What exactly is a loan modification?
A loan modification is a temporary or permanent change in one or more terms of a borrower’s home loan and typically allows the loan to be reinstated. The purpose of a modification is to lower monthly payments to an amount the homeowner can afford.
Who qualifies for a loan modification?
Anyone that is having trouble paying their existing loan is a candidate for loan modification. In today’s tough economy banks are willing to work with mortgage holders that are having trouble paying their mortgage. However, especially strong candidates are homeowners currently in an adjustable rate mortgage that have a high interest rate, are upside down on their home, and/or experiencing any kind of hardship.
How long does the process take?
All banks are different and the process can take 60-120 days for a decision. It all depends how busy they are with current modification requests and how many loss mitigation specialists they have on staff. It is not uncommon for one loss mitigation specialist to have up to 700 files under their management at any one time.
Do I have to be currently delinquent on my payments to get a loan modification?
Most lenders are now accepting applications from homeowners who are not currently delinquent, but who are able to prove to their bank that due to imminent interest rate increases, they will no longer be able to afford the loan payment under the terms of their loan. It is advisable to contact your lender as soon as possible to start the loan modification process, regardless of if you are delinquent or not.
What is an acceptable hardship situation?
Each homeowner has a unique set of circumstances that caused them to fall behind on their home loan, but generally the lenders consider divorce/separation, loss of income, death of spouse, co-borrower or family member, illness, job relocation, military service to be acceptable reasons to consider a loan modification. A compelling hardship letter included in your application is a very important part of a successful application.
Will a loan modification help me stop foreclosure?
Yes, by working with your lender to modify your loan, your modified loan is brought current and the foreclosure process is halted. Most lenders are amenable to suspending foreclosure during the time we're in negotiation with them and in many cases they're legally required to do so.
Can my missed payments be added back into my new loan modification?
Yes, arrearages can be added to the new loan balance and spread out over the term to allow the loan to be brought current.
What if my credit is bad?
A loan modification is not based on credit. The banks are trying to make a good loan out of a distressed loan.
What if I have no equity or I am "upside down" on my home?
Having little or no equity in your home does not matter. In fact, in certain circumstances loan modifications may include a principal reduction, which means the bank will discount the total loan amount to the current value of your home.
What should I expect the terms to be on my new loan?
The guidelines for loan modifications change regularly. A bank will typically modify your loan into a loan you can afford and continue to pay. This may include a lower interest rate, arrearage recapitalization, principal reduction, extension of loan time period, or any other function that will make and keep the loan performing.
How much can I really save by doing a loan modification?
Hundreds or thousands a month. Remember, a loan is typically for 30 years. So the loan modification that saves you $500 a month really equals $180,000 over the life of the loan.
Can the lender include any other costs? Appraisal, credit report, title, closing costs, broker fees, etc...?
There are usually no costs assigned with a loan modification. The banks are modifying loans for no charge. The accrued late charges may also be waived by the lender at the time of the loan workout-this varies depending on the type of loan-but always request a complete breakdown and description of all fees and penalties from your lender.
Can the bank require an interior inspection of the property if they have concerns about the property condition?
Yes, the lender may conduct any review it deems necessary to verify that the property does not have physical conditions which might adversely impact the value.