Loan Modification


Loan Modification

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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.

There are some other facts that explain why lenders are actually in favor of working with borrowers and their legal specialists in order to negotiate equitable loan modifications.

  • All or 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 fiscally much more attractive solution for any lender.
  • A modified loan protects the credit rating of a borrower and it also helps lenders in showing less defaulting loans in their portfolio. This of course makes a good impression when the financial institution is wooing potential investors.

Here are the requirements you must meet in order to be considered a good candidate for a loan modification process to be started on your behalf:

  • 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 a 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.


A Loan Modification will study the available options that will allow you to save or keep your home. However, the key player in this will always be you, so make sure that you are always available for open communication with mortgage experts and lenders so everything is clear and well-understood.

In general there are four options that are available to homeowners in distress:

MODIFICATION. In some instances, an investor may allow you to add the unpaid amount to your loan balance. Another way is to temporarily reduce the interest rate as well as your principle amount so it can help in curing the default and restore your credit status.

DEED IN LIEU OF FORECLOSURE. There are some instances where you cannot afford your home any longer. If this is the case, and you don't want to go through the process of foreclosure, then you can just voluntarily return the property to the investor.

PRE-FORECLOSURE SALE. One thing that really works for federal loan modification is when homeowners, who suddenly are facing hardships, can no longer afford their own homes. Usually, their decision to sell their homes under these circumstances is extremely difficult for them. Aside from this, the constant swings in real estate markets may leave them losing a lot of equity down the drain. If this is the case, then you can hire experts to help sell your home.

FOREBEARANCE. A Forbearance Plan is really a repayment agreement between you and your lender. Usually, your mortgage expert will review the documents that support your monthly income and expenses. They will also create a planned proposal that will help you cure your default over a period of time, and then, reinstate your mortgage while allowing you to maintain your normal monthly living expenses.

There are many ways to stop foreclosure, and one powerful tool you can use is federal loan modification. Always remember that you have a choice to keep your home, and no one can do it for you unless you start doing something about it right now!