What is 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 the borrower can afford. In most cases a homeowner in need for mortgage help will indeed qualify for a loan modification.

Consider the following loan Modification 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 stop foreclosure proceedings and instead reinstate the loans as they are being modified.

Why Lenders Consider Modifications

All or a 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. Since they are spread over a long period of time, they do not pose a problem to the borrower.

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. The lower payments ensure the repayment by the borrower while, to the lender, the added time is actually money in the bank in terms of yet to be earned interest due.

Foreclosure is avoided and even though banks routinely foreclose on properties and sell the homes to other buyers for a fraction of a price, the slowing housing market has made it difficult for banks to unload such properties and then recover any additional funds from the previous homeowners. Loan modification is a more fiscally attractive solution for any lender.

Basic Requirements for A Loan Modification

• Your monthly mortgage must be affected by a verifiable reduction in income.
• It is required that you are currently employed or have another source of stable and predictable monthly income that is provable.
• The home for which you are seeking to obtain a loan modification typically must be your primary residence

Top Ten Loan Modification FAQ

The loan modification process can be frustrating and confusing for many distressed homeowners.

If you are considering contacting your lender about a loan workout to avoid foreclosure, you need to get as much information upfront as possible so you will be prepared and able to present your case in the best possible light.

Programs and guidelines are changing and it is getting much easier for homeowners to get the help they need. To help you understand how the process works and what you can expect.

Avoid Loan Modification Scams

Be very careful if you choose to use a loan modification company that takes a fee up front to negotiate your loan modification for you.

They cannot guarantee a successful modification and can end up costing you another month’s mortgage payment in exchange for false hope.

The best of these companies have done the modification countless times and will actually try to help you in earnest without guarantee. The worst are scams that take your money with a cursory attempt to help you.

Contacting Your Lender

If you have fallen behind on your mortgage payments, do not be afraid to call your lender to request a loan modification or other pre-foreclosure options.