amortization-table No doubt many recent home buyers lauded the Federal Making Home Affordable program when it was announced. The program which began in 2009 promised to give some relief to certain homeowners struggling to pay their mortgages. The actual details on what it takes to get a lender to agree to a modification & under this program are slim. Details on the nature of these modifications are even more scarce. What exactly can an applicant reasonably expect? Is it really worth all the time and effort to apply?

This is what I set out to discover as I began applying in June, 2009. I say began applying because I applied many times. The initial application process was nothing more than a long survey of my financial situation. Since my situation changes from day to day as paychecks come in and bills go out, I didn’t lose heart as I got denied the first three times. Each time I answered the survey (once online and 3 times on the phone), I was able to truthfully give different answers especially when it came to the last few questions about how much cash was in my bank account at that moment. In August, I called CitiMortgage again and answered the survey. I was completely prepared for another denial and I probably wouldn’t have applied many more times had I been denied again. Instead, I was accepted for a trial modification. The agent on the phone explained to me the basic terms of the trial plan and asked if I’d like to accept them.

I was delighted to hear that they wanted me to stop making my regular payments entirely (which I had never once been late on), and start making trial payments once a month over the phone. I was told not to make payments online as I’d grown accustomed, but to instead make payments at a fixed amount which was about 40% less than my regular payments. So that’s exactly what I started doing. At the time, I couldn’t find much in the way of documented information on this process so it was a little scary moving forward in this uncharted territory.

Because of all my uncertainty, I began a kind of ritual which involved calling CitiMortgage’s various departments over and over again until I felt comfortable that the process was moving along properly. If I ever received conflicting information, I would hang up and call again until I was sure I had it right. This required a lot of patience, diligence and time.

I began making my trial payments on time. I actually made one payment too early and it didn’t get counted. Thankfully, I called so many times to check on the status of my modification that someone noticed I had yet to make my first payment and it was already late. I explained that I had made my first payment already. Unfortunately, that payment didn’t get counted because I made it a month too early. To this day I’m not certain what actually happened to that money. My best guess is that it was simply applied to the balance and not counted for the modification.

Sometime in October I received an overnight package from UPS with a huge packet from CitiMortgage requesting all kinds of documentation on my financial situation. They wanted two months of bank account statements, authorization to pull my tax returns, credit card statements, pay stubs and probably more things I don’t remember. So I very carefully assembled all that information and neatly sorted and signed all the included paperwork to apply for the modification, then sent it to CitiMortgage in the included return envelope.

This was surprisingly the most critical time for me to be calling regularly. I called two or three times a week until someone was able to tell me the package was received and I continued to call until they notified me of a problem. The form authorizing CitiMortgage to pull my federal tax return was set to expire before they could get around to filing it. So they asked me to fill out a new one and fax it over. I did that, but didn’t specify which quarter I was authorizing them to retrieve (I only file once a year). Apparently I should have marked Q4. So I faxed another new one. All these forms definitely confused the poor employees who are tasked with sorting through it all because my application stalled for several weeks in this state. I would explain that I’d sent the form in three times and only to use the most recent one, but it would get stopped again and again for having an invalid form. Eventually I was able to get someone to recognize the problem and agree to note this and send it through again. Each time this failed I got an email, a text message, a phone call, and the next day an overnight UPS letter. Apprently this never happened because when I called a few days later I had to do it all again. This was frustrating, but it got easier as I began to learn the language the various departments use to communicate. This whole process of actually applying and getting the documents sent to underwriting took until January.

This part of the process required the least involvement from me. I was calling only once a week to check up on the status of the modification and every week for two months there was no update. At no point was I informed about what was actually happening at underwriting. I assumed they were just busy with the backlog of other applicants and I continued making my monthly trial payments. One time I asked a question I hadn’t thought of before. Since I hadn’t been making my regular monthly payments at all, would that affect my credit rating. Yes it would, and probably drastically. This is something that should probably have been explained to me, but I would have proceeded the same way with or without that knowledge.

Around the middle of March, I started getting messages telling me that my modification was in the final stages of approval. Excited by this news, I began regularly calling again and on March 18, the CitiMortage agent I talked to informed me that I had been accepted! On the 19th I got my paperwork which decribed the specific terms of the modification, and I dropped my signed agreements off at the UPS store on the 20th.

I had heard it described before, but the specific terms still surprised me when I saw them. For the first 5 years, I will be making payments with an interest rate of only 2%. Starting with month 61, the interest rate climbs to a whopping 3%, then in the 73rd month climbs again to 4%. The time the rate increases is in month 85 where it remains at 5% for the remainder of the life of the mortgage. The final payment on the amortization table is on January 1, 2039.

Of further note, the summary page reads:

If you make your monthly mortgage payments on time, you will accrue a monthly benefit equal to $83.33. As long as your mortgage loan does not become 90 days delinquent, we will apply your accrued monthly benefit to your mortgage loan and reduce your principal balance after each of the first through fifth anniversaries of the month in which the Trial Period Plan is executed. If your modified mortgage loan ever becomes 90 days delinquent, you will lose all accrued but unapplied principal reduction benefits and will no loner be eligible to accrue additional principal reduction benefits even if the mortgage loan is later brought current.

In all, this amounts to an enormous savings for me and I really am satisfied with the whole process. After adjusting for the lower tax write off I will receive for paying much less interest, I’ll save roughly $40,000 in the first five years alone. I did find it a little scary and confusing because of the lack of information, presumably because these modifications haven’t been done on this scale at any time previously. Hopefully this sheds a little light on how these things work from the perspective of an applicant.

Some well-meaning people had recommended I stop making payments in order to show the bank I was having trouble. This turned out to be entirely unnecessary. The banks are going to do whats best for the banks, and my guess from the beginning was that banks would rather work with people who do make their payments than those who don’t.