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Why Do So Many Loan Modification Applications Get Rejected?

By John Carol
Many homeowners who are currently trying to apply for a loan modification often wonder why banks or mortgage lenders take so much time to approve or reject an application. The biggest question of course is why any bank would completely reject a loan modification for a homeowner. Many people seem to think that since loan modifications are one of the best ways to stop a house from going into foreclosure, it would be a win-win situation for both the bank and the homeowner if the loans are modified. (continued below)

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Why Do So Many Loan Modification Applications Get Rejected?

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The truth is that in most cases a bank will see either what is more profitable for them or what will cut their losses as much as possible. The number one reason why most loan modification applications would be rejected is the ability to pay the new mortgage. All banks review whether the homeowner would be in a position to pay if a modification agreement is offered. In the event the mortgage lenders feel that even after a loan modification, the homeowner will still be unable to pay a reduced amount, a foreclosure would make more sense for the lender and they will proceed to cut their losses immediately.

Although the Obama administration is desperately trying to get mortgage lenders to be more helpful to families and homeowners across the country, most lenders would still like to take it slow and make sure they are not losing additional money by modifying loans. If you are applying for a loan modification or approaching a lender via a loan modification consultant, you need to make sure you have done everything possible to show the lender that you will be able to make a reduced mortgage payment without any issues.

The second reason why loan modification applications get rejected is because you need to have a genuine difficulty in paying your mortgage. According to most lenders, they wonder why they should modify your loan if you do not have any hardship in paying your mortgage. Many homeowners make the mistake of assuming the lenders will modify their loan because the home has drastically depreciated so the lender does not want to foreclose for this reason. This is simply not true. Lenders primary concern is to make sure you have the ability to make your payment and if they dont think you are a strong candidate, they will cut their losses sooner rather than later. You need to make sure your application covers all your difficulties and hardships you are currently experiencing. In addition, you must explain to the lender what is different with your current situation from when you originally took out the loan that now makes your mortgage unaffordable for you.

The current hardship and ability to pay the modified mortgage are two of the main areas that banks will review when considering your loan modification application. Apart from this, there are a few other reasons as well which could harm your chances of getting a loan modified. Another problem presents itself when homeowners fail to provide all of the required documents required to apply for a loan modification. Lenders need to review the requested documents before making a decision on your file. If you are not sure which documents are required, you need to either talk to your lender or talk to a loan modification consultant about this. Make sure your application meets the required format set by your lender and you answer all questions correctly and accurately. If you take care of such things, then the chances of your loan modification application getting approved are much higher. While the loan modification process can be stressful, it is important not to panic. Once you get started, you will realize the whole process is generally completed in a systematic and timely manner.

About the Author:
John Caroll is the creator of The HAMP Guide Program which is the only loan modification guide which gives you complete knowledge on how to modify your loan using President Obama’s Home Affordable Modification Program with unlimited free phone support. For more information please visit www.HAMPguide.org.

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