| There is a lot of talk these days about mortgage loan | | | | are BY FAR the best solution to the current |
| modifications. The Treasuryand the FDIC are both | | | | foreclosure crisis... |
| strong proponents of widespread loan modifications. | | | | 1. Loan Modifications keep families in their homes |
| Lenders do NOT want to take back anyone's home if | | | | 2. Loan Modifications ease the financial pressure that |
| they can avoid it. They have already taken back so | | | | tears families apart |
| many they are having a hard time dealing with the | | | | 3. Loan Modifications are the least cost solution to the |
| disposition of those homes already. Distressed sales of | | | | lenders... that's why they are doing so many of them. |
| REO properties are a major anchor that is pulling | | | | 4. Loan Modifications keep the house off the market |
| home values relentlessly lower which puts more | | | | and therefore each loan modification represents a |
| homeowners in a negative equity position and increase | | | | step closer to the solution to the current crisis. |
| the risk of even more defaults and foreclosures. | | | | 5. Loan Modifications are a market solution... they don't |
| When a homeowner cannot make the payments on | | | | cost the taxpayers a dime |
| their mortgage there are only three possible outcomes: | | | | 6. Loan Modifications can be done quickly |
| 1) The property goes back to the lender through | | | | Who Qualifies for a Loan Modification? |
| foreclosure or deed-in-lieu and the property goes back | | | | Three conditions must usually be present for a loan |
| on the market | | | | modification to be viable: There has been a |
| 2) The homeowner sells the home in a conventional | | | | HARDSHIP that has resulted in the inability of the |
| sale or a short sale and the home goes back on the | | | | homeowner to make the current mortgage payment |
| market | | | | or the increased payment that will result from an |
| 3) The lender modifies the loan so the homeowner | | | | adjustment in the interest rate. When assessing |
| can make the payments and the home does not go | | | | whether or not a hardship exists, look for something |
| back on the market | | | | that has changed that has caused income to go down |
| Loan modifications are BY FAR the best solution for | | | | or expenses to go up such that the homeowner no |
| the lender, the homeowner, and the country in | | | | longer has the income to make the current or |
| situations were they can work. | | | | soon-to-be current payment. |
| So What Is A Loan Modification? | | | | The second condition that must usually be present is |
| A loan modification is a mutual agreement by the | | | | that there is not enough equity remaining to sell the |
| lender and the borrower change in the terms of the | | | | home and payoff the mortgage without the lender |
| loan. In the residential mortgage industry they are being | | | | agreeing to take less than is owed. |
| done on a large scale to allow homeowners to | | | | Thirdly, and most importantly, the homeowner must be |
| restructure the financing in order to avoid losing their | | | | able to provide documentation showing that they can |
| homes. | | | | afford to make the proposed modified payment. |
| A true loan modification is a permanent solution that | | | | Because this is NOT a refinance, but rather a |
| serves the best interests of the investor who owns | | | | negotiation between the homeowner (or their |
| the loan as well as the homeowner. They result in a | | | | representative) and the lender, there are no published |
| reduction of the mortgage payment to a level that the | | | | guidelines. All income can be considered as long as it |
| homeowner can afford on an ongoing basis, and that | | | | can be documented. Common sense prevails in |
| will allow the homeowner to stay in their home. This is | | | | evaluating proposed loan modifications... remember, the |
| different from a repayment plan or forebearance | | | | lender does NOT want to take back the home. |
| which are typically short term solutions used to resolve | | | | For homeowners who can no longer make their |
| temporary problems. | | | | current mortgage payment but who CAN make a |
| Loan modifications do NOT require appraisals, credit | | | | lower payment, a loan modification can save their |
| reports, or title reports because they are simply | | | | home. For lenders with non-performing loans, loan |
| renegotiations of the terms on an existing Note... they | | | | modifications can be the fastest and least cost solution |
| are NOT a refinance. | | | | to working out that loan. And for the rest of us, each |
| A loan modification can consist of a reduction in the | | | | loan that is modified is one more house that is not |
| interest rate, a change from fully amortized to Interest | | | | added back into the inventory overhand, and therefore |
| Only payments for 5 to 7 years, an extension of the | | | | it puts us one house closer to the end of this crisis. |
| loan term, a reduction of the principal balance of the | | | | ©Doug C Jones Sept 20 2008 . Permission is |
| loan (this is rare), and a resolution of any arrearages | | | | hereby granted to repint this article provided the |
| (usually by adding them to the loan balance). | | | | resource box and active links are included. |
| There are 6 specific reasons why Loan Modifications | | | | |