you have evidence of problems with the neighborhood?

What other bills have you fallen behind on?

What have you done to try and rectify these problems

Have you had any problems with the property?

Is there a lot of crime in the neighborhood? (drug dealing,

Property Address: City State Zip

Property Address Amount of Total

Monthly Expenses Monthly Payments Creditor/Bank/Servicer

Credit Cards/Unsecured Loans

TOTAL Household Expenses (A)

Source of Monthly Income Borrower Co-Borrower Sub-total Income

Net Monthly (1040s, W-2s)

Tips or Undocumented Income

Rental (Rooms/Units on Property)

Rental Property Income

TOTAL Household Income (B)

Disposable Income Calculation

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