Loan Modification

You may have been hearing more and more about this and with good reason. As millions of homeowners have become saddled with adjustable rate mortgages and no longer have the ability to refinance into a new loan, there may be only one solution for these stressed borrowers: loan modification.

What does it mean? It is when the lender of the note modifies the existing mortgage to make it more reasonable, the interest rate, term, balance, late fee maybe modified by the lender. Until recently this was only done for delinquent borrowers, however with such extraordinary circumstances it will now be used before borrowers reach this stage. This is often the right choice for borrowers looking to avoid foreclosure. 

A Fresh Start

Loan Modification helps borrowers change their note and have a chance to start over as accounts are brought up to date right away.
By modifying your loan you change your interest rate and payments to a fixed rate that will be more practical for borrowers. You will not have to pay new closing costs and fees that are typical with originating a new loan but if you choose to work with a company that negotiates your loan for you there is a fee for those services. Typical costs for refinancing your loan is from 2 -3% of your loan amount. Typical fees to modification companies should be 1% of your loan amount or less depending on the company you choose to work with.

Lenders Negotiate

When borrowers have financial difficulties and do not have alternative financing options, lenders are open to negotiate. Lenders will often be willing to reduce the interest rate, monthly payment amounts and / or loan term to allow you to avoid foreclosure.

Do Lenders want to foreclose on my house? 

It is very common for lenders to lose money on foreclosures. This is worse if they are forced to claim ownership of a property. In areas hit hardest by foreclosures, lenders lose even more. This is good news for you since lenders and their investors do not want to lose on your loan.

But unfortunately you are often just a number in their spreadsheet. While you can negotiate on your own behalf often times you may hear that there is nothing you can do to modify your loan, however this is not always true. You may want to have a 3rd party negotiate on your behalf. In some cases a lender may feel it is in their best interest to foreclose instead of allow a modification or short sale. In that case the best step for you is to ask if you can be approved for a Deed-in-lieu of Foreclosure.

YOUR OPTIONS FOR LOAN MODIFICATION

1) Negotiate Your Own Loan Directly With Your Lender

2) Work With a Non-Profit Organization

Companies you may want to check out include:

• Neighborhood Assistance Corporation of America www.naca.com
• Hope for Homeowners with FHA - Click Here for Program Guidelines

3) Work with a Loan Modification Company to Negotiate with Your Lender

If you need the assistance of a company that charges a fee to help you, try to work with a company that has been referred to you by someone that has used their services and received a satisfactory outcome. If you don't know of anyone that has used a modification company then try to do as much research about the company as possible. You will want to confirm that an attorney will be the one actually negotiating with your lender as they have the qualifications you will need to get you the best outcome.

FACTS about Loan Modification to Consider

• May be able to lower your interest rate and payment and bring loan current and out of the foreclosure process.
• The costs of the loan modification are rolled on the "back-end" of the loan, which will increase your current loan amount.
• The lender's loss mitigation department may offer you a modification but not give you terms that you are really comfortable with. This could mean that you may be in financial jeopardy in the future and end up right back where you stated..
• It is a slow process. Expect to wait weeks or even months for a final solution.
• If your request for a loan modification is rejected, you may want to try it again in a few months, since; some lenders don't document the loan modification attempt you made. You may want to consider working with a loan modification specialist, a seasoned loan officer or an attorney who specializes in real estate, mortgage lending and loan modifications. They often have relationships built with the lender or servicers' loss mitigation department and know the best procedures to follow.
• A good modification company will first check your loan documents for RESPA (Real Estate Settlement Services Act) or TIL (Truth-in-Lending) violations.