How does a loan modification work?
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.