Home Loan Modification – Hardship Letter Tips You Must Know

If you’re going through the home loan modification process or a loan workout, one of the things you’ll need is a letter detailing your financial hardships. This is a hard letter to write, not only are you admitting that you need help, you must also present evidence that you are suffering a hardship.

Banks and mortgage companies do have the power to modify your loan, but they will require you to convince them through your hardship letter that you honestly need the financial accommodations. Before you begin writing the letter, you need to do some important homework. Make sure you have all your financial records for the past year on hand, especially your history with the mortgage company. If you’ve always made your monthly payments, be sure to stress that fact in your letter.

By some chance if you’ve been late a time of two in the past, acknowledge that, give the reason why, and point out that you have always brought your account back to a current status. Another reason to find all your financial records from the past year is to help you make a list of all your financial difficulties. You can give them the exact dates you were in the hospital or when you were laid off your job. This is good information to have available both for the hardship letter and the rest of the mortgage modification process.

Lastly, using this information you can realistically figure out how much you can afford to pay on your mortgage each month. It is important to send your letter to an actual loan officer, not a “to whom it may concern.” Not only are those letters more likely to be discarded without any contact being made, but it leaves you with no knowledge of who is handling your mortgage modification and no way to get in touch with that person. The central part of your letter should be a basic outline of your current life issues (for example, death of a loved one or illness or job loss) that is keeping from meeting your financial obligations.

Try to keep your letter short and, most importantly, to the point. It is perfectly fine if your letter is only two pages, so long as you get your message across. Remember to keep your tone polite and respectful in the letter. This is a difficult time and you might be angry, afraid, or frustrated, but don’t let any of that show in your letter. Also, it would help the process go faster if you included any supporting paperwork as an attachment; you might append your letter with a bank statement, a wage statement, or any other official documentation of financial difficulties.

The second most important aspect of a hardship letter is letting the lender know that you want to find a solution that works for both you and the mortgage holder. You want to make payments, you want to keep your house – you just can’t afford them right now at that amount. Reiterate that you want to work with the lender to find an amount you can afford.

The purpose of a hardship letter is to explain your financial difficulties to your lender and to convince them that a home loan modification is the only way for you to keep your home. You are a hardworking homeowner who has had some bad luck. This letter could be the start of the second chance you need.

The Red Flags of Getting a Home Loan

Red flags are indicators that there may be a current or future problem with the borrower or transaction. They help Underwriters isolate pertinent issues that are part of the overall loan evaluation. They are questionable items, and when there are several, they usually indicate that something is “amiss” and should be investigated further. Lenders, who have done extensive research on loans that they found to be fraudulent, found one consistent pattern in all of the files; the Underwriter did not feel totally comfortable with the file and had asked questions about certain items. However, in every case, they had not gone far enough. They had stopped “one question short.”

The following sections contain a representative list of “red flags” in the loan package that may alert the Underwriter to possible irregularities in the data submitted by a borrower. The main purpose is to point out typical inconsistencies that have been found in fraudulently-obtained loans. It should be emphasized that the presence of one or more of these items is not necessarily indicative of fraud. They do, however, point out the need for additional review and documentation. These items may be seemingly legitimate when viewed separately, but when aggregated, a pattern of deception may begin to emerge.

Rules for Detecting Fraud:

The general rules for detecting fraud are simple:

* Use common sense. Does the loan file make sense? e.g., Is the commute from home to work reasonable? Why does a stock broker not own any stock himself?

* Go beyond the numbers. Aside from ratios, are all the parts of the borrower’s financial picture consistent? e.g., income vs. savings vs. liabilities?

* Check document consistency. Is the information the same throughout the file? e.g., application vs. credit report vs. VOE vs. VOD?

* Trust your intuition. Why don’t I feel comfortable? What questions must be answered to complete the package? Follow your instincts, but use good judgment and keep an open mind. Ask for letters of explanation and read them.

SALES CONTRACT

* Seller is realtor, employer, or relative of borrower (non-arm’s length transaction).

* Power of attorney is used.

* Sale is subject to seller acquiring title.

* Buyer is required to use a specific lender or broker.

* Odd amounts used as earnest money.

* Secondary financing is offered by seller or other parties.

* For sale by Owner (FSBO). No real estate agent involvement.

* Real estate agent listed but no signature.

* Assignment of contract (“…and/or assignees”) or borrower not listed as purchaser.

* Earnest money held by seller or third party other than the title/escrow company.

* Large seller credits (over 3-4%) or personal property included.

* Contract is “stale dated” (in excess of 2-3 months old).

PRELIMINARY TITLE REPORT

* Income tax or judgments against borrower on a refinance.

* Delinquent property taxes.

* Notice of default recorded.

* Seller not on title.

* Modification agreement on existing loan(s).

* Seller owned property for short time with cash out on sale.

* Buyer has pre-existing financial interest in property.

* Borrower not appearing as currently vested on refinance.

APPRAISAL

* “For Sale ” sign in the photos of the subject on a refinance.

* Occupant noted as “tenant” or “unknown” for owner-occupied refinances.

* “For Rent” sign in the photos of the subject on a owner-occupied refinance.

* Appraised value lower than purchase price.

* Property recently listed for sale.

* Market rent significantly less than amount indicated on lease agreement.

Because Preferred often uses in-house Appraisers, our exposure to fraud due to the actual appraisal is limited. However, in reviewing “fee” or “WIC” (Preferred Independent Contractor) appraisals the following red flags in addition to some of those already mentioned should be noted:

* Comparables are more than one mile from subject property (except for rural properties).

* Comparables are all adjusted in the same direction.

* Line adjustments are in excess of 10%.

* Overall adjustments are in excess of 25%.

* Photographs do not match description.

* Sales contract is dated after appraisal.

* Appraisal ordered by a party to the transaction (buyer, seller, realtor, etc.).

APPLICATION

* Significant increase or unrealistic change in commute distance.

* Number of family members compared to size of house being purchased not realistic.

* Date of application and dates of verification forms not consistent.

* Borrower’s age and number of years employed not consistent.

* Lack of accumulation of assets compared to income.

* Years of school not consistent with profession.

* Buyer is downgrading from larger to smaller house.

* Buyer currently lives in property; purchasing from landlord.

* High income borrower with little or no personal property.

* Significant increase in housing expense.

* Down payment other than cash.

* Stock, bonds (liquid assets) not publicly traded.

* “Acquisition information” left incomplete; price and date purchased not indicated.

* Borrower holds stock in employer (may be self-employed).

* Inappropriate income with respect to amount of loan.

* Significant or contradictory changes, cross outs, or write overs on handwritten application to typed application.

* No bank accounts – all liquid assets held as “cash on hand.”

* Portion of liquid assets held in bank accounts and some as “cash on hand.”

* Invalid Social Security number.

SOCIAL SECURITY NUMBERS

Social Security numbers identify individuals or estates of descendants. Social Security numbers consist of nine digits. A Social Security number is hyphenated after the third and fifth digits: XXX-XX-XXXX.

Social Security numbers can also be identified by the state from which it was issued. The first three numbers are a key to where the applicant was living or when they applied for a Social Security number. However, since many people do not live in the same place as where they originally applied, be careful in assuming that there could be something “fishy” going on when the Social Security number does not match the State.

The Underwriter should ask for a letter of explanation and/or a letter from the Social Security Department to validate a Social Security number for the following circumstances:

1. More than one Social Security number appears anywhere in the file for the same person.

2. The Social Security number given produces a “Hawk Alert” warning or a “victim” or “fraud” statement.

3. The Social Security number cannot be legitimized through the use of the lists provided on the Underwriting Admin web site ([http://www.ssa.gov/foia/stateweb.html]).

If ever in doubt, a call to the Social Security Administration can be beneficial (800) 772-1213.

VERIFICATION OF EMPLOYMENT (VOE)

* Income is reported in round dollar amounts.

* Employed by family member.

* Addressed to a particular person’s attention (except when it’s the Personnel Manager).

* Employer’s address is a mail drop or Post Office box.

* Document is not creased (possibly never folded and mailed).

* Evidence of whiteout or strikeovers.

* Incorrect spellings.

* Excessive praise in remarks section.

* Date of hire was on weekend or holiday (Use Perpetual Calendar to verify).

* Overlaps in current and prior employment dates.

* Drastic change from previous position or profession to current employment status.

* Numbers appear to be “squeezed-in.”

* Employer’s signature dated less than one day after originator’s signature (never mailed).

* Illegible signatures with no further identification.

* Unrealistic income for age and/or occupation.

* Borrower’s name or initials in company name (may be self-employed or a relative may have completed the verification form).

* Income is primarily commissions or consulting fees (self-employed).

* Inappropriate verification source (secretary, relative, any party to the transaction, etc.).

* No prior years earnings indicated.

* Seller has same address as employer.

* Prior employer “out of business.”

If the business that is completing the VOE is a large, established, well-known company, the VOE is usually credible. However, when it is a small operation, more documentation may be required to validate the data.

Many times a phone call or W-2 with a current pay stub may validate the information. However, when making telephone verification, make sure to be alert to any inconsistencies or peculiarities in the manner to which the phone is answered. Red flags could be:

* Answers “hello” versus naming the business (could indicate a residence).

* Does not have a Personnel Department.

* Does not recognize the employee’s name or the person who signed the VOE.

* Telephone number is unlisted or disconnected.

W-2 FORM

* Large employer has handwritten or typed W-2.

* Print on W-2 matches the print of the federal tax return (Form 1040).

* Invalid Employer Identification Number (Refer to IRS Federal Employer Chart).

* Copy submitted is not “Employee’s Copy” (Copy C).

* FICA, Medicare, and/or SDI taxes withheld exceed ceilings (Refer to Taxable Wage Chart).

On the standard W-2, the income is broken down to reflect the FICA (Social Security tax), Medicare, federal and state income tax, state disability tax (SDI-CA only), as well as the wages, tips, and other compensation. Some companies add the Social Security and Medicare together, while others break it out into two separate categories. These are calculated at different rates and have different maximum limits. The amounts have changed over the years; therefore, you need to make sure you are using the correct year.

PAYSTUBS

* Large employer having handwritten or typed check stub.

* Company name not imprinted.

* FICA deductions exceed ceilings.

* Unusually high or low income tax deductions.

* Deductions not clarified.

* Name of borrower and/or Social Security number does not match information on loan application, tax returns, and/or credit report.

* Check stub numbers for each pay period are in sequence.

* Income figures appear in bolder type than pre-printed information (may indicate pre-printed form photocopied before income numbers typed in).

TAX RETURNS

* Address and/or profession does not agree with other information submitted on the loan application.

* No FICA (self-employment) paid by self-employed borrower.

* Income or deductions shown in even dollar amounts.

* High income taxpayer with few or no deductions.

* High income taxpayer does not use a professional tax preparer.

* Paid tax preparer hand writes tax return.

* Self-employment income shown as wages and salaries (okay if incorporated).

* Unemployment income shown.

* Evidence of whiteout or alterations (printed lines appear to be “broken”).

* Different handwriting, type style, or computer software packages used within one return.

* No estimated tax payments made by self-employed borrower.

* Type style and alignment of type is the same for all tax years submitted.

* Tax preparer is a relative.

* Tax return is incomplete.

* Information of W-2 does not match that on the tax return.

SCHEDULE A (Itemized Deductions)

* Real estate taxes paid but no property owned (or vice versa).

* No mortgage interest expense paid when borrower shows ownership of property (or vice versa).

SCHEDULE B (Interest and Dividend Income)

* Amount or source of income does not agree with information submitted on application.

* No dividends earned on stocks owned (may be closely held).

* Borrower with substantial cash in bank shows little or no interest income.

SCHEDULE C (Profit/Loss from Business Owned)

* Gross income does not agree with total income from Form 1099’s.

* No IRA or KEOGH deductions.

* No “cost of goods sold” for retail or similar operations.

* No Schedule SE filed (computation of self-employment tax).

SCHEDULE E (Rents, Royalties, Partnerships, and Trusts)

* Additional rental properties listed but not shown on loan application

* Net income from rents plus depreciation does not equal cash flow as submitted by borrower.

* Subject property appears as a rental when borrower is applying for an owner-occupied loan.

* Borrower shows partnership income (may be liable as a general partner).

There are other sources within each Region to check on the legitimacy of information received. There are numbers to call to get information on tax returns and whether they have been filed in the current year. Refer to State Investigative Resources for a list of state specific phone numbers which can be used to verify licensing and business registration as well as several other areas of possible concern.

VERIFICATION OF DEPOSIT (VOD)

* Cash in bank not sufficient to complete transaction.

* New or recently opened bank account.

* Unrealistically high balances for age and/or occupation.

* Round dollar amounts (especially on interest bearing accounts).

* Significant change in balance over prior two (2) months.

* Original VOD not creased (possibly never folded and mailed).

* Evidence of whiteout of strikeovers.

* Numbers appear “squeezed-in.”

* There is no date stamp or “date received” stamp on the document by the depository (VOD may have been completed by the borrower).

* Bank account not in borrower’s name.

* Excessive balance in checking account vs. savings account.

* Account was opened on a Sunday or holiday (Use Perpetual Calendar to verify).

* Illegible bank employee’s signature with no further identification.

* Depository’s signature dated less than one day after originator’s signature (never mailed).

* Non-depository “depository” – escrow trust account, Title Company, etc.

* Brokerage statements from “lesser known” brokerage houses.

BANK STATEMENTS

* Regular deposits (payroll) significantly different from income stated on application.

* Earnest money deposit not debited from checking account.

* NSF (“non-sufficient funds”) items noted.

* Large withdrawals (may indicate undisclosed financial obligations or investments).

* Statement appears “homemade” or altered (possible “cut and paste”).

* “Interest earned” or “dividends paid” on statements different from income stated from those sources on application.

* Address on statements different from address indicated on application.

GIFTS

* Gift from “friend” or “distant relative.”

* Signature or handwriting on gift letter and/or check similar to those found on other documents in loan file.

* Occupancy is questionable and borrower using ‘gifted’ funds.

* Gifted funds seem unrealistic compared to the transaction; non owner or second home.

CREDIT REPORT

* No credit history (possible use of alias).

* Invalid Social Security number or variance from that on other documents.

* Personal data not consistent with handwritten mortgage application – name, addresses, age, “Jr.” vs. “Sr.”, etc.

* AKA or DBA indicated.

* Employment information is different from mortgage application and VOE.

* Recent mortgage inquiries from other mortgage lenders.

* Numerous inquiries within last 90 days.

* Numerous recently opened credit accounts.

Best Home Loans Australia Has to Offer

Home Loans Australia may or may not be a company but it’s the most common search term used by Australians who are looking for information on the best home loans Australia has to offer.

In fact the best home loans Australia has on offer changes almost daily. Banks continually change their product line up and tweak their offers to attract different segments of the market all the time. In order to find the best home loans Australia has at any one time you need to locate a favourite web site that continually updates the information and provides links to various unbiased information sites.

It’s all a matter of choice but as a guide to what to look out for here are some tips on choosing your best sources of information as you search for the best home loans Australia has on offer.

1. Individual Banks and Lenders sites will only contain information about their own products. Sometimes the information may say things like “Winner of Best Home Mortgage 2006″ or something similar. This may be misleading, simply because the category of the award may not suit your circumstances or needs. Also it does not mean that it is the best rate. Awards are judged on different criteria and you need to know what these are before you can judge the products they are claiming to be the “best”.

2. Not all banks or lenders have sites that fully explain how their products work. It is a simple fact that home loans are very complex and each individual applicant will have special differences. It is these differences that make choosing the best home loan from web site information almost impossible.

3. Generic information sites like infochoice and Cannex have an amazing amount of information that may point you in the right direction. They also offer an unbiased approach. However, they also have so much information that it is difficult to fathom your way through the information which is relevant to you.

4. Mortgage Brokers often have the most relevant information to make your decision making easier. This is because they can filter out the less pertinent products and information and narrow your choice. This certainly makes life easier for you, provided you choose the right Broker.

5. Most Mortgage brokers sites are difficult to find and often they fall into the same category as the banks, ie a lot of information but nothing specific to your needs.

6. Look for Blog sites where you can see how up to date the information is. Anything more than a week or so old may indicate stale information.

Don’t despair however. Once you find a Mortgage Broker you can trust, either through a recommendation from a friend, or simply calling a few and comparing their approaches, you will be well on the way to finding the best home loan Australia has for you.

You can ask the same questions and see what answers you get. Hopefully the information you receive will be consistent and your choice will then probably be based on how comfortable you felt during the discussion.