What Is A Loan Modification And How Can It Help Me With My Mortgage?
Loan modifications have become very popular recently as a result of the housing industry crisis and overall global economic meltdown. There were more than three million foreclosure filings in 2008. This is an increase of 225 percent more than in 2006 the year just before the real estate market started its decline. The numbers of filings are still significant causing homeowners, lenders and the government to look for solutions.
The new government under President Obama has taken action to stem the number of foreclosures and prevent the real estate marketing from further decline by putting in the place the Homeowner Affordability and Stability Plan. The plan provides for a sweeping loan modification program targeted at borrowers who are at risk of foreclosure because their incomes are not sufficient to make their mortgage payments.
A loan modification occurs when a home owner participates in a restructure of the original terms and condition of the mortgage with the issuer or lender. The objective of this amendment is to lower monthly mortgage payments to a level that is more reasonable or affordable to the home owners. By agreeing to do so the lender decreases the risk of a borrower default and possible foreclosure.
Typically, loan modification programs are sought out by homeowners whose capacity to deal with the mortgage payments has declined recently, either due to loss of employment, increasing rates of interest or a decrease in the value of their house. The exact guidelines for obtaining a loan modification vary between lenders. For example, some lenders will only consider a loan modification if the borrower has been late with their mortgage payment while others will take other factors into consideration, such as financial hardship, even if no late payments have occurred.
The overall goal of a mortgage loan modifications is to provide a solution that will allow the homeowner to keep their home by relieving some of the financial burden. It also has to make sense for the lender. The borrower has to go through a process of disclosure to allow the lender to understand the borrower’s current financial position. This process is called the Loan Workout. It’s a series of steps the borrower goes through with the lender to determine what the problems are and if there is a viable solution. Some of the solutions can include:
1. Reducing your interest rate to reflect current market rates.
2. Rescheduling loan payments over a longer period of time in order to lower the monthly payments.
3. Combining all unpaid payments and fees and add them to the end of the loan.
4. Reduce the principle balance to reflect current value of the home.
5. Allowing the homeowner to sell the home under a short sale. This prevents the borrower from having to go through a foreclosure.
There are many solutions for the homeowner who is having difficulties with their mortgage. The sooner you take action the better your chances of heading off a potential financial disaster such as a foreclosure. Assess your situation, create a plan or action and execute early.
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