Mortgage lenders won't modify loans for borrowers who can't afford the new payment or who are simply unlikely to repay the debt under any terms. Unemployment or a loan balance that's through the roof might impede a loan modification because the borrower has no means of making the reduced payment or the lender can't bring the loan down to an affordable level. You still might have a few options, however, if your mortgage company won't give you a modification package.
New Opportunities May Come Knocking
Don't take "no" for an answer when it comes to a loan modification. Lenders and the federal government -- which operates its own brand of modifications under the Making Home Affordable program -- update eligibility guidelines based upon the programs' success rates. If a program proves ineffective or too difficult to qualify for, changes may lie ahead. After receiving a rejection, ask your lender if guidelines have changed that might allow you to qualify a second time around, or if you might qualify for upcoming programs. Waiting for a better modification opportunity may prove worthwhile, although missed payments in the interim damage your credit.
Where Did We Go Wrong?
An oversight -- yours or the lender's -- may have precipitated rejection. During the wait or after receiving a denial, ask the lender if it's missing paperwork. Lenders often request documentation by mail, which increases the chances that you overlook a request or miss a sensitive deadline, causing the denial. You may also send documents to the lender via e-mail or fax. Technical difficulties on either side, lender backlogs and sloppy processing may also result in lost documents. Confirm and log document transmission and receipt. Record-keeping helps you prove clerical blunders caused the rejection. You may have to resubmit all or a portion of the paperwork, which is time consuming and frustrating, but you might still have a chance at a modification.
Late on the Trial Run
Lenders usually require you to pass a three-month trial period before they permanently modify your loan. Successfully sending the modified loan payment on time during the trial run reassures your lender that you can handle the new payment and gives it time to finalize modification paperwork. Although your lender might allow you to run late on a payment, it can deny the loan modification if you fail to remit all required payments by the end of the trial run. After failing a trial period under the government's Making Home Affordable program, you might still qualify for a modification under your lender's own programs, according to Bankrate. You may have to request another chance from your lender, reapply and provide a new hardship package with updated financial documents. Your lender may have different trial period terms, as well.
Modify Your Plans
When all else fails and your lender determines you simply aren't cut out for a loan modification, modify your own plans. A loan modification allows you to keep you home, as does a refinance, but you'll likely have to refinance under a program designed specifically to help struggling homeowners. The government and certain lenders offer unique refinance options for borrowers with minimal to negative equity. They also offer flexibility for missed payments, whereas traditional refinances don't. As a last resort, your lender may allow you sell your home for less than the amount owed in a short sale or allow you to hand the keys over in a deed-in-lieu of foreclosure. In either of these cases, you'll have to move out but may receive a monetary incentive for your troubles.
Karina C. Hernandez is a real estate agent in San Diego. She has covered housing and personal finance topics for multiple internet channels over the past 10 years. Karina has a B.A. in English from UCLA and has written for eHow, sfGate, the nest, Quicken, TurboTax, RE/Max, Zacks and Opposing Views.