Ten Queries on the Loan Modification Process

The loan modification process is nothing new and has been in existence for decades and yet most homeowners don’t know half the truth about loan modification. The lack of proper knowledge about loan modification makes the process very confusing and frustrating for homeowners who are already occupied with the thought of losing their homes to foreclosure. To get the most out of loan modification, one must obtain as much information as possible to fully exploit all legal possibilities and also to avoid being tricked by scammers who only want to steal away their hard earned money. With the various programs intended towards bringing the economy out of the vortex of financial collapse many programs have been implemented to make guidelines and information about loan modification more widely available. Succeeding are 10 commonly asked questions about the loan modification process along with their answers.

1. What precisely is loan modification?

A loan modification is a long term permanent change in one or more of the terms of a borrower’s loan, thus the debt is restructured and results in payment terms the borrower is able to comply with.

2. Are late charges allowed to be included in the terms of the modified loan?

Per HUD, the accrued late charges should be waived by the lender and excluded from the would be modified loan agreement – such varies depending on the type of loan but it is advised that a borrower should request from his lender a complete breakdown and description of all the fees and penalties during the negotiations for loan modification.

3. How will the new government programs help me get a loan modification?

The Federal government has allocated $75 billion dollars to subsidize lenders and servicers who grant loan modification agreements to their borrowers who are at the brink of default or having their homes taken to foreclosure sales. This greatly encourages banks to engage in loan modification as they will now have a monetary incentive to tender help to qualified borrowers. In addition, homeowners who pay their new modified payments on time will be eligible to up to $5000 discount to their loan balance.

4. How do I know if I will qualify for a loan modification?

The most important criterion your lender will be looking for is your ability to make your payments based on the new terms after the loan is modified. To prove that you will be able to afford making the new payments you are required to show proof to your lender of your current financial capacity through receipts, financial statements, and other documents or records that may support your credit score.

5. Is current delinquency of payments needed to get loan modification?

It is greatly advised that borrowers contact their banks with the earliest signs of future financial difficulty, even if they are not yet delinquent on their payments. Most lenders today are entertaining applications from borrowers who are not currently delinquent but have proof that because of impending interest hikes will no longer be able to sustain making payments under the current loan terms.

6. What are acceptable situations for a borrower to be considered in hardship?

Each borrower may have his unique set of circumstances that brought about their delinquency in making their loan payments, but the reasons most banks accept in granting loan modification are divorce/separation, loss of income, death of spouse, co borrower or family member, illness, job relocation, military service, and others. A convincing hardship claim in your loan modification application is a very effective tool in pushing the success of your loan modification request.

7. Will a loan modification help stop foreclosure?

Preventing foreclosure is one of the primary goals of the loan modification process. The loan becomes current so foreclosure is brought to a stop. Just keep in mind though, that even after loan modification is completed, the saving on one’s home still lies primarily on the homeowner’s hands.

8. Can missed payments be added back into the new loan modification?

Arrears can be added back to the new loan balance at the option of the lender but will be spread over the new life of the loan in order for the new loan to become current.

9. Can a homeowner do represent himself on loan modification negotiations or should specialists be hired as representatives?

This is at the full discretion of the homeowner. Good loan modification specialists have the experience and skills to negotiate the best loan modification but will surely charge a fee for their services. Assess the cost-benefit results of hiring a company and decide. Just don’t forget that regardless of which you choose you should take the time to know all you can about the process of loan modification.

10. How should one start in getting his loan modified?

Know the loan modification process, your legal rights, and all available legal remedies prior to sending your application to your lender’s loss mitigation department.

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