Loan Modification Information

What is a Loan Modification?

A Loan Modification is a permanent change in one or more of the terms of a loan allowing the loan to be reinstated, resulting in a lower payment that the borrower can afford. In most cases a homeowner in need for mortgage help will indeed qualify for a loan modification.

To ensure that you understand what a loan modification will actually do for you, consider the following facts:

• A loan modification is indicated when the original loan that is secured by a residence has terms that make it impossible for the homeowner to continue making the payments, thus risking the loss of the residence.
• Loan modifications are not the same as debt consolidations, refinancing loans or even forbearances. Instead, they are long-term solutions for rising interest rates or other hardships that are threatening to overwhelm the budget of a homeowner.
• Loan modifications stop foreclosure proceedings and instead reinstate the loans as they are being modified.

Why lenders would consider a loan modification:

• All or a portion of the outstanding principal and interest, past due escrow, late fees and even costs may be rolled into the loan modification and thus will not be lost revenue to the lender. Since they are spread over a long period of time, they do not pose a problem to the borrower.
• Modified mortgages may use a step rate approach or an extended term methodology to provide for the repayment of the due and past due funds. The lower payments ensure the repayment by the borrower while, to the lender, the added time is actually money in the bank in terms of yet to be earned interest due.
• Foreclosure is avoided and even though banks routinely foreclose on properties and sell the homes to other buyers for a fraction of a price, the slowing housing market has made it difficult for banks to unload such properties and then recover any additional funds from the previous homeowners. Loan modification is a more fiscally attractive solution for any lender.
• A modified loan protects the credit rating of a borrower and it also helps lenders show less defaulting loans in their portfolio. This of course makes a good impression when the financial institution is wooing potential investors.

Basic requirements for a loan modification:

Your monthly mortgage must be affected by a verifiable reduction in income. It is required that you are currently employed or have another source of stable and predictable monthly income that is provable. The home for which you are seeking to obtain a loan modification must be your primary residence.

Contacting your lender:

If you have fallen behind on your mortgage payments, do not be afraid to call your lender to request a loan modification or other pre-foreclosure options.

Understanding the loan modification:

Loan modification sounds intimidating to the average homeowner but the process is indeed simpler than you might think. We have tried to break it down in simple terms so you can better understand the process. Ultimately, a successful loan modification requires an agreement between the homeowner and the lender on the new terms of the loan causing both parties to become better off after the transaction. Below are what is required for each party.

Three elements must exist to make a homeowner a good candidate for loan modification:

• Desire to Keep the House
• Experienced a Financial Hardship
• Income/Employment - Able to continue making lower payments
• A financial hardship can also include an interest rate increase in an ARM loan. If you have the above 3 elements as part of your situation.

For The Lender/Servicer:

Lenders and mortgage servicers each have their own loss mitigation departments and policies, but what is clear is that no lender wants yet another house to enter foreclosure, specially with all of the recent government incentives and assistance. As such, given foreclosure the alternative, as long as the homeowner can still make payments on the loan, the lender would be willing to work with him/her to prevent a foreclosure. Typically, lenders' requirements are to make sure that the deal makes fiscal sense. For example, they must determine that the revenue lost in lower payments on the loan would still be better than the cost associated with the foreclosure and maintenance of the home after it is given back to the bank. In certain situations, this really gets down to bad vs. worse for the lender, but as a general rule, it is always better to let the homeowner keep his/her home and not take the house back.

Obama's Making Home Affordable Program:

Making Home Affordable is part of President Obama's comprehensive strategy to get the housing market back on track. Through the Making Home Affordable Program, up to 9 million American families may be eligible to refinance or modify their loans to a payment that is affordable now and into the future.

Avoid loan modification scams:

Be very careful if you choose to use a loan modification company that takes a fee up front to negotiate your loan modification for you. They cannot guarantee a successful modification and can end up costing you another month's mortgage payment in exchange for false hope. The best of these companies have done the modification countless times and will actually try to help you in earnest without guarantee. The worst are scams that take your money with a cursory attempt to help you.

Top 10 questions and answers to understand loan modifications:

The loan modification process can be frustrating and confusing for many distressed homeowners. If you are considering contacting your lender about a loan workout to avoid foreclosure, you need to get as much information upfront as possible so you will be prepared and able to present your case in the best possible light. Programs and guidelines are changing and it is getting much easier for homeowners to get the help they need. To help you understand how the process works and what you can expect.

Beverly Shortsale Inc.

Regardless of your circumstances, we have powerful solutions available. Most of our solutions are free to the property owner.

Beverly Shortsale is a professional California short sales and loss mitigation advisory firm assisting many property owners in the intricate business of short sales, modifications, forbearances, deeds in lieu and other loss mitigation solutions.

Beverly Shortsale has helped property owners avoid foreclosure and the stressful act of eviction. With over 30 years of experience our principals developed a far-reaching network of contacts consisting of mortgage companies, banks and realtors. The strength of Nationwide Real Estate Solutions experiences, knowledge and relationships are invaluable.

For a free consultation please call one of our short sale specialists at
1-310-598-1399.