What does the document package look like for a loss mitigation option?
Once you’ve defaulted on your mortgage, the bank gets to review your financial information and approve you for the loss mitigation option you want.
So, to get approved for loss mitigation, you have to apply. The application documents differ slightly depending on who your lender is and what you’re applying for, but a general loss mitigation package consists of the below documents:
- The lender’s loss mitigation application form
- 60-days most recent bank statements for all accounts and all borrowers attached to the mortgage
- 30-days most recent income verification for all income coming into the household (e.g. pay stubs, profit loss statement, SSI income, disability income, pension income etc.)
- Two years most recent tax returns
- A household expense form
There can be variations to this list and things you need to be aware of before you submit your package so if you’re considering applying for loss mitigation, it is advisable for you to consult with an attorney.
Pick the option you’re applying for before submitting your loss mitigation application
It is important that you decide upon your first choice loss mitigation option BEFORE you send in your application documents. That allows you to present your financial information in the most helpful way possible.
The lender will sound friendly on the phone and will tell you “no big deal – just send in this loss mitigation package so we can help you.”
But, if you don’t know what you’re wanting and you just blindly send in your application and your financial documents – you run the risk of getting denied for the option you want.
Some lenders will review you for ALL loss mitigation options at one time. Other lenders make you pick one option to be reviewed for first. It can get a little bit complicated so the more clear you are on what you want, the better chance you have at communicating this to your bank and submitting your documents in a way that reflects what option is best for you.
Make sure you’re working with your lender’s “loss mitigation” department
There are tons of different departments and people working for your lender. If you’re applying for a loss mitigation option, the department you need to be working with is the loss mitigation department.
The people in this department have a much more extensive knowledge base about everything related to loss mitigation so you really only want to get information from them.
Sometimes, banks will try to block you from being able to talk directly to this department. They will try and route you to a general customer service department, claiming that the customer service representatives are perfectly capable of providing you a good update on your account.
Don’t fall for this!
The truth is the loss mitigation representatives are much more informed about the process and will give you better, more accurate information.
So, if you know you’re working on a loss mitigation option or need loss mitigation information – make sure you are always speaking to someone in the loss mitigation department.
Make sure your loss mitigation file gets “deemed complete”
Regardless of which loss mitigation option you choose, your goal in working with the lender is to get your file “deemed complete.”
After you submit your documents to the lender, your file will first be reviewed by document processors. The document processors’ job is to confirm that all documents required for a complete package have been received.
If they are missing items or have questions, they will issue document requests until the file is complete.
Once the file gets “deemed complete” – the document processors send the complete package to the underwriting department. Then, the underwriters review the documents and complete the review.
One of the tricky ways that lenders mess with homeowners is by failing to complete the files and send them to underwriting.
Many homeowners get trapped in a never ending cycle of document requests and “incomplete notices.”
Ask them to read you the actual notes attached to the rejection of your documents, not just summarize them for you: One thing that may be causing a problem is that the representative is telling you to just “re-send” something without telling you what the problem is. Often, representatives just say “this document was rejected, resend it” but you need to push back and say “I need to know WHY it was rejected, please read me the actual notes about what’s wrong with it.” They will then tell you the reason. Then, when you send the document again, you can fix the actual issue instead of just re-sending the same thing.
Use Letters of Explanations to explain unusual things that could be causing the documents to get rejected. Whenever there is something unusual, if banks aren’t made aware of it in writing, they will continue to keep saying that the file is “incomplete.” So if you have something unusual going on with your documents, you need to explain it in writing.
A common example of this is – banks usually request two pay stubs to cover a 30-day period of income information. If you are someone that gets paid only once per month, you will only have one pay stub to give them. They may not check the dates on your one stub and thus keep requesting two pay stubs over and over. You would need to draft and send a letter explaining the unusual circumstance (that you only have one stub but it covers a full 30-days) to get past this document request.
Use Letters of Explanations to explain why there is a lack of required document(s): Sometimes, lenders will keep files in an incomplete status because you don’t have something that is required. They will view it as incomplete even if the document doesn’t exist. For example, if you don’t have a bank account, you won’t be able to send in bank statements but unless you send them a letter in writing telling them that bank statements don’t exist, they will continue to request them.
Loss mitigation is not an easy process to navigate so if you’re struggling, consider getting some help!
If you’re in Washington State and feeling nervous about starting the process, having issues getting a decision back from your lender or have been denied from a loss mitigation option that you want – feel free to reach out for a free mortgage relief consultation at (425) 654-1674.