Loan Modification

What Is A Loan Modification? The Three Keys To Loan Modification Success

By Andrew

This seems a rather basic question to be asking in a website dedicated to commenting on blown mortgages and how to pick up the pieces. However, it is sometimes useful to sit back and ask ourselves the basics again to reassess our understanding and check we are still on the same page.

Loan Modifications are a change to a loan contract between the lender and the homeowner. The whole purpose is to adjust the terms of the contract so that the loan is affordable for the borrower. Loan Modifications have changed in the last years. Previously they existed only in the form of an interest rate reduction for a period of time when a delinquent borrower was suffering from a specific type of hardship, as a divorce, illness or a job loss.

Now loan modifications are provided for a wider set of circumstances and usually change the terms of the mortgage permanently.

What has not changed is the raison d?être of loan modifications; to help homeowners that can afford their home but not their current mortgage. This means that the homeowner has the ability to make reasonable monthly payments on their home but their current mortgage payments are to high.

Understanding this is vital to understand why so many homeowners apply for a trial loan but will never get one.

The second key factor that makes a homeowner eligible for a loan modification is the existence of a valid situation of hardship. A borrower must make sure they can prove the hardship and that it qualifies them to apply for a loan modification.

These are examples of hardship that give you a good chance of getting approved: ARM, adjustable rate Mortgage, reset payment shock, illness of a close family member dependant on you, loss of job (as long as there is proof you will be able to meet the modified payments), reduced income, death of the borrower (that is an excellent one), death of spouse or co-borrower, military duty, medical bills, damage to your home, not being able to sell or rent the property.

However excuses like: I didn?t realize how expensive it would be, or my realtor/lawyer/wife lied to me are just not going to work.

The third factor is accurate documentation. You don?t only have to be able to afford your home and undergo a valid situation of hardship; you also need to prove it with proper documentation.

These three points are the ABC of successful loan modifications:

a)      You must be able to afford the payments of a reasonable loan modification.

b)      You must be experiencing some type of valid hardship.

c)       You must be able to prove it.

Convincing your lender or loan servicer of the truth of those three factors is the most important part of applying for a loan modification. You must focus all your energy in making these three points loud and clear when you communicate with your lender, whether your are speaking on the  phone or writing your hardship letter.

Share At:

Hide Sites

Related posts:

1. Loan Modifications, NPV Test the Key to Loan Modification Success
2. What Is A Home Loan Modification
3. Obamas Loan Modification Success Explained

1. Loan Modifications, NPV Test the Key to Loan Modification Success
2. What Is A Home Loan Modification
3. Obamas Loan Modification Success Explained

Full post as published by Blown Mortgage on February 11, 2010 (boomark / email).