People get really frustrated in their search for mortgage loan relief. There are forms and more forms. There are requests for bank statements, tax returns, utility bills and other documents that seem to go on forever. And just when you think you’ve satisfied the bank’s requests, they ask for more – or the same things you’ve already given them.
As I work with clients who are undertaking this challenging process, I’m often the bearer of the “resubmit, redo and re-file” news that comes to me from the banks. So why does this happen and what can you do to move the process along with your bank? Here’s a look into that world and the lessons it teaches us:
How the Mortgage Loan Modification Process Works
There are two initial “players” in the loan modification process who must be satisfied if you are to get a decision from your bank: The Gatekeepers and the Underwriters.
It is the Gatekeeper’s job to make sure that all forms are completed properly with all supporting documents. Once the Gatekeeper is satisfied, he or she submits the application to the Underwriter.
The Underwriter’s job is to review the information, crunch the numbers and make a decision on whether the bank will extend the modification or not.
Sounds simple, right? It’s not. A number of things can stall your application. That can happen at the Gatekeeper’s or the Underwriter’s desk. Some of these things happen because both players are overwhelmed with paper and process. Some can be headed off before they derail the process too seriously. Others have to be dealt with as they come up. Gatekeepers want to give Underwriters applications and documentation that are complete. Each has their own take on what that means.
Here’s what holds things up:
- Every part of the form needs attention. Just because a box on the form doesn’t apply to you, don’t ignore it. For example, there is a section on one of the loan modification forms that you complete only if you’re seeking assistance for anything other than your primary residence. The borrower I was working with wasn’t seeking assistance for property that was other than his primary residence, so we didn’t complete the section. The bank came back to us and said that the form was incomplete because that section was not completed. I got on the phone with the lawyer representing bank and explained that by its terms the section did not apply to my client. After talking to the bank, he ultimately agreed that we did not have to complete the section. The moral of the story is that we lost time dealing with a silly request. It would have been better to confirm at the outset that the section was not applicable by writing “not applicable” on it before submitting it.
- Forms that include information in the wrong spots get kicked back. Sometimes the Gatekeeper wants you to “correct” an application because you put the right information in the wrong space. Suppose, for example, that a the wife owns the house by herself and is the only one on the mortgage. Her husband also works outside of the home to help support the family. There are spaces on the form for borrower’s income and others for the co-borrower’s income. Since the wife is the only one on the loan, the husband technically is not a “co-borrower.” So if you list his income in the space for “co-borrower” the bank may instruct you to resubmit the form, leaving the co-borrower section blank and submitting a “letter of contribution” from the husband explaining his contribution to the household.
- Financial information gets old. There’s a “shelf life” to the forms and documents you submit. Things like the “RMA” (Request for Mortgage Assistance), bank statements and pay stubs have a limited time limit before they are deemed “outdated” by the bank. So, if it takes an overwhelmed Gatekeeper a long time to get to your application, she could very well deem this information “stale” and request that you update it before she can send it to the Underwriter. There is a potential for a dangerous spiral here because the “freshness” date is different for different things. So, while you are responding to a request for an update as to certain things, something else may go stale. You have to respond to requests for updates – promptly — to move the process forward.
- Gatekeepers change. There’s a lot of turnover among Gatekeepers. It’s a frustrating job and people often leave it. Because of the high turnover, you are often dealing with a poorly trained and inexperienced Gatekeeper. This can lead to inconsistent requests. For example, say you may start out with “Gatekeeper Mary” reviewing your application. She tells you what she wants redone and what additional documents she wants. You take care of that and resubmit. But, in the interim Mary leaves and now you get “Gatekeeper Fred”. He looks at the same application and finds different things wrong with it than Mary did. You addressed her concerns but that doesn’t affect Fred one bit. Fred’s concerned with different things. In the meantime you’ve lost time.
- Information submitted piecemeal gets lost. If you submit information piecemeal you run the risk of documents getting lost. You’ll hear from a Gatekeeper that they have everything except for, the tax return, utility bill or one of the forms. You then submit it. Two weeks later you get a letter saying that your application is declined for failure to submit requested documents. When you tell them you submitted what they requested, and can prove it,, they may reopen the application and tell you to resubmit, again, the requested information.Or, they may tell you that you have to start all over again from scratch. Either way, it’s lost time.
- Underwriters have their own needs. Just because an application makes it past the Gatekeeper doesn’t mean it will move forward. The Underwriter may look at the information and have more questions about what he or she sees. For example, maybe you have interest income or a retirement fund distribution on your income tax return. The Underwriter probably will want to know what lead to that and whether it reoccurs. They’ll ask for a letter explaining that. That means the application goes back to the Gatekeeper who asks it back to the borrower you for the information.
What Moves the Process Along
While nothing can prevent this kind of back and forth, here are a few things that may shorten it:
- Make your application complete, fill in all appropriate boxes and submit all supporting documents. If your goal is to have the application reviewed in a timely manner, you need to make it as difficult as possible for the bank to rule it incomplete. That means if there’s a box or space on an application form think carefully before leaving it blank. It’s often better to fill it in with “Does not apply” or “N/A” than to leave it empty.
- Submit all supplemental documents together. If you get a request for additional forms or documentation after you’ve submitted your application, respond with everything they want all at once. But there’s a caveat: If the bank gives you a deadline for getting back to them meet it. If you don’t have everything they requested at that time submit what you have and worry about the rest later. A missed deadline could be viewed as worse than an incomplete form or missing document.
- Sign all tax returns by hand before submitting. The tax returns you submit have to be signed. It doesn’t matter if you submitted them electronically. These documents have to have traditional, dated signatures for the banks to consider them. An electronic signature isn’t good enough.
- Update your bank statements and pay stubs while the modification is being considered. Banks will suggest that you update your bank statements and pay stubs throughout the process. Go ahead and do it, but don’t be surprised if they request them again, even after you’ve submitted them. These documents sometimes get lost in the system. They may very well be floating around without any connection to anything you’ve already submitted.
- Keep an undated copy of your completed forms. Keeping an undated copy of the form means you won’t have to completely redo it each time the bank has a problem with it. To do this, make a copy of the form before you fill in the date. Then date and sign the one you’re sending to the bank with all your documents. That way if the bank comes back three months later and tells you there is a problem or the form has “gone stale”, you can make any necessary corrections or simply redate the form you’ve saved. Make sure you keep an undated copy of any form you submit or resubmit. By doing this, you won’t have redo most of the form every time the bank has another request.
- Respond to the bank’s requests completely and promptly. Often, the bank will come back with requests for additional information. Get all of that additional information together and send it back promptly. If not, by the time you submit it the other information you already submitted could be deemed as “stale” and then you’ll need to update that.
The bottom line is this: The mortgage loan modification process can be long, demanding, complicated and frustrating. You probably aren’t going to be able to eliminate repetitive requests for the same information, but you can reduce the likelihood that this will stall the process indefinitely. The idea is to do all you can to move the process along that will help you modify your mortgage and stay in your house.