Loan Modifications

Beginning with the first existence of mortgages,

loan modifications have been around

to repair the mortgage for whatever reason

the mortgagee (lender)

and mortgagor (homeowner) desired.

Therefore the term 'loan modification' is not a new concept,

it is, and has been, in use and practice for a long time.

The loan modification is just one way

the existing loan for your home can be given a solution

if it is on the verge of foreclosure.

But in order to achieve a loan modification agreement

with your lender,

there are some things which you must be aware of

before your lender approves your application. 

What are Loan Modifications?

Loan modifications typically involve

a reduction in the interest rate on the loan,

an extension of the length of the term of the loan,

a different type of loan or any combination of the three.

Loan modifications to an existing loan

may be made by a lender

in response to a borrower’s long-term inability to repay the loan.

A lender might be open to modifying the loan

because the cost of doing so is less than the cost of default.

Loan modifications are not difficult to achieve, however, they do require a substantial amount of time and effort to acquire.

However, most homeowner's think and feel

that there is an invisible wall between them

and loan modifications.

The fact is

that those who have been denied loan modifications

most likely have not met all the requirements

or have missed some point or points

that have disqualified them.

The most important thing is,

to find out and fulfill

the requirements of the lender properly and accurately. 

It is also important to understand the differences

of the possible modification terms offered to you by the lender.

In this case we want to specifically compare a forbearance agreement with a true loan modification agreement.

Although any agreement

that keeps you in your home is a good agreement,

some agreements will have costly long term affects,

and knowing the difference may save you headaches

and heartache in the future.

A Forbearance Agreement

A forbearance agreement,

which is usually the lenders first choice

to offer a homeowner,

refers to a temporary change in a mortgage’s terms.

This is done to provide the borrower with a little time to straighten out problems related to the loan.

For example,

a monthly mortgage payment might be reduced by half,

for a six month period.

In essence,

such an agreement is intended to be a short term fix

for a short term problem.

That means a person who is unable to work

due to an injury will be able to earn an income once again

as soon as he is healed up and resume full payments.

For such a person,

a long term agreement would probably not be necessary.

If a long term fix is required,

then a true loan modification will be necessary.

Loan Modifications

 True loan modifications will change items

in the original mortgage for long term

or possibly permanently.

Loan modifications are most often a permanent change

in one or more of the terms of a mortgagor’s loan,

allowing the loan to be reinstated,

which results in a payment the mortgagor can afford.

Loan modifications are usually a win-win situation:

the lenders get their money in a reworked fashion

and borrowers get a new chance

to support their mortgage payments at a reduced cost.

You will need to balance your financial situation,

and assess what went wrong

causing you to fall behind on your payments.

You will also be required to show how

and when this hardship has or will be rectified

in what is called a Hardship Letter.

You should calculate the maximum amount

you would be able to pay

and present that calculated amount

along with the loan modification application,

to the lender.

Loan mitigation specialists can be of great assistance

to your accomplishing your goal.

An experienced loan mitigation specialist

can usually make a much better deal for you,

since they know who to talk to,

they know what to say

and they have been negotiating with lenders for years.

Each mortgage lender has different criteria for qualification

for a home loan modification agreement.

In most cases the lender

will try to work towards an agreement

with you or your loan mitigation specialist firm

to reach a common goal of both parties.

The concept you hope to convey

is that it is better for the lenders

to get smaller monthly payment from you

than nothing at all,

and it is better for you

to continue paying for your home

rather than be turned out into the street.

To qualify for a loan modification agreement

with your lender

you must take some time

to learn about the loan modifications process.

It is not really difficult.

Once you know your lenders requirements,

you should be able to complete the forms properly

and have a good chance of qualifying for one or more

 loan modifications programs

that will offer you a low, affordable house payment.

Whether you want to work directly with your lender

or if you decide to hire a loan mitigation specialist company, please take the time to educate your self

and do some homework.

It is important to have a general understanding

of what to expect and how to qualify

so you won’t waste your time,

effort and most of all,

money if you decide to hire someone.

A caution point! 

Doctors don't operate on themselves...

for a reason  

Attorneys don't usually represent themselves...

for a reason  

That reason is;

third party representation

or negotiations is not emotionally involved,

and cannot commit for the principle borrower.

Therefore,

they usually do a better job and have a better success rate.

Further, a private mitigation specialist

will be very familiar with each lenders specific program format.

Plus, they will already have a working repore with the lenders through the multiple cases they are handling with the lenders.

They know what to ask,

what to send,

what to say,

and what NOT to say.

The application form needs to be carefully

and accurately filled out.

Next you need to collect the documents that are required

by the lender.

Remember to have supportive documents

for the cause of hardship that you have mentioned,

as the lender might verify the details,

then submit the package to the lender.

If you are falling behind on your mortgage payments,

do not hide from your lender.

Instead, reach out to them for assistance.

Your mortgage company would rather work with you than commence foreclosure proceedings,

which can be quite costly for them.

Who Is Eligible for Loan Modifications

Mortgage holders can qualify for one of two programs: 

1. Mortgage holders who are behind on their payments can apply for 'loan modifications' programs.   
2. Mortgage holders, whether behind in payments or not, but whose payments are more than 31 percent of their monthly income, and can substantiate a current or future hardship of making the current payment, can apply for the 'refinance' program. It is only available to people whose mortgages are held by Fannie Mae or Freddie Mac. 

The government’s $75 billion foreclosure prevention plan is open for business.

Homeowners struggling with mortgage payments

can now take advantage

of the new loan modifications programs,

although to this date, February 2010,

we have not seen much success with the government programs.

We have seen and achieved

a higher success with individual negotiation with the lenders outside the government based programs,

especially with an attorney represented negotiation program.

Do You Need Professional Help?

 If you cannot, or choose not

to do a do-it yourself program,

to negotiate a mortgage loan modification on your own,

an attorney or a loss mitigation specialist

can communicate on your behalf.

Your attorney or loss mitigation specialist

should be one

who has a knowledgeable foreclosure background

and can ensure that you get a fast response from the lender.

In most cases, any foreclosure action is stopped while the attorney negotiates with your lender.

Aggressive loan mitigation specialists

may be able to negotiate a loan modification

with features such as;

• interest rates as low as 2%, 
• loan terms up to 40 years, 
• and in some cases part of your principal balance may be deferred or forgiven to help you stay in your home.  

If you have an adjustable rate mortgage that reset

and you cannot meet the higher monthly payments,

request a loan modification from the lender.

They will request a complete financial history from you,

detailing your income and monthly expenses.

Ideally, you should have some cushion in your income

to justify a loan modification,

if they switched your mortgage to a fixed-rate mortgage.

Show them that you can comfortably pay

a fixed rate mortgage through extra income

from a second job,

and you are more likely to get a modification.

The Loan Modifications Hardship Letter

The Loan Modifications Hardship Letter

will paint a picture of your family’s current financial position.

The federal stimulus plan

requires that you be facing a hardship situation

in order to be eligible to apply for any loan workout.

Your hardship letter should describe your financial dilemma

to your lending institution,

explain the reason you need a loan modification,

and show them that this is the help you need

to keep repaying their loan.

The lender must see

that you are determined to keep your home,

and that this takes top priority in your financial affairs.

The hardship letter is a homeowner’s explanation

to the lender why they have defaulted

or may soon default on their loan.

A good hardship letter

will encompass the entire chain of events

leading up to the event that necessitated writing the letter.

The letter also needs to let the lender know

if the situation is temporary or longer term

and what the borrower plans to do about the situation.

Usually a lender asks for the last two years W-2

and tax returns

as well as the most recent 30 days paystubs

and bank statements (last 2 is common).

In most cases it is also necessary to provide

details about your monthly expenses

to paint the financial picture

that will help the lender to make a decision,

usually this is done through the completion

of a financial statement,

where you will list all expenses you have.

Don’t hold back,

it will help to know what you spend

and where you may be able to save expenses

to afford a new payment proposed by the lender.

Given the right resources,

most homeowners can talk with their lender directly

about a loan modification.

The basis for this conversation

usually comes down to a well written

and to the point hardship letter.

Again, with the proper resources and commitment,

you should not fear

talking with your lender about loan modifications.

You can get assistance in creating and implementing

your plan on the Resources Page

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