Loan Modification, What’s It All About

LOAN MODIFICATION

It is an unfortunate fact that far too many homeowners are in financial distress right now and are having trouble making their mortgage payment, or have stopped paying all together.  Many did not understand all of the ramifications of the commitment that they made when they signed their mortgage papers during escrow.  Others understood the possible changes that could be made at some time in the distant future but were sure that the worst case scenario would not happen to them.

Irrespective of the causes of this phenomenon, it has had a major impact on our economy, not to mention the families involved.  Many homeowners are struggling to meet their commitments even if they have not incurred financial hardship.  Some have decided not to continue to pay for a mortgage with a balance that far exceeds the current market value of their home.  Others have incurred a serious financial hardship that makes it impossible for them to continue to make their payments.

So what does a homeowner who is mired mortgage hell suppose to do?

Although most homeowners want to keep their home, the unfortunate truth is that many will not.  The individual homeowner’s circumstances and their mind set in dealing with their situation is the key to success.

The first step in trying to save one’s home is through loan modification.

What is a loan modification? A loan modification is a process through which your lien holder changes one or all of the following:

• Your interest rate
• Your principal balance through a reduction
• Your loan terms (examples: from adjustable to fixed rate, extend term of loan from 30 to 40 years, payment reduction for a specific period)

This process can allow borrowers to stay in their property when they can no longer afford their current payments.  Homeowner must provide documented proof of any hardship.

Why would a lender modify a loan? It is all about their bottom line!  They have realized that in some cases it is better for them to work out a solution with current borrowers to lower payments or possibly improve loan terms in order to keep homeowners in their homes.  The average foreclosure can cost a lender from 35 – 60% of the current value of a property, so keeping borrowers in their homes is frequently a cost effective business decision for the lender.

What do I need to qualify for a loan modification? According to the Making Home Affordable web site (http://www.MakingHomeAffordable.gov), you will need the following information for your lender to consider a modification:

• Information about your mortgage – such as a copy of your monthly statement
• Information about any second mortgage or home equity line of credit on the home
• Account balances and minimum payments on all other debts such as student loans, credit cards, installment loans
• Your most recent Federal income tax return
• Information and statements for all assets and asset accounts
• Information about your monthly gross income (before taxes) for your household, including recent pay stubs and documentation covering all other income

It is also advisable to include a letter describing any circumstances that caused your income reduction and/or the increase in other expenses (job loss, divorce, death in family, major illness, etc.).

More on loan modification to follow.

Mike West

Certified Distressed Property Expert

Always willing to answer questions and help when and where I can.