Loan Modification

What Is A Loan Modification?

A Loan Modification is a permanent change in one or more of the terms of a loan allowing the loan to be reinstated resulting in a lower payment that you can afford.

To ensure that you understand what a loan modification will actually do for you, consider the following facts:

• A loan modification is indicated when the original loan that is secured by a residence has terms that make it impossible for the homeowner to continue making the payments, thus risking the loss of the residence.

• Loan modifications are not the same as debt consolidations, refinancing loans, or even forbearances. Instead, they are long term solutions for rising interest rates or other hardships that are threatening to overwhelm the budget of a homeowner.

• Loan modifications may or may not stop foreclosure proceedings and reinstate the loan during the modification process.

Loan modification sounds intimidating to the average homeowner but the process is indeed simpler than you might think. We have tried to break it down in simple terms so you can better understand the process. Ultimately, a successful loan modification requires an agreement between the homeowner and the lender on the new terms of the loan causing both parties to become better off after the transaction. Below are what is required for each party.

For The Homeowner

Four elements must exist to make a homeowner a good candidate for loan modification:

1. Desire to Keep the House

2. Experienced a Financial Hardship

3. Income/Employment - Able to continue making lower payments

A financial hardship can also include an interest rate increase in an ARM loan. If you have the above 4 elements as part of your situation, you may qualify!

For The Lender

There are some other facts that explain why lenders are in favor of working with borrowers and their legal specialists in negotiating loan modifications.

• All or portion of the outstanding principal and interest, past due escrow, late fees, and even costs may be rolled into the loan modification and thus will not be lost revenue to the lender.

• Modified mortgages may use a step rate approach or an extended term methodology to provide for the repayment of the due and past due funds.

• Foreclosure is avoided.  The slowing housing market has made it difficult for banks to unload properties and then recover any additional funds from the previous homeowners.

• A modified loan protects the credit rating of a borrower and it also helps lenders in showing less defaulting loans in their portfolio. 

Latest Loan Modification News:
Housing Plan Aims to Help 9 Million, But Leaves Many Out Mar 5, 2009
Thousands in South Florida in Line for Home Loan Relief Mar 5, 2009
Housing Secretary Defends Obama Foreclosure Plan  Feb 22, 2009