Frequently Asked Questions
What is a loan modification?
In simplest terms, a loan modification restructures the terms of a loan without actually refinancing the property it secures. Investopia defines a loan modification as a modification to an existing loan made by a lender in response to a borrower's long-term inability to repay the loan. 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. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default. Modification of a loan applies to the terms governing the interest rate, the amount of the monthly payment, and in some cases also the length of the loan. Skilled home modification legal specialists work on behalf of borrowers with their lenders to achieve the relief of a home loan modification via drastically reducing mortgage payments.
Are you a good candidate for a loan modification?
Any homeowner currently stuck with an adjustable rate mortgage that has been or will be adjusting upwards is a premier candidate for loan modification. Millions of Americans were lured into signing up for interest only mortgage loans and while initially the loan was low and affordable, the double impact of rising interest rates and the inclusion of principal into the payment have caused borrowers to see their payments triple or even quadruple! The temporary one or two month forbearance your lender offers is a Band-Aid but not a bona fide solution to the problem that will get worse and the only way to halt the skyrocketing house payment and keep your credit intact at the same time is with the help of a loan modification.
Remember that waiting too long to get the process started may actually disqualify you from the program! Do not wait until your ARM or Interest-Only loan resets again but instead act as soon as you realize that your financial situation is putting you at risk for foreclosure.
What happens during a loan modification?
During a loan modification the terms of your mortgage are renegotiated to bring the interest rate down to a percentage that fits into your budget and the monthly payment no longer presents a severe strain on your ability to meet your other financial obligations.
Why don’t I simply ask my lender for a loan modification myself?
It would be great if borrowers and lenders had the ability to negotiate loan modifications, but the problem is two-fold: many lenders simply lack well trained personnel who know how to negotiate and set up a loan modification in the first place; secondly, some lenders are more interested in recouping any potential losses up front via a foreclosure than they are in keeping a customer for a long period of time with the help of a renegotiated mortgage. In both cases it is the involvement of loan specialists that provide borrowers with the results they desire.
Is loan modification similar to debt consolidation or refinancing?
The answer is a resounding no. Debt consolidation seeks to lump a group of unsecured debts into either a loan or a program that offers lower payments. It does not apply to mortgages. Refinancing a home requires the borrower to apply for a new mortgage and requires an appraisal and other fees for the lender. This is often not an affordable solution for a borrower who is already stretched to the max with the current mortgage payment. The existence of an adjustable rate mortgage that eats up a lot of the available funds on a monthly basis may actually be held against the applicant and thus causes the refinance application to be denied. Loan modification seeks to restructure an existing loan.
What is needed from me to get the process started?
Documents relating to your financial situation, income, and mortgage details help legal professionals to draft the papers your lender requires for a need based loan modification approval. Upon receipt, the terms of the mortgage are renegotiated to reflect a lower monthly payment. Best of all, the paperwork is handled in its entirety by the professionals in charge of negotiating the deal and you are not required to attend a closing or any such meeting.
How long is the loan modification process?
If you qualify, you will see relief within 3 to 4 months from the application submission to the lender. In the meantime, lenders are amenable to halting foreclosure proceedings and even the sale of a home during the process. The added benefit of this process rests in the fact that you may be able to skip one mortgage payment and get back on your feet with your budget. Since the majority of reputable lenders prefer to have you remain a customer for life than selling off your home at a loss and thus not realizing the profit of the interest payments, the process is usually not delayed.
What are the benefits of a successful loan modification?
In addition with the lower payment and terms, borrowers would receive $1,000 each year for five years off the principle balance by maintaining a current payment schedule.
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