What is a Home Loan Modification & How Do I Successfully Negotiate One?

What is a Home Loan Modification?

A mortgage loan modification is a process whereby the terms of the existing mortgage are modified to new terms that are more agreeable to the homeowner and lender.

What’s the basic idea behind mortgage loan modifications?  How does this work?

Lenders have been faced with staggering losses due to so many foreclosures.  Typically when a bank forecloses on a home, the house has little to no equity, or is “upside down”.  When you add the total cost of foreclosure, including lawyer’s fees, the cose of keeping up the property, Realtor commission, and the overall loss due to the house being upside down, it typically translates to a huge cost to the lender.  Rather than foreclosing on a home, in most cases it makes more sense for a lender to help the homeowner lower their monthly mortgage payment on their home loan and keep their house.  By helping borrowers save their homes, lenders are able to still earn interest on the existing loans, and do not have to face the huge cost of foreclosure up front.

What are the benefits of a loan modification?

There are many possible benefits to modification of your loan, which include a reduction of your interest rate, changing your loan from an adjustable mortgage to a fixed rate mortgage, reducing the principal balance, or the amount that you owe, reducing or forgiving the amount that you owe in late fees and penalties, changing the duration of the loan – e.g. to a 30 yr. or 40 yr. mortgage, and capping the monthly payment to a percentage of the household income.

Who ultimately decides whether or not to grant a modification of your loan?

Your lender ultimately makes the decision whether or not to modify your mortgage.

What about Government Programs, such as FDIC’s Mod-in-a-Box, HAMP (Home Affordable Modification Program) under the Loan Modification option of Obama Administration’s Making Home Affordable Program, and the new FHA – HAMP?  Will these force my lender to grant a loan modification?

It is important to remember that lender or bank participation in these programs is voluntary.  Yes, the Government typically provides incentives under these initiatives to lenders to modify mortgages; however, it may not necessarily guarantee that a mortgage loan modification will be completed.  Additionally, even if your lender or servicer participates in Government Loan Modification Programs, your loan may actually be held by a servicer that does not participate in these programs.  The very best thing to do is to speak with a loss mitigation expert that can help you make sure that you qualify under these Government Programs, such as a HUD Counselor or a reputable Attorney.

Do I have to be late on my mortgage to qualify for a mortgage loan modification?

You do not necessarily have to be late on your mortgage to qualify for mortgage help, a lower interest rate, and a lower payment.  Many lenders do require that you are late on your payment prior to considering a loan modification, however, under some programs and with certain lenders, you do not have to be late on your mortgage, you merely need to demonstrate that you are experiencing enough financial hardship that warrants a loan workout.

What if I have lost my job and am currently unemployed?

In some cases you may still qualify for assistance.  It is important to speak with your lender, a HUD counselor, or legal representation regarding your qualification and the possibility of getting a mortgage loan modification prior to beginning the loan modification process.  In some cases, the time may be better spent looking for employment, and then contacting your lender’s loss mitigation department.

What if I have completely let my finances go, and the Sheriff is literally knocking on my door?

Speak with an attorney immediately.  You may be able to postpone the foreclosure with an attorney’s help long enough to get a mortgage modification done.  One stall tactic that is often employed is merely to send a qualified written request to your lender demanding a copy of the original note; without a copy of the note, your lender cannot foreclose.  Filing for bankruptcy can also delay the foreclosure process, however lenders are catching on and almost immediately combating this with requests for release.  The best thing to do is to speak with an attorney.

How long does it take to get a mortgage modification?

Typically, home loan modifications take anywhere from 30-90 days to complete.  Make sure that during that time, you make an effort to still make your monthly mortgage payments, and that you are prepared to document each and every statement that is made to your lender.

How tough is it to get a mortgage loan modification?

In most cases it is very difficult to wrestle a modification of your loan  from your lender.  Often, homeowners will have to wait hours on hold, and be transferred from department to department.  Even Congresswoman Maxine Waters could not get anywhere in helping homeowners after over two hours on the phone with Bank of America and Countrywide.  It is a painful ordeal that takes time, and even after a good deal of time is spent on getting the loan modification, if you do not fit your lender’s guidelines exactly, you will not be granted a mortgage modification.

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