Diving into a loan modification

So you lost your job. You've been a responsible homeowner, making your mortgage payments every month since you bought your home a decade ago.

Your payments were manageable on your former salary - such is not the case while living on unemployment benefits and freelance work.

So you dive into the home loan modification process. First comes the interview with a HUD (Housing and Urban Development) counselor, who will have you fill out several questionaires and submit an income and expenses report. After what seems like 47 years (but is probably a couple of months) the HUD person tells you that you qualify for a home loan modification.

Yippee! That was easy. You ask where you sign the papers.

Not so fast.

HUD (which now stands for How can U Deny me?) simply tells you that you qualify according to THEIR standards. Your paperwork will be sent to your loan service provider, aka, the bank that you thought had your mortgage. In my case, it was CitiMortgage. They do NOT own my mortgage. Freddie Mac owns my mortgage, CitiMortgage is just the service provider, although it's not really service they provide - it's migraine headaches, empty promises and 972 requests for more paperwork.

But, like any relationship gone bad, your relationship with the agent assigned to work with you at CitiMortgage starts out with roses and sweet talk.

My first CitiMortgage agent was Ramon, who, upon our initial conversation, made me feel like he was my new best friend. My comrade in arms. My little buddy against the big, bad Freddie Mac.

"Yes, we got your paperwork from HUD, and it definitely looks like you qualify for a home loan modification," Ramon told me in a voice with sexy financial undertones.

"Oh boy, oh boy, what do I do next?" I asked eagerly, ready to cook Ramon dinner if he could hasten this process along.

"I will send you a package of documents you need to fill out, then you simply return it in the pre-paid mailer I will include, and then we wait for your approval."

Music to my ears. Ramon and I were a "We." Not a "you" and "me," a "We." As in team.

When the package arrived, I was stunned at the amount of paperwork, but not deterred. I had Ramon at my beck and call, ready to help with everything. So I called him.

"Ramon, what is this "imminent default" requirement? What does that mean?" I asked.

"That means you have to prove that your are at imminent risk of defaulting on your loan," he explained.

"But how do I prove that? I haven't missed a mortgage payment yet, what would make them think I'm suddenly about to go under?"

This was when Ramon told me his first slick lie - a lie of omission. "Well, I don't know exactly how you prove that, but why is it you're applying for a loan modification? That's your answer," he told me.

"I have been selling off everything I own to make my mortgage payments," I told him. "Family silverware, jewelry, furniture, my kids' baby teeth, anything anyone will buy on ebay. I've run out of things to sell, so I guess I'm in imminent default, eh?" I asked hopefully.

He sidestepped my question with another question.

"So how much, exactly are you making? We need to do a profit and loss statement for you," he offered helpfully.

"Aha! I get it! I have to make enough money to be a decent risk for a loan modification, but not so much that I'm not in imminent default!" I was warming up to this game.

"Yes, something like that," he replied.

"So, I have to hit the sweet spot, showing just the right amount of income to satisfy them, but not too much. Is there a formula for this?"

There is, indeed, a formula, but now that I've been at this a year, I can assure you the bank will never, ever tell you the real formula. I don't know if they even know the formula. I think it's kept hidden in the bat cave in the basement of the U.S. Department of Treasury.

"The goal is to get your total monthly payment, including mortgage loan, taxes and insurance, to a point where it is 31 percent of your gross monthly income," Ramon explained. "First, we look at your monthly income in relationship to your loan and reduce the loan interest rate to 2 percent, and see if that brings your payment to 31 percent. If that doesn't do the trick, we extend the loan to 40 years."

I was doing the math while he was talking. I could see that doing those two things would bring my monthly payment to 38 percent of my gross monthly income. As it currently was, I was paying 52 percent of my monthly income on the loan, taxes and insurance. As they say on Wall Street, ouch.

"38 percent is great! I'll take it! Sold! Where do I sign?" It wasn't 31 percent, but close enough for government work, I figured.

"It doesn't work that way," Ramon said. "According to the terms of the Home Affordable Modification Plan (HAMP), we must get the loan payment to be at 31 percent, and not a penny more. I agree with you, it would be nice to just be able to re-write the loan if you're at 38 percent..."

"Well, that's just stupid," I said to my dear new friend Ramon. He was obviously on my side. We were smart, clever people outfoxing the "System" but the "System" wouldn't play ball with us.

Ramon gently instructed me to fill out all the paperwork return it, and see where the chips might fall.

"If you get close to 31 percent, like 32 or 33 percent, then they (whoever "they" are) might forgive some of the principle in your loan," he told me.

Now we were cooking on the front burners. I liked the sound of that.

"So I need to wiggle around with my income to try to hit that sweet spot," I said.  "I can do that, I'm a freelancer, after all. There is some squishy income in there I can fiddle with," I told him conspiratorially.

He laughed encouragingly. "Yes, that would be good."

And with that, I dove into the home loan modification process. No one told me how deep and dark the water would be, and how strong the current. Imagine my financial heartbreak when I discovered my dear Ramon would soon abandon me midstream.