What is a loan modification?
A loan modification restructures the terms of a loan without actually refinancing the property it secures. Modification of a loan applies to the terms governing the interest rate, the amount of the monthly payment, the term of the loan, but very rarely the principle balance.
Are you a good candidate for Loan Modification?
All of the following are great candidates for modification:
- Any homeowner currently stuck with an adjustable rate mortgage
- Any homeowner with a "PayOption ARM"
- Any homeowner behind on Payments
- Any homeowner with a "hardship" or inability to pay what is currently owed
- Any homeowner that has little to negative equity
- Any homeowner that cannot refinance
Are there any NECESSARY requirements to be considered for a loan modification?
- Your monthly mortgage must be affected by a verifiable reduction in income or an increase in expenses.
- It is required that you have a source of a stable and predictable monthly income.
How long is the Loan Modification process?
This depends on the lender, but typical turn times can range from 4-6 weeks up to over a year.
What happens during a Loan Modification?
During a loan modification the terms of your mortgage are renegotiated to bring the interest rate down to a percentage that fits into your budget and the monthly payment no longer presents a severe strain on your ability to meet your other financial obligations.
Loan Modification - Pros
1. Lenders are making a big push for loan modifications. Based on our recent experience it has proven difficult for a truly lasting and helpful modification to be completed.
2. Many lenders seem to be able complete Loan Modifications in the same time it takes to complete short sales.
3. In the future you might get your entire investment back. (It is theoretically possible, though no one can say for sure if it will happen)
4. You may minimize damage to your credit.
5. You may be able to do a loan mod and not waive your anti - deficiency protections.
Loan Modification - Cons
1. Without leverage it is unlikely you will negotiate a principle reduction. We are not seeing these happen.
2. In a typical loan modification - you may just be buying time. You make payments until you decide to sell or your payments go back up. Will it be better to attempt a short sale in a few years? I doubt it. But, you never know.
3. If you are not careful you may lose of waive important anti -deficiency protections. If you have assets or a salary to protect or you expect to have those things, this will need to be negotiated.
4. Your mod may not be successful enough to eliminate the full financial problem.
