Loan Modification

We hear the phrase more and more often: loan modification. What exactly is loan modification?

A loan modification is a permanent change in one or more of the terms of your loan creating a brand new contract between you and your lender. We will work with the lender to create a new contract that will reinstate your loan and give you a fresh start by restoring your credit status.

A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who will never be able to repay an existing loan.

Should You Get Your Mortgage Modified?

If you can’t afford your current monthly payments and at risk of losing your home to foreclosure, you should think about loan modification (refinancing is another viable option).

My Perspective

In my opinion, if you are struggling to make your monthly mortgage payments or if you think you are stuck with a bad loan, it’s worth doing more research and see if you can get your loan modified. However, be wary of any company that guarantees to help modify your loan and promises more affordable payment. There are too many scammers out there looking for a few quick bucks.

I introduced the Helping Families Save Their Homes In Bankruptcy Act of 2009 to give courts the power to modify mortgages to bring them in line with underlying home values. For families in distress, this is a much-needed reform. And considering the realistic alternatives, it is fair to all concerned.

Foreclosure Versus Loan Modification – Which Choice Is Best for You?

A loan modification simply means that you change the existing terms of your mortgage loan agreement. Your goal is to make a lower monthly payment than what you originally agreed to, so that you can keep your house.

A foreclosure, on the other hand, means that if you as borrower cannot keep up with your monthly payments, the lending bank will take back your property. Then, probably, the bank will put it up for auction, then use whatever proceeds result to cover the shortfall on the balance of its loan to you. Of course, in this scenario, you lose your property.

If you talk to your agent and want to explore both these options they should be able to help you understand the uniqueness of your case and advise you on what would work best in your case and more importantly what would be cheaper. If things are bad or you own a home where your agent feels the loan modification will only work against you as it would still leave you at a very disturbing pace, he might sometimes explore the option of foreclosure – the only catch being that you might have to part with your home. So, though these are two different options that you need to choose from, they both have their plusses and minuses. So, if you compare the cost of loan modification versus foreclosure, it is similar to choosing between the lesser of the two evils!

There are a lot of myths surrounding lenders and servicers as to what they will and will not do during the loan modification process.

 The confusion and inaccurate data that is propagating the internet and the news is based on ill-informed bloggers or journalists who really have no idea what is going on in the loss mitigation arena. This to me is akin to someone who studies baseball and claims to be an expert, but has never caught a ball or swung a bat in their lives. How can anyone take them seriously? How can these same people be relied on by the media as “experts” when they have never even played the game?

How does a loan modification work and are there any negatives for credit report?

A loan modification for a borrower that has been making payments on time usually means rates are lower now. Instead of going through the whole refinance process the lender will agree to modify the interest rate of your loan only for a small fee. (ie …your rate is 7%, current rates are 6.25%). You ask your lender to modify, there is a good chance that they will because keeping a loan at 6.25% is better than losing the loan.

The above modification will have no affect on your credit.

The federal government has just made it possible for many people to modify the terms of their loans. The unfortunate fact about this is that many people cannot be helped if their home is worth less than what is owed on the home. But for others, a federal loan modification will bring salvation. Many lenders are allowing mortgage holders to add missed payments to the end of their loan if they have experienced a temporary setback that has caused them to miss a few payments. It does not make sense that a person that has made payments on a home for several years should lose it over missed payments, if they have gotten back on their feet.

For some people, their might not be a way out and they will end up in foreclosure. But that does not mean that you should give up until you have exhausted all your resources. Especially now, there are options available for keeping your home out of foreclosure.