Home Loan Modification
A Home Loan Modification is a process in which a loan is restructured and both lender and homeowner are bound by the new terms. The most common modifications are lowering the interest rate, reducing the principal balance, converting adjustable interest rates to a fixed rate, increasing the loan term, forgiveness of payment defaults & fees, or any combination of these. The result of a mortgage loan modification is a lower, more affordable payment schedule for the borrower. Recently, many options have become available to allow homeowners in need of help to qualify for a mortgage modification. See if you Qualify - Fill out this short form.
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The purpose of most home loan modifications is to help a distressed homeowner avoid or stop foreclosure. Here is an outline to help you get familiar with the loan modification process:
- Most home loan modifications are sought when the terms of the current loan are no longer affordable and it is not possible for the current homeowner to keep up with the monthly payments. In this case, the property by which the loan is secured is in jeopardy of being taken back by the bank.
- A loan modification should not be confused with refinancing, home equity or other debt consolidation loans. They are meant to be a long term solution which takes a more favorable interest rate, longer loan term or even reduced principal balance as well as the borrower's current budget into consideration.
- A loan modification program, can be negotiated before a borrower is in danger of foreclosure or it can actually stop foreclosure proceedings and reinstate the mortgage in question. It is always in the borrower's interest to seek loan modification advice as soon as possible to avoid unnecessarily damaging their credit and possibly limiting their options for a solution to their current financial predicament.
It is in the interest of both the homeowner and the Lender to work with homeowners and/or the Loan Modification Firm representing the borrower for the following reasons:
- In many cases all of the principal, interest, fees etc can be built into the loan modification limiting the loss to the lender. If the loan modification includes a longer payback term, the borrower's monthly payment can be lowered so they do not feel the immediate pressure from an unaffordable payment.
- Even though the borrower's monthly payment may be lower, an extended loan term allows the lender to collect more in interest over the course of time. This in combination with the increased ability for the borrower to make timely payments makes it a valuable endeavor.
- In a slow and unpredictable housing market like is now common throughout the US, banks do not want to foreclose on properties when such a situation can be avoided. The expenses involved in the foreclosure procedure, the holding costs of the property and the expenses involved in reselling the property are all expenses that most lenders are very happy to avoid. For the bank, a loan modification can be much more fiscally attractive then taking ownership of the home.
- With such a large number of American Homeowners in danger of losing their homes to foreclosure, many banks are in danger of having a very large number of loans in default in their portfolios. This is a problem for the bank's valuation and can affect the way investors view the overall financial health of a lender. If the bank can resort to negotiating a loan modification instead of adding to their list of bad loans in most cases they will opt for the loan mod.
Do you think a Loan Modification can Help You?