What Do You Do When Your Loan Modification Is Denied?

Most industry experts spend so much time telling homeowners how to get their loan modified, they don’t tell homeowners what to do when their application eventually gets denied by their mortgage lender. Unfortunately, about 80% of all applications get denied so it is obviously a large amount of homeowners that are getting overlooked.

These homeowners assume their situation is hopeless and promptly prepare for the worst case scenario. However, that is hardly the case but few homeowners know they still have options to try and keep their home.

First, if your application is denied by your mortgage lender, try to find out the reason why. At first, your lender might not tell you but call them 2,3,4 times (as many as it takes) until someone gives you insight. Just ask the customer service representative on the phone to read you what the notes in the system say about your application. Tell them no one is telling you why your application is denied and you want to know. The representative doesn’t have to tell you but there is always someone who will share this information with you but it might take calling them a few times and trying to pry it out of a few people.

Second, once you are given some reasons for the denial, you will review the application you sent to your lender. For example, you might have been told your income was too low, your debt to income ratio too high, etc. All of this is great info to get from your lender and you will review the application you sent to them to see where you can make changes. Yes, you can make as many changes to your application as it takes to receive an approval. Fortunately, in this regard, lenders are not very organized so they don’t keep track of the information you submitted (they will never admit this though). So if your debt to income ratio is too high, lower your grocery bill or gas expenses to reduce this ratio. Then you can resubmit your application. Again, you can do this as many times as it takes to get an approval. Sounds crazy but it is true. There is no limit to the amount of times you can submit a loan modification application. Just don’t make any changes to expenses that show up on your credit report. For example, if your car payment is $250 per month, you cannot change it to $175 because your lender will run your credit and see the actual payment. For credit cards, always just include the minimum amount that is required to be paid.

Now if your income is too low, there are a few things you can do. First, see if a family member in your household is willing to go on the loan modification application with you. This does’t mean they will go on the loan or title with you. It just means you are using their income to assist in qualifying for the modification. Some people have family members that contribute to the household expenses and you would be using their income to qualify for the modification. If you don’t have this option, then you can reduce your other expenses to lower your overall debt to income ratio which would help offset that you don’t make enough income.

If you are denied under the government’s modification programs (HAMP/Making Home Affordable, HOPE, etc) all is not lost. You just need to revise your application (based on feedback you received on why it was rejected) and resubmit to your lender. Then you will ask your lender to review your application for one of their other modifcation programs. Yes, all lenders have modification programs other than the ones implemented by the government. Lenders would prefer to give you a government program because there is financial incentive for them to do this but it’s not the only option. If you are rejected or denied under the government’s program, you just have to be persistent about letting your lender know you are experiencing a true financial hardship and you want to be reviewed for any other modification programs they offer. This applies if you make too little income or too much income and your overall monthly are expenses too high.

I’m a big fan of the late Randy Pausch and one of his sayings is that “brick walls are put up to see how bad we really want something.” In other words, you can achieve what you want but sometimes it’s going to test us and require a lot of persistence to get it done in order to break those walls down. As it applies to loan modifications, if a lender tells you no or denies your application, you just have to find out why, revise, and resubmit. Can the process be frustating, yes, but don’t lose sight of the goal which is to get your loan modified with a payment you can afford.