Mortgage modifications are happening. Get yours
The Obama administration's housing stabilization plan is underway and starting to have an impact. As of last week, Chase had modified 15,000 home loans.
NEW YORK (CNNMoney.com) -- Two months ago, Ivan Coleman was struggling, his mortgage payment having ballooned to $1,200 - more than half his income. Starting June 1, his monthly payment will fall to $725.
"My mortgage company was helpful, eager to have me stay in my home," said Coleman, who first fell behind on his payments after losing his job.
Coleman, who has owned his Maple Heights, Ohio, home for ten years, is among the first wave of homeowners to have their mortgages modified under President Obama's foreclosure-prevention program. As of last week, for example, Chase Mortgage, the servicing side of JP Morgan Chase (JPM, Fortune 500), had issued more than 15,000 modifications under the plan.
Bank of America (BAC, Fortune 500), which began reaching out to at-risk borrowers in early April, has sent out 100,000 letters to borrowers who could potentially benefit. It has issued some modifications, although it's not releasing data on just how many.
When the plan went into effect on March 4, Obama predicted it could help as many as 4 million people stay in their homes. It did this primarily by encouraging lenders to assist delinquent or at-risk mortgage borrowers by lowering interest rates to the point that total monthly housing payments would not exceed 31% of their gross monthly income.
Becoming one of those 4 million takes five simple steps.
Step 1: Visit the Web site
Everything you need to get started is located here MakingHomeAffordable.gov
Step 2: Take the quiz
Click on "Find out if you are eligible" and then select the "Home Affordable Modification" option. (The "Refinancing" option is just for those who are current on their loans.) Take the five-question quiz. Based on your answers the site will tell you if you likely qualify for a modification under the Obama plan.
If you do - meaning you bought your house before Jan. 1, 2009, and owe less than $729,750; it is your primary residence; you are delinquent on your payments; and your payment is more than 31% of your monthly gross income - the site will present an eight-item checklist of paperwork you'll need to submit to your lenders.
Step 3: Compile the paperwork
The site recommends that you have: household-income documentation, such as pay stubs; tax returns; savings account records; mortgage statements; second mortgage info, such as home-equity loans statements; credit card bills; and information on other debt, including student and car loans.
You will also be asked to write a letter describing why you need assistance. Your reasons could include medical expenses, job or income loss, or even divorce.
A well-done hardship letter can make a difference in whether a loan wins modification, according to foreclosure-prevention counselors. These letters can point out factors that led to the delinquency but that may not be evident from your other paperwork.
"Don't say, 'I never could have afforded it in the first place,'" advised Tom Kelly, a spokesman for Chase Mortgage. "That isn't the ideal answer."
Instead, explain that illness prevented you from working for a time, that you've recovered and are back at work and paying bills again. Or a temporary job loss cause the problem, etc. Without that context, lenders may think you were just careless - or worse.
Step 4: Call your lender or servicer
Once your information packet is complete, call your lender or servicer - the company you write your monthly mortgage check to. To see if your lender is participating in this plan - or to get the phone number - click on "Contact Your Mortgage Servicer" on the Making Home Affordable site. After you've talked to one of their modification specialists, you'll be instructed to fill out an application and submit your documents.
There should be no need for face-to-face meetings with servicers, according to Jumana Bauwens, a spokeswoman for Bank of America. She said borrowers will be able to do everything over the phone and through the mail.
Step 5: Wait
During this phase, the lender will decide the approach it wants to take to reducing your debt: lowering your interest rate, extending the life of your loan, or reducing your debt balance.
The lender's first step will be to get your payment down to 38% of your monthly gross income. Once the debt is reduced that far, the government will pay the lender to lower it to 31% of income.
At that point, the loan will be rewritten, you will get the new paperwork to sign and the new payment will go into effect on your next bill.
This process has been taking several weeks to a month, so be patient. Although the banks expect it will get quicker as their personnel become more familiar with the modification plan.
"The 31% is now an industry standard and that's much more easily calculated," said Chase's Kelly.
One thing to remember: These are trial modifications that only become permanent once you make on-time payments for three consecutive months.
Some borrowers may prefer going through a foreclosure-prevention counselor rather than dealing directly with lenders. The counselors can answer questions about what specific documents are needed, make sure that applications are complete and take the time to explain the proposed deals.
In addition, the counselors offer advice on getting spending under control. "Budget counseling is critical, but the banks have told us they're not set up to do that," said Mark Seifert, director of Cleveland-based East Side Organizing Project (ESOP), a community advocacy group that does extensive foreclosure counseling.
Ofelia Navarro, executive director of the Spanish Coalition for Housing in Chicago, said her organization filed 300 packages for modification under the new plan on April 9. She is still waiting to hear back on those applications, but she believes the new program will eventually make the process go faster and smoother.
"I understand that the servicers did not get the final regulations until [a couple of weeks ago]," she said. "Now, they're ready to move forward."
In fact, Ivan Coleman used ESOP for his modification, and it took more than two months to complete. "My counselor, Ana Gonzales, handled everything," he said. "She told me to be patient, that it would take 30 days, but it took more than that."