A loan modification specialist is a specialized position within a lending department. A loan modification is the process of changing the terms of the original loan without refinancing. As a modification specialist you will facilitate all aspects of analyzing, documenting and processing these changes. Since the scenarios surrounding modifications can vary from loan to loan, you will need to have a diverse skill set for the different functions you will perform.
When a borrower requests a loan modification, the specialist gathers all necessary information for analysis of the loan. The first step is making sure the lender’s application is accurate and complete. Next, the modification specialist retrieves the borrower’s file from the archives. Then, the specialist takes copies of the borrower’s most recent financial information and obtains authorization to run credit reports, both of which are necessary to calculate the debt-to-income ratio. Finally, the modification specialist logs the request into the loan-processing system. By making sure a modification application is complete, the specialist moves the process seamlessly to the next step.
Using the information gathered at application, the modification specialist calculates debt ratios and reviews the borrower’s history to ensure he still has the capacity to pay the loan. The debt ratios are the same as a standard mortgage approval. These vary by lender, but typically run 28 percent for housing expenses including the mortgage payment, taxes and insurance and 36 to 40 percent overall debt to income. The specialist will compare these ratios to the existing file to make sure they’ve either stayed consistent, or improved. If the total debt-to-income ratio is above the 36 to 40 percent guideline, the request will be denied. If the modification request is denied, the specialist sends a notice to the borrower informing of the decision.
While the modification processor utilizes standard due diligence and debt ratios when analyzing a modification request, there are certain scenarios where she can be approve exceptions if mitigating factors exist. It is part of the specialist’s job to thoroughly examine these mitigating factors. For example, a borrower may carry a 41 percent debt-to-income ratio, but the sum of his deposits is greater than the balance of the loan. Since he theoretically has enough money to pay the loan off and the ratio is only marginally outside policy, it is part of the processor’s job to recognize the exception and recommend approval. Another scenario is when a borrower is having trouble making payments. His debt ratios have gotten worse and his credit score has gone down. Assuming he hasn’t taken on excessive debt since the original loan, a modification and resulting lower payment can actually prevent him from going delinquent. Again, it is the modification processor’s job to recognize this in analysis and recommend the modification for approval on an exception basis.
When a request is approved, the loan modification specialist prepares a modification agreement. This document must accurately recite the original terms of the note while also stating the changes as well. For example, the document will start with “On July 1, 2010, ABC Loans, Inc., a New Jersey Corporation, and John Smith, an individual entered into a loan in the amount of $250,000 at an interest rate of 6 percent.” Then it will recite the changes in a manner such as “Now, in accordance with this modification agreement, the rate is hereby lowered to 4 percent effective August 15, 2013.” It is critical that the loan modification specialist ensures all dates, amounts and interest rates are correct. Once signed, the agreement becomes legal and binding.
Once the documentation is properly executed, the loan modification specialist processes the modification on the lender’s loan management system. With the modification agreement as a guide, the modification specialist changes the rate, term, payment or any other aspect of the loan that was modified from the original agreement. Again, it is crucial that the modification specialist is thorough and accurate in entering this information, especially in regard to the date. If the legal document is dated August 15th, but the modification is not processed until the 16th, the modification specialist must make sure that it is back-dated to the 15th during processing. Otherwise, the interest accruals will be inaccurate and the borrower will be overbilled.