Foreclosure Alternatives: Mortgage Loan Modification
A Loan Modification is a change to one or more of the terms of a loan. For example, this could take the form of a lower interest rate, as in going from 7.5% to 5.5%. Or, it could involve extending the term of the loan, as in going from a 30 year term to a 40 year term. Whatever the case may be, the goal is to reduce the mortgage payment to one that the homeowner can manage and allow them to maintain ownership of their home. In many cases, the lender seeks to reduce the mortgage payment to 31% of the homeowner’s before tax income. For example, if you are making $5,000 each month – the terms of your loan would be modified so that your mortgage payment does not exceed $1,550 each month.
To obtain a Loan Modification, the homeowner must exhibit a verifiable hardship that makes it impossible for them to make the payments on the current terms of their mortgage. The hardship could be one or more of many things such as job loss, illness, death, payment increase due to interest rate adjustment, etc. Much like when the homeowner applied for their mortgage, they will apply for the modification and supply the lender with needed documentation to substantiate their case for the need of a loan modification.
Once initially approved, the lender will place the homeowner on a trial modification (trials periods can range from 3-6 months) in which the homeowner will have their payment reduced and will have to exhibit that they will be able to make the payment. After the successful completion of the trial period the modification will be fully reviewed and either granted or denied.
This was a brief overview of what a Loan Modification is and the process involved. If you would like to pursue a Loan Modification, I urge you to do some research. As always, I am here to help you with alternatives to foreclosure at phone: 703-403-0536 or email: patrick@patrickduffyrealtor.com.
Links:
Forum with over 20,ooo members, sharing their loan modification stories (successes and failures) – http://www.loansafe.org
Information about President Obama’s loan modification plan – http://www.usnews.com/money/personal-finance/real-estate/articles/2009/03/04/obamas-loan-modification-plan-7-things-you-need-to-know.html
Making Home Affordable Homepage – http://makinghomeaffordable.gov
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Foreclosures and Short Sales | Patrick Duffy November 19, 2009
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