Loan Modification Defined
A loan modification is a process between the mortgage lender and the homeowner (mortgage holder) whereby the current mortgage agreement is renegotiated. The old mortgage contract is nullified by this process, and both the lender and borrower are bound by the terms in the new contract.
Modifications commonly, but not exclusively, consist of the following changes or combinations of them:
• Reduction in the interest rate paid
• Reduction in the total principal amount owed
• Fixing to a set amount adjustable interest rate
• Increasing the total length of time of the loan to be paid over
• Forgiving fees or other penalties for missed or late payments
Video: Loan Modifications
Loan modifications are efforts by both the consumer and the lender to keep a mortgage loan out of default, and subsequent foreclosure on the home. They have been in use for decades as a way to protect both banks and consumers from bad loans. With a 71% increase in home foreclosures in the 3rd Quarter of 2008 over the previous year, the Federal Government is now taking notice. By injecting banks with money and offering consumers with bad loan terms or in danger of losing their homes, to modify their loans through loan modification, the government is looking to shore up shaky loans and the now in jeopardy banks who issued them. Bad loans are a two-sided problem, both dangerous to the borrower who can lose their home, but also for the banks too. Additionally when the banks fail, we all suffer either directly through our accounts held there, through our investments such as 401k’s, or by the general downturn in the markets.
Qualifying for a Loan Modification
Eligibility for a loan modification has always been a process between the borrower and the bank, with the bank making the final decision on whether or not they were willing to modify existing loan terms. Currently with the sub-prime mortgage crisis and foreclosures threatening both banks and the American economy in general, the Federal Government has forged alliances with the biggest mortgage lenders. Within these alliances, and the formation of the Hope Alliance, a new agency to oversee the loan modification process, the government has essentially streamlined the modification process for existing loans. Additionally the Federal Government has offered more guarantees to banks to protect them from these newly negotiated and modified loans should they also go into default.
The eligibility requirements differ somewhat from bank to bank, but all include the following minimum requirements:
• The home in question must be the primary residence, not a vacation or rental property
• Borrower must be in current on payments or no more than 2-3 months (bank dependant) behind on mortgages payments
• Borrower must not be in bankruptcy protection filing status already
• Home must not already be under impending sale for foreclosure
The Loan Modification Process
To start your own loan modification, follow these steps. Keep in mind there are laws currently under review by the Federal Government to streamline the process and offer borrower’s better options, so check with the government before negotiating your new loan contract with the bank directly.
Contact your lender (institution holding your current mortgage) and explain to them you are seeking to modify your current mortgage loan.
Contact a 3rd party loan Modification Company if you are not satisfied with your bank’s response or if they are unwilling to negotiate the terms of your current loans directly with you. They will moderate an agreement between you and your lender hassle free, for you. See the end of this page for a list of reputable 3rd party mortgage loan modifiers.
Video: Loan Modification and Foreclosure Prevention
Renegotiate your new loan on terms acceptable to you. Keep in mind the new monthly payment amount you will be responsible for and whether you can easily make this payment. Also be aware of any increases in overall length of your new loan and what this will mean to you over the life of your loan in terms of interest paid.
Sign your new loan contract, either with the 3rd party loan modification company or your lender. Make your payments on time for the duration of your mortgage.
What You Can Save
On average with a modified loan contract, you will see immediate monthly savings of 30-50% of your current payment. The average savings for modified loans in the U.S. currently is around $550.00 each month in mortgage payments.
Reputable 3rd Party Loan Modification Companies
Think Debt Relief
21410 N. 19th Avenue
Suite 210
Phoenix, AZ 85027
(877) 637- 1966
Mortgage Modification of America
P. O. Box 191
Dania Beach, FL 33004
(888) 999-1703
Champion Credit Loan Modification Division
405 Tarrytown Road
White Plains, NY 10607
(203) 971-8159
Federal Loan Modifications
6420 Wilshire Blvd.
Los Angeles, CA 90048
(877) 394-6873
Loan Modification
1503 S State Street
Chicago, IL 60605
(312) 526-3401
California Loan Modification
301 E Glenoaks Boulevard
Glendale, CA 91207
(818) 244-0446
Kern Loan Modification
1518 Mill Rock Way
Bakersfield, CA 93311
(661) 663-7231
National Loan Modification Service
20944 Sherman Way
Canoga Park, CA 91303
(818) 704-8801
US Loan Modification Agency
15641 Red Hill Ave, Ste 200
Tustin, CA 92780
(949) 885-7315
US Loan Modification Co
716 Hancock St
Quincy, MA 02170
(617) 934-4150