Finance Pundit

loan-modification

Loan modification is a program that allows the homeowners and lenders to change the terms of a loan and work out an easier payment plan. This will allow the borrower to avoid a possible foreclosure due to non payments.

A loan modification is not a new loan. It is the renegotiation or restructuring of your existing mortgage note.

Loan modification program is good for homeowners who have got behind in their mortgage payments, people having low credit scores, or those who don’t have enough equity to refinance; a loan modification is often the only option available because they are unable to get approved for a mortgage refinance or a short refinance.

There are several ways of getting a loan modification done. It can be done by one or a combination of all the factors given below

1) The loan’s interest rate may be decreased.
2) The interest rate could be changed from an adjustable to a fixed interest rate.
3) The period of time the loan has to be paid back can be extended.
4) The type of the loan can be changed altogether.

Nowadays, many borrowers are facing foreclosures because of the excessive increase in the mortgage interest rate. Therefore, a loan modification program is the best choice for the borrower as well as the lender to avoid the cost and hassle of the foreclosure process.

Remember the lenders point of view. No matter whom the investor is, the servicing firm is obligated to find a solution to payment problems that will minimize loss to the lender / investor. If the lowest cost-solution is a loan modification, then you will be granted a loan modification. But if a foreclosure will generate a lower costs for the lender, then they will decide to foreclose the home. The cost of the foreclosure to the borrower does not enter into the decision.

Lenders protect themselves from mass loan modifications by entertaining modification proposals on a case-by-case basis, while placing the burden of proof on the borrower. Borrowers must accept the burden of proof.

In most cases, the decision on a modification is not made by the investor that owns the loan. It is made by a firm servicing the loan under contract to the investor/lender. The owner of the mortgage note could be a single lender, or it could be a group of investors who own pieces of a mortgage-backed security collateralized by a pool of loans.

Loan modifications must be handled by a special group of loss mitigation personnel who are more highly trained and better paid, and the increased cost of expanding their number cuts into the bottom line. Therefore, lenders have a tendency to be non-responsive in the hope that borrower will go away.

loan-modification

The first thing that you need to decide when you are looking for a loan modification program is whether or not you are going to do it yourself or hire a professional. You will most likely only get one opportunity to try this. Make sure that you take the right steps.

The loan modification boom has given rise to many a predator. “Loan Modification” companies have sprung up quicker than flowers in the spring. Many of these companies are nothing more than recycled mortgage bankers and brokers who have re-tooled their businesses to capitalize on the hardships of the folks they put into these loans. It does not mean that this type of company will not do a good job for you. My opinion is that there are many charlatans who move through markets at any given time to take advantage of consumers in “boom times”. It was seen in the stock market during the “Tech Boom”, then in the mortgage market during the “Refi Boom” and “The Housing Boom”, and now these same recycled slick haired super sales people are taking advantage of the “Loan Modification Boom”. An uneducated desperate consumer may be easy prey, and no match for this type of predator.

Many of these companies take a large upfront fee to work on your loan modification and never do much more than taking your money and send a few pages to your lenders. The effort expended is minimal and the results are lackluster at best. It reminds us of the phrase “Caveat Emptor” (Let the Buyer Beware) is certainly applicable in this situation.

Be very wary of anyone who advertises, or tells you that they have special contacts inside the banks. Ask them which banks, if their answer is vague, they are probably lying. If they can’t be specific about such a bold claim, you don’t need to do business with such companies.

When shopping for a loan modification company, it is mandatory that you do your own homework. Research is paramount in picking the right company.

• Check the Better Business Bureau, consumer affairs, etc
• Check other businesses of the loan modification company
• How long have they been in this business and how long have they been doing the loan modification process?
• Ask for references of satisfied clients.
• Ask the loan modification company if they do a complete financial analysis? Do they do a property valuation? Do they work on more than one solution with your lender? And what happens if they can’t get the results?
• Discuss about the fees and the refund policies.
• What is their version of a successful negotiation result?

Visit this link for more info of loan modification: http://www.hud.gov/offices/hsg/sfh/nsc/faqlm.cfm