Loan Modification – Frequently Asked Questions

Author: Home Loan Modification

A home loan modification is a program designed to help homeowners make adjustments to the terms of their existing mortgage in order to make their payments more affordable and prevent foreclosure. The federal home loan modification program helps lenders by providing federal funds to help offset losses a lender would experience by lowering interest rates, forgiving a portion of the balance or forgiving fees. Utilizing the services of an experienced loan modification attorney can help a homeowner understand the process and go in with eyes wide open.

What can a loan modification do for me?

Homeowners who have fallen behind in their payments due to job loss or other financial hardship can contact their lender and request a modification. In most cases, the lender can work with you and change the existing terms of your loan to make it more affordable for you. Potential changes can include: lowering interest rates, forgiving a portion of your principle balance or forgiving fees associated with late payments, bounced checks or other fees. In most cases, a lender will take steps to lower your interest rate first, but if your home has experienced a sharp loss in value, the lender may forgive a portion of your principle in order to bring the balance of your loan closer to the approximately value of your home. The idea is to bring your monthly payment down to a level you can pay consistently, help you avoid foreclosure, and stop your credit from spiraling out of control.

Why would a lender modify my loan?

Lenders are willing to modify loans because it helps protect their bottom lines. Foreclosures are expensive and in today’s economy, it is tough for lenders to sell a foreclosed home and recoup the money they lost by not receiving your monthly payments. In addition to this, the federal government is offering a stipend to lenders who are willing to work with homeowners and modify at-risk loans to help offset any loss in revenue they would experience by giving you better terms.

How long does it take for the changes to be made?

The modification process is a somewhat lengthy process. In most cases, a modification will take between two and three months. This is partly due to the fact that many people are attempting to work through the same process as you. Additionally, getting the financial incentives from the federal government takes time. The good news is that while you are going through a modification, you will not be expected to make monthly mortgage payments until it is complete. This will give you some additional time to get your financial affairs in order before having to make mortgage payments again.

Does Everyone Qualify?

While not everyone will qualify for a modification, there are several ways you can qualify for this type of program. Being delinquent in your mortgage already or on the verge of becoming delinquent or even being in foreclosure, will qualify you for the program, as long as it is your primary residence. Additionally, you will have to provide proof that you will be able to make all future mortgage payments on the newly modified loan before a lender will attempt to help you.

What Should I Expect?

Your lender will ultimately determine what assistance, if any, to offer you. In most cases, a lender will attempt to lower your interest rate, sometimes all the way to 0%, in order to bring your payment in line with what you can afford. Lenders have a litmus test for determining what you can afford in terms of housing payments. In general, your mortgage payment will not exceed 36% of your gross income in order to be considered affordable. If this isn’t enough to bring your payments in line with your income or your home is worth significantly less that the balance of the loan, the lender may forgive a portion of your principle balance. Additionally, a lender can extend the term of your loan to decrease your monthly payment or waive any accumulated fees.

Will A Modification Damage My Credit?

Odds are, if you are contemplating applying for a modification, your credit has already been damaged by late payments. Currently, modifications do not reflect negatively on your credit. In fact, by getting a modification you can actually save your credit from any further damage.

Is It Too Late to Apply?

It’s never too late to attempt to obtain a modification. Even if you are in foreclosure and a sale date has been set for your property, you can contact your lender or seek out a loan modification attorney and attempt to get a modification.

Do I still have to Past Late Fees?

In most cases, once your loan has been modified, the lender can no longer hold you responsible for previous late payment fees or surcharges. However, any monies you are currently delinquent will be tacked on to the backside of the loan. Contact a loan modification attorney for more information regarding your legal obligations regarding past due amounts.

Should I Hire an Attorney?

While it is possible to work with your lender and arrange for a modification on your own, it may be in your best interest to contact a loan modification attorney who can help protect your interests and get the best possible outcome.

AUTHOR BIO:
We are a group of loan modification attorneys helping homeowners legally save their homes.  Our mission is to get through these tough economic times by helping homeowners stay in their homes.  A loan modification is for homeowners who have experienced a financial hardship and need to restructure their mortgages to make their payments more affordable.

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