BiggerPockets

I have a friend who has been behind on his mortgage for almost 7 months now. He has been advise by other that he would not qualify for loan mod cause his income too low. His wife works but she was not on the original loan application because she owned a house before they married and has convert that to rental. My question is this: If he was to add his wife on to the loan mod application, will the lender pull her credit report too or do they just go off of what is on the application? I suspect they might but just want to confirm. If they do, I don't think my friend would qualified. But just a thought, could I have them redo the rental agreement with their tenant to raise the rent so they show more income and hopefully qualify? How many months back do they lender look to prove such income???

Any other suggestion to help my friend out. Thanks.

John, reason he does not want to sell is because he loves this home and neighborhood. Their current mortgage is around $3500 combined 1st and 2nd. They said they can comfortably pay $2000-$2500 per month. Only problem is to somehow figure out a way to get the loan mod so the payment can be affordable for them. Moving is their last resort.

Originally posted by Jon Holdman

Lenders will look back to the two most recent tax returns to see the rental income.

Creating a false lease with the tenant would be loan fraud.

If the wife is included on the loan, they will certainly pull her credit, request her pay stubs, all that jazz.

Why doesn't he just sell the house? Sounds like his income has declined and he can no longer afford this property.

He used to has 2 jobs but his part time company has shut down and his full time cut back hours a bit. He did find another part time but only the last couple of months so don't know if bank will count it. Plus, maybe it is not enough cause it is less than his previous part time work.

Originally posted by Jon Holdman

What's the hardship that's making it hard to pay? What has changed in his life? Can he get another job?

Sorry, but the loving the home and neighborhood but just can't afford it is, frankly, a lame excuse. There are lots of places I'd love to live and neighborhoods I love but that are out of my price range. But I can't afford them so I don't live there.

Getting from $3500 to $2500 is a pretty big step. Rates on 30 years loans for OO right now are around 5%-5.25% (well, a couple weeks ago). If they refinanced the balance into a new 30 year loan at 5%, what would the payments be? If they're not close to $2500, then there's probably not much they can do.

Then, there's the equity situation Will mentions. They would like need to new loan balance to be no more than 90% of the current value. What's the situation on this front?

Finally, his credit is probably shot if he's seven months behind. Getting this refi may be really though at this point.

Could they sell that rental and generate some cash?

Some states or cities have foreclosure counseling services. I know we have one here, but I don't know where your friend is or if there is one. He should find out and give them a call. They can probably give a better response w.r.t. the programs that are currently available to help with loan mods. I just think a 30% reduction in the payment with limited income is going to be really tough.

Thanks for replying. No, they cannot refi because it is negative equity (bought home 2.5 years ago with zero down). Plus, their credit is shot! As for selling rental, not an option either cause it is also negative equity. We talk about shortsale and I think that is the only way to go now according what you both mentioned above. Only reason they want to do loan mod cause they want to stay here. But look like that is impossible???? Although I had another friend who got loan mod and his payment went from $2000 down to only $1200? He did start talking to the lender only 2 months behind and just got the mod done last month, which is 6 month total. He did mentioned he paid the mortgage all those 6 months but most of the time late.

Is it a Freddie or Fannie loan? If so, they might qualify for the "Obama" plan and get the modification. If the reduction in income is permanent and they are underwater, they should be able to get on a trial plan.
If the investor isn't Fannie or Freddie, the mortgage servicer might have in-house options.

I am confused. The original question asked about a loan modification. You are all responding as if the question were about a refinance.

Isn't a loan modification simply changing the terms of an existing loan -- lowering the principal, lowering the interest rate, and/or extending the loan term -- to make the monthly payments affordable?

I don't see this as a refinance.

There is federal legislation that established the Home Affordable Modification Plan, or HAMP. The program is paid for by $75 billion in stimulus money, and is designed to help at risk homeowners -- both those who are in default and those who are at imminent risk of default. The goal is to provide the borrower with an affordable and sustainable monthly payment to help them avoid foreclosure.

Tyler, your friend needs to call his loan servicer and ask to speak to the loan modification department. These people are not the same group as those who would talk to you about a refinance.

It sounds to me as though your friend was given feedback that would apply to a loan refinance, but if his current payment (including principal, interest, property taxes, homeowners insurance, homeowners dues) equals more than 31% of his gross monthly income, the circumstances are screaming for a different solution -- a loan modification.

and a principal reduction is at best RARE.

Trueer words (if that is even a word) have yet to be spoken!
Nail on head Sam!

I agree David.

With mods there is a $500 ususal processing fee and a possible lengthy waiting time as many are in queue. Also, additional payments are tacked onto the end of the mortgage.

Which is why most loan mods that do get compelted end up back into foreclosure anyways. Just delays the inevitable!

Thank you Jeff! I was cringing to say something.

Okay, have the "soon to be sellers" go to:
http://makinghomeaffordable.gov/eligibility.html
to see if refi or a loan mod is in their future; if not, have them sell. This site should help them see through the denial and help them mitigate their loss. Now, be a good facilitator and get their property sold!