If your mortgage lender won't give you a modification, it likely determined that you are incapable of, or unlikely to, repay the loan under the workout plan. Lenders generally prefer to modify mortgages, restructuring one or more of the loan's terms to make it more affordable, when it makes more financial sense than foreclosing. You might re-apply and get a modification after a denial if the rejection was issued in error, or if program or financial circumstances change.
A Numbers Game
Insufficient income or having no income at the time of application prevents a loan modification. Lenders usually have a target debt-to-income ratio that you must meet to qualify. The DTI represents the relationship between your monthly housing payment and monthly income. Calculating eligibility requires the lender to lower your payment to a target amount and requires verifiable income. Job loss, unemployment or income that is otherwise too low to achieve the lender's target numbers disqualifies you from receiving a loan modification.
A Minor Glitch
Borrower or lender error -- which can occur many ways -- may be to blame for a modification denial. Failing to provide complete or accurate income figures and verification, or the lender's failure to obtain these, can cause the lender to reject it. Mailing, faxing and e-mailing documents can lead to lost paperwork. Lenders may fail to receive your documents, attachments may be unnoticed or unread on your emails, or lenders may experience system problems when retrieving your documents. Also, borrowers may fail to upload all necessary documents into the lender's online application system. Missed signatures or missing loan numbers on documents also can lead to errors in the modification-request process.
Reconsidering the Facts
Your lender must disclose the reasons for denial under the government-subsidized Home Affordable Modification Program, which is scheduled to end at the end of 2015. The lender informs you of the decision in writing, disclosing up to 33 data points that it entered for your application. If you disagree with any of the points that influenced the decision, you have 30 days to provide written evidence of the correct information as part of an appeals process. The lender ultimately decides whether to approve the modification after re-evaluating the information.
If you're not prepared to take "No" for an answer, and the foreclosure process has yet to start or advance sufficiently, you might have time to wait for a new modification opportunity. Lenders can change guidelines to proprietary, or "in-house" modification rules. The government also changes HAMP requirements based on program performance and need. Because you're not the only one failing to meet modification guidelines, new opportunities may open up in the near future. Keep checking with your lender or a foreclosure-prevention counselor approved by the Department of Housing and Urban Development for new or upcoming program changes.
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