If you have been denied for a HAMP – Home Affordable Modification Loan Program find out why and reapply.

By: Anna  Cuevas

Lets take a look Inside the Home Affordable Modification Program to see the possible reasons why you were declined:

If you have been denied for the Home Affordable Modification Program, often called the HAMP or Obama loan modification assistance program, it is of upmost importance for you to #1 remain calm and #2 find out in great detail all the reasons why you were declined.  Many people that have gotten denied can get approved for a loan modification if they have changes to their previously submitted information and they make the necessary corrections to their  application and then reapply.  Being denied is frustrating and scary but it definitely does not mean it is the only chance that you have. If you are determined to keep your home and you know you can make a reasonable payment you have a chance to still make it work., don’t be discouraged. I know people that have been denied up to 10 times for loan modifications that end up saving their homes because of their determination and refusal to give up even when it seemed they had no hope.

If you are not in jeopardy of losing your home in the very near future  this may give you an opportunity to find a job if you are unemployed, raise your income, or lower some of your expenses to then be able to reapply with updated financials and possibly qualify where you might have not qualified before.  Sometimes a chance to regroup and take a breath is all we need to turn the page and have success.

Common reasons for denial are: Insufficient Income, too much income, payment already under 31% of your gross income, too much money in the bank, borrower not living in the property, lack of hardship or voluntarily left job or went back to school, lender could not reach borrower for missing documentation, they may not feel that a default is likely to happen with information submitted and for the permanent modification the borrower did not make trial payments on time or income changes were more than 25% different than when originally qualified.

Keep in mind that if after performing the 3 steps available to the servicer to modify your loan under the Home Affordable Modification Program, H.A.M.P.  it still appears more lucrative to the investor to foreclose that is cause for a denial for them.  This is why it is imperative to verify the income and expenses they used line by line to check for human error and you just have to be resourceful and examine your information with a fine tooth comb and with a different perspective, regroup, make changes and then resubmit your complete updated modification request.  Give it all of your effort, follow up weekly, or even every other day if your in jeopardy of losing your home soon. Keep a log and follow a submission checklist.  The other reason for disqualification is missing requested documentation so stay organized, calm, patient, and keep a positive attitude.

The 3 steps your servicer will perform to qualify you for a HAMP loan modification are rate reduction, then term extension and finally principle deferment or forgiveness(very unlikely and is solely at lenders discretion, they are not obligated to forgive or defer principle and is based off of a negative equity position ONLY and usually as with Fannie and Freddie approximately 30% maximum).

If they say it is because of your income or your expenses you need to go down line by line with the representative of your bank and then compare the numbers.  It is important for you to prepare your household financial budget for yourself prior to submitting this information to your lender.

We are all human and in my experience I have witnesses many a mistake in this area.

I have been told by negotiators at many of the lenders that the lack of explanation of the hardship is another big reason people are denied.  Consider all of these factors when writing out your Hardship letter and make sure you put all of the reasons you have a hardship and are in need of help but try to keep it to one page if possible and legible.

Lets examine the Fannie Mae explanation of how the Hardship is determined per guidelines given directly to the servicers/lenders to qualify borrowers for the Home Affordable Modification Program H.A.M.P.

Determining Hardship

Every borrower and co-borrower (if applicable) seeking a modification, whether in default or not, must sign a Hardship Affidavit that attests to and describes one or more of the following types of hardship:

1. A reduction in or loss of income that was supporting the mortgage loan, e.g., unemployment, reduced job hours, reduced pay, or a decline in self-employed business earnings.

2. A change in household financial circumstances, e.g., death in family, serious or chronic illness, permanent or short-term disability, or increased family responsibilities (adoption or birth of a child, taking care of elderly relatives or other family members).

  1. A recent or upcoming increase in the monthly mortgage payment.

4. An increase in other expenses, e.g., high medical and health-care costs, uninsured losses

(such as those due to fires or natural disasters), unexpectedly high utility bills, or increased

real property taxes.

5. A lack of sufficient cash reserves to maintain payment on the mortgage loan and cover basic living expenses at the same time. Cash reserves include assets such as cash, savings, money market funds, marketable stocks or bonds (excluding retirement accountsand assets that serve as an emergency fund – generally equal to three times the borrower’s monthly debt payments).

  1. Excessive monthly debt payments and overextension with creditors, e.g., the borrower was required to use credit cards, a homeequity loan, or other credit to make the mortgage payment.

Do Not Move Out Of Your Home you will be disqualified for HAMP – if you moved out prematurely consider moving back in if you want

If a servicer has information that the borrower does not meet all of the eligibility criteria for the HAMP (e.g., because the borrower has moved out of the house) the servicer should explore other foreclosure prevention alternatives prior to resuming or initiating foreclosure.

If you are current on your payments you may still qualify, the difference is that they won’t reach out to you- but they will not disqualify you simply for not being late, these are the guidelines they use:

Reasonably Foreseeable (Imminent) Default

A borrower who is current, contacts the servicer for a modification, appears potentially eligible for a modification, and has suffered an eligible hardship (as described above) must be evaluated using the imminent default screen set forth below. This must also be used to evaluate such borrowers who are in default but less than 30 days delinquent.

This is the Formula used when you are not currently in default to determine whether or not your default is imminent:

The borrower’s debt coverage ratio is less than 1.20. The debt coverage ratio is the borrower’s monthly disposable net income divided by the borrower’s current monthly principal and interest payment on the first lien mortgage loan (excluding tax and insurance payments). Monthly disposable net income is the borrower’s monthly gross income less (1) monthly payroll deductions, (2) monthly escrow allocations of property taxes, property insurance and mortgage insurance premiums, (3) monthly homeowner’s or condominium association fees, (4) monthly allocations of all other monthly credit

obligations, (5) all other reasonable living expenses allocated monthly, and (6) any other monthly net negative amounts paid or incurred by borrower (such as negative rental income, mortgage loan payments on investment properties); and

The borrower’s cash reserves are less than three times the current monthly mortgage payment, including tax and insurance payments (using estimated payments if the mortgage loan is not currently escrowed). Cash reserves are liquid assets the borrower has available for withdrawal from any financial institution or brokerage firm, including checking and savings accounts, certificates of deposit (even if held for an extended time), mutual funds, money market funds, stocks or bonds.

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PS Don’t be discouraged – fight for your home – have a positive attitude – expect miracles!

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