Loan Modifications de-mystified

Loan Modifications Explained

By now most home owners have heard something about this new buzzword; Loan Modifications. Their are a few different types and some are not mod's at all so be careful who you might retain to consultant and represent you for this type of service. There are basically 3 types of loan modifications for home owners who have a legitimate reason and cause for their current hardship with making timely payments.

1) The first type is not the most beneficial but one the lender tries to arrange first (unless you know what to ask and request) as it keeps the lenders loss to a minimum if any. What they basically arrange is; when a customer is in arrears on several months of payments, has had a notice of default filed on the property, incurred penalties and legal fees from the lender, etc. The lender re-works those arrearages onto the Back-end of the loan and sometimes lowers the home owners interest rate for a short term; like 3 to 5 years. No principal reduction is involved here.

2) The second type is called a Soft modification - which usually involves re-writing the rate on average 1 to 3% lower than currently, for a short period of 2 to 5 years and principal reduction or elimination of a 2nd mortgage may be involved.

3) The third and most advantageous type is the Full Loan Mod - which in a nutshell is like a new refinance without the costs and paperwork involved with appraisals and a new mortgage loan. In essence the home owner gets a new fully amortized up to 30 year lower fixed or Interest Only rate, often at a lower principal balance than they have currently.

Special Forbearance agreements are also available and worth a mention here, but they are a totally different animal and will be covered in an upcoming blog.

I would strongly advise that a home owner should not go about trying to arrange their own Loan Modification, as the lender and their loss mitigation department are trained to protect their own interests as much as possible and they know they have the advantage when negotiating these loan mod's directly with the Trustor (home owner).

You do not necessarily need to involve or retain the services of an attorney (although sometimes their assistance helps push things through to finalize) but I strongly advise you do let an experienced professional assist with this tricky endeavor. It could mean the difference between just prolonging the foreclosure proceedings or truly being able to keep and stay in the home!

If you have any questions or would like a confidential free phone consultation about options to lower mortgage payments or saving your home, please call me to discuss further.