Understanding Loan Modification

What exactly is a Loan Modification?

Millions of homeowners across the United States are stuck in skyrocketing adjustable rate mortgages with no way to refinance out of their bad loan. Many lenders have closed their doors or tightened their lending criteria. The Real Estate bubble has burst and home values have dropped so low that selling may not be an attractive option either. Foreclosures are expected to hit a record high this year-and all of this is wreaking havoc on our economy. So that’s the bad news, but here’s the good news.

The Government has been encouraging lenders for years to offer homeowners a loan work out program, or LOAN MODIFICATION, to help keep borrowers in their homes and prevent foreclosure. In fact, on some types of loans, lenders are paid an incentive by the Federal Government to offer the homeowner a Loan Modification. The Mortgage Relief Act was passed to help solve a nationwide problem in the housing market. You can use the recent legislation to your advantage and save your home. So, what does all of this mean to you? NOW is the best time to ask your lender to modify your loan so you can afford the payments and stay in your home. Most lenders are beefing up their Loss Mitigation Departments to handle the increased need for Loan Modifications and to expedite the process.

So what does Loan Modification mean?

Well, that depends on who you ask? Many people use the term "Loan Modification" as a catch all phrase, as we do, while others use specific and more accurate terms, such as Loan Forbearance, Sale Restructuring, Deed-in-Lieu, and so forth.

For our purpose, a loan modification is a process whereby the original terms of a mortgage are changed in order for you to better meet your mortgage obligations. It will usually involve a lower interest rate, extension of the term, adding missed payments to the end of the loan, reduction in principle, or a combination of these. That all sounds great for the homeowner, but the lender must also see that it is in their best interest to grant the modification. So, why would a lender be willing to do this for a homeowner?

Because, if the loan modification is done properly it is a win-win for the bank and the homeowner. The bank is willing to modify the loan if it gets a better deal than foreclosure and the homeowner gets a better deal than their current mortgage.

LOAN MODIFICATION DISCLOSURE

"It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.hud.gov."