Loan Modification for Investors

Posted on: December 16, 2009

Categories: Investors, Other Articles, Procedures, Things To Consider

Author: buyfixandprofit

Over the past year, I have talked with several investors down on their luck because of the real estate market crash.  Everyone seems to have the same story, “I didn’t see this coming”.  More accurately put, I would say that most of us had our blinders on and tried to enjoy this gravy train as long as we could.  So what does an investor do to get through this downturn?

Banks are Approving Loan Modifications for Investors

handshake on roof 150x150 Loan Modification for Investors

Banks are approving loan modifications for investors

Bank of America (Countrywide), Harris Bank, and local community banks are some of the banks that we have first hand experience with in successfully modifying the loans on rental properties.  Surprisingly, contrary to all the news you here about how difficult this process is, all the loan modifications we have done have been fairly easy!

Here are some of our key points and experiences dealing with the loan modification process:

  1. On one property involving a local community bank, we were turned down for a loan modification even though we put together a perfect application showing that this property would be behind on payments any month now.  The property was struggling but the bank wasn’t since the loan was still current.  So we fell behind on the loan for two months and reapplied.  Guess what?  The loan mod was completed in 4 weeks with the monthly payment being reduced by 30%.
  2. In the case of Bank of America, the entire application process was done over the phone including the hardship letter.  Now this process was long and drawn out, 9 months in total.  6 months of the process were a trial period to make sure we could make the new payments.  This loan modification reduced the monthly mortgage payment by 43%.
  3. In the hardship letter, it’s important to explain how and why the situation occurred and what is being done to correct it.  Explaining that the tenants are behind on payments and are being evicted or put on repayment plans has worked in every case.
  4. You will have to prove that you will be able to make the new payments on the loan.  This is either has to proved on paper or during a trial period before the loan is officially modified.
  5. In all of our dealings, late charges and fees immediately stopped once the application for the loan modification started.  In most cases the late fees were waived upon approval of the loan mod.
  6. We never received any principle reductions.  All modified loan terms centered on lowered interest rates and changing option arms and variable rate balloons to 30 year fixed loans.
  7. The banks never inspected any the houses.  One bank did a drive by to make sure the property wasn’t boarded up.
  8. There were no fees involved to complete any of the loan modifications.
  9. Attorneys and special loan modification companies are not needed to successfully complete a loan modification.
  10. Keep a log of all phone calls and what was discussed.  Always ask when you should expect to hear back from the bank and follow-up immediately once that date hits.  Make sure to get any new terms or trail period payments in writing.
  11. One investor dealing with American Home Mortgage found them very difficult to deal with and ultimately decided to let the property go into foreclosure. The interesting thing to note here is that the foreclosure proceedings are now approaching 14 months!
  12. On a slightly different note, I actually got my primary residence home equity line of credit modified from an interest only variable rate loan to a 30 year fixed rate loan at 4.875% WITHOUT ever being late on any payments.  This loan is with Fifth Third Bank.  I have to say that the hardship statement that they took over the phone was pretty much a joke.  I just said I had several poorly performing rental properties in my investment portfolio; no proof needed.  I think in this case it helped that I was a very good customer.

For those Severely Behind on Payments

First of all, this downturn will not be over in 2010.  If you’re struggling with keeping up with payments on unrented rehabs or poorly performing rentals, then stop dreaming that this will be over anytime soon.  The key is to evaluate your situation objectively by eliminating all emotion from the evaluation.  That means that the best option for some of you that are severely behind on payments will be to file for bankruptcy and let the banks foreclose on your bad investments.  It happens; get on with your life.  It may take 5 to 7 years before you recover enough equity to make selling is an option again.  Also, please do not start using your retirement funds to stay afloat because you think it’s the morally right thing to do.  It’s a business decision, period.

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LEAVE A COMMENT:  3 Comments

3 Responses to “Loan Modification for Investors”

  1. George says:

    Very interesting post!

  2. John says:

    @George: Yes, very interesting story!

  3. buyfixandprofit says:

    Matthew,

    You have a great site on sample hardship letters and related foreclosure topics. I plan on referencing http://www.samplehardshipletter.org in a future article. Keep up the good work!

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