Why is My Loan Modification Not Getting Approved?

Probably because you don't have the proper legal representation. Click here to contact The Law Offices of Kramer and Kaslow for help with your home.
About 1/3 of short sale clients had attempted to modify their mortgage in the hopes to avoid foreclosure.  Months later, they’re calling me to list their home for sale as their loan modification was not approved or did not go far enough - which is why they turn to a short sale.  Here are the top 4 reasons why your loan modification may get declined.

1. The Homeowner is Unemployed

Until 2007, if you had good enough credit, you could purchase and refinance your home without actually having a job.  Today, they’re checking for employment to ensure you can pay back what’s owed.  In you have enough unemployment benefits remaining, they can use that income as long as it fits the guidelines however that can be dangerous.  If you are unemployed and the prospects for employment is dim, short sale may be the way to go.

2. The Home Is Not the Primary Residence

While it makes sense to prevent foreclosure to modify mortgages for investors, sadly most programs are designed only to help the homeowner with their primary residence.  Therefore, when pre-qualifying for assistance, ensure they know the property is an investment or primary residence up front. (NOTE: while most would not consider themselves to be investors, when a property owner has another primary residence, the former property is considered an investment).

3. Modification Doesn’t Go Far Enough

When negotiating your payment terms, if the terms that they are offering does not work for your budget, attempt to negotiate more favorable terms that ensures you can make the payments.  Many homeowners are late on a number of payments - not just the mortgage and find themselves back in the delinquency hole.  As a result, the homeowners find themselves re-defaulting on their mortgage months after approval or while in their trial modification period.

4. Too Much Debt

So after you’ve found a job and maintained the home as your primary residence, your modification can get declined because the lender feels that you will not be able make the repayments.  The most common tactic among lenders is to drop the interest rate to 2-4% and stretch out the term to 40 years.  Some lenders will even reduce the principal balance of the loan but you will need to demand it.  However, if at the end of it all, your debt to income ratio is still too high, the modification will be declined.

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