Loan Modification: Everything You Need to Know to Cap Foreclosure

Loan companies and banks have devised an option in order to help delinquent borrowers survive the blow of the economic recession in the form of loan modification. Instead of running for cover, losing their precious homes and ultimately going bankrupt, loan owners can now make a decent request addressed to their lenders to change loan terms and conditions to their advantage.

To do this, the borrower’s initiative is crucial. Loan modification will only happen once the action to stop a looming foreclosure from happening is commenced by the borrower. This usually starts by contacting the lender about the financial situation. This could be in the form of a hardship letter that basically explains the details of a borrower’s financial dilemma. This should be coupled with certain requirements to prove the claim like a breakdown of monthly expenses, financial worksheet, bank statement, etc. All these documents will be assessed and verified by the lenders. Likewise, an interview with the borrower follows in order to further scrutinize if he is indeed qualified to be granted of this mortgage process.

Lenders usually send 2 loss mitigation experts that are highly trained in evaluating a borrower’s qualification and eligibility to receive the loan modification. This is the reason why sob stories and dramatic narration of financial predicaments don’t work to sway lenders to give in to the request. These people have heard it all before and are knowledgeable of every trick a borrower can pull in order to get his loans modified. In this case, sincerity, honesty, professionalism and a bit of propensity for salesmanship are needed. Appearing too financially challenged will also not do a thing to qualify for a loan modification. Most often than not, lenders bequeath this service to those mortgagors who are still deemed able to pay for possible monthly payments and interest rates once loan terms have been altered.

The request commonly takes two weeks to a couple of months to be processed. It really depends on the stage of foreclosure and financial situation of the borrower. Moreover, lenders typically spend weeks in completing a loan workout agreement to stop foreclosure proceedings. Once everything is prepared and the request has been approved, borrowers can expect a lighter financial yoke with these benefits:

1.    Reduced interest rates (Reduction in interest rates depends on the agreement with the lender, but it usually ranges from 3% to 7%)
2.    Preservation of home ownership
3.    Reduced monthly payments
4.    Partial or complete deference of past payments
5.    Longer loan term (This depends on the borrower’s agreement with the lender.)
6.    Lowered principal balance
7.    Credit preservation

Take note that modification in loan terms are highly contingent upon the deal the lender provides. It is still advisable to seek the counsel of a loan modification expert in order to evaluate whether the agreement proves to be favorable to the borrower in the sense that it is capable to stop an alarming foreclosure for a longer period of time. In some cases, lenders will offer a forbearance agreement to delay the foreclosure. However, the said mortgage agreement will not in anyway be advantageous to loan owners who are experiencing extreme financial instability. Forbearance can only work for those who se money problems are just foreseen as temporary problems.

Loan modification’s primary goal is to stop foreclosure. It is created in order to aid loan owners in making the necessary payments to preserve home ownership. In lieu of the economic recession, banks and loan companies would rather reinstate loan terms than go through costly foreclosure proceedings which in the end, will only jeopardize the probability of getting paid. At the end of the day, loan modification is beneficial to both lenders and borrowers.