What Is A Loan Modification?
So what is a loan modification anyway?
And more importantly, who qualifies for one?
You’re going to be hearing this phrase “loan modification” a lot more for the foreseeable future, as close to 40 percent of all U.S. homeowners currently owe more on their home than the current value, and are simply drowning in their mortgage payment.
And while many analysts have predicted that we may have now seen the bottom of the housing values slide, no one is saying when — or even if — these values will start to witness an upswing.
So very simply, a loan modification (also known as a mortgage modification) is this:
A process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower.
When a borrower (homeowner) is having difficulty making their mortgage payment, they can approach their bank to request a restructuring of the terms of the loan. This can result in changes to the rate, terms, monthly payment amounts, sometimes even a reduction in principal. And all either temporarily, or for the life of the loan.
Technically, any loan can be modified, but not all loans WILL be modified.
In reality, WHO qualifies for a loan modification, and WHY, not to mention HOW, is another story.
The general implication is that one’s monthly mortgage payment should be no more than 31 percent of their gross monthly income. When it’s higher than that (as the majority of today’s mortgage’s in America seemingly are), one could perhaps be eligible for a loan modification. These are individuals are sometimes deemed at a “higher risk” to default on a mortgage.
Combine this with a homeowner who also has a mortgage balance higher than the current market value of their home, and you’ve got a “perfect storm” brewing.
The first thing a struggling homeowner needs to do is learn what the potential outcome for their bank would be under a modification versus a foreclosure (net present value analysis), then find out if they can qualify for a HAMP loan modification.
HAMP is the Federal Home Affordable Modification Program, which is aimed at helping millions of homeowners at risk of foreclosure by working with their lenders to lower monthly mortgage payments. This program is now looked upon as the industry standard practice for lenders to analyze potential modification applicants.
Once this is determined, and if a homeowner does indeed qualify, then it’s simply a matter of proceeding with this HAMP restructuring.
But if a homeowner does not qualify for HAMP, then an “in-house” modification can sometimes be worked out between a homeowner and their lender.
In this case, a homeowner must be armed with the NPV of their home, as well as other information as to their rights regarding the ability to restructure their loan with their lender.
Self-guided loan modification programs — which allow a homeowner to negotiate with a bank directly, rather than pay expensive attorney fees — are becoming quite popular and effective.
So what’s in it for your lender?
Gone are the days when the banks ruled with an iron fist. They realize many homeowners are dangerously close to defaulting on their mortgage, and the last thing they want to do is enter the real estate business and have to deal with selling your home should you default.
Homeowners are becoming educated to loan modifications, and banks are witnessing this. It’s important to note that sometimes, negotiating a restructuring with a borrower is better business for the banks (in pure dollars and cents). Other times, the bank is simply better off foreclosing on the home. This is a harsh reality, but one that homeowners must know it order to make better decisions.
Remember, banks are businesses. They are loyal to their shareholders first, not their customers.
Arm yourself with the confidence and knowledge you need to stand up to your bank and demand they work with you. The results may surprise you.
Rebound Credit Solutions, Inc., has developed an acclaimed self-guided Loan Modification Product which allows consumers to educate themselves at their own pace and implement a plan of action in order to successfully negotiate more favorable and equitable mortgage terms with their bank. Rebound’s management team brings more than 50 years of combined high-profile experience in finance, investments, consumer credit and debt. To date, the components of this revolutionary product have helped countless Americans to indeed live the Great American Dream. Rebound’s motto of “Trust & Simplicity” encompasses a philosophy of helping to empower consumers with reliable, effective, and easy to use and understand materials to successfully chart a course to financial freedom. For more information, visit www.reboundsolutionsinc.com or call (888) 6-REBOUND (888-673-2686).
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