Loan Modification - Current Advantage to Homeowners

More and more home owners are having difficulty keeping current on their mortgage(s), are upside down on their mortgage(s), owing more than the home is worth, or are facing possible foreclosure due to a financial hardship.  There are several options available to these home owners, but for those who qualify, getting a loan modification is the most advantageous option of all. With borrowers who qualify, banks will agree to modify the terms of the existing mortgage loan resulting in a new reduced monthly payment at a lower fixed rate of interest that the home owner can afford. The current advantages to the home owners are that they avoid foreclosure, keep their home while maintaining or rebuilding their credit. Mortgage lenders today are granting loan modifications in numbers never seen before in this country. The time has never been better for home owners to seek a loan modification.

A loan modification is a permanent change in the terms of an existing mortgage loan. The most common changes involve reducing the monthly payment, reduce the interest rate, converting an adjustable interest rate to a fixed interest rate, extending the repayment term and/or reducing the balance owed. With a loan modification, mortgage lenders will usually agree to forgive any late fees. Also, unlike with a refinance, with a loan modification there are no loan fees to the mortgage lender at all. The aim of a loan modification is to avoid foreclosure and make permanent changes to the existing mortgage(s) which are affordable by the homeowner.

The answer to this question is, quite simply, that it is cheaper for the mortgage lender in the long run. Banks are in the business of investing, borrowing, and lending money for profit. They are not in the business of repossessing homes from borrowers who have defaulted and in turn having to sell those homes at a discount in the open market.  With a foreclosure, lenders can lose money in three ways: they lose the income stream from the loan itself; they usually have to sell the house for less than the foreclosed borrower owed on the loan; and they incur hefty selling and administrative costs.  If a borrower qualifies for a modification, changing the terms of repayment of the loan, even if some principal is forgiven, would provide greater positive income to the lender than would a foreclosure. As home values have plummeted, many mortgage lenders have chosen to accommodate a borrower seeking a loan modification. It simply makes good business sense for all to avoid the alternative, a foreclosure (in CA also called a “trustee sale”).

Fortunately the White House has responded to the needs of the distressed home owner by initiating a number of federal programs to help homeowners avoid foreclosure and keep their home. In March of 2009, the US Treasury initiated the Making Home Affordable program and specifically the Home Affordable Modification Program (“HAMP”).  This innovative program provides financial incentives to lenders and loan servicers to work with borrowers to provide mortgage loan modifications subsidized by the US Treasury.  HAMP provides a uniform guideline for modifying mortgage loans on terms that result in a monthly payment that a borrower can afford (a payment including principal, interest, taxes, insurance and HOA dues close to 31% of their gross income).  In addition, for the first five years a homeowner remains current on their HAMP modified mortgage, the US Treasury will pay $1,000 annually to pay down the principal balance.  While not every distressed homeowner will qualify for a loan modification under HAMP, the program was originally expected to benefit between 3 – 4 million households.

In addition, Congress is now considering bankruptcy legislation that would grant a bankruptcy judge, in appropriate circumstances, the power to modify mortgage loans in bankruptcy, including the power to reduce principal to current fair market value. After intensive debate, a compromise was reached where, for the bankruptcy judge to have this power, the borrower must have first sought a loan modification prior to declaring bankruptcy. With the threat of a bankruptcy judge modifying a mortgage loan and reducing the principal on the loan, mortgage lenders can be expected to be more willing to work with home owners with distressed loans. As this legislation moves through Congress, this site will be updated accordingly.

If you live in California and are now having difficulties making your mortgage loan payments, or if you owe more on your mortgage loan than your house is worth, contact LMLC to discuss whether a loan modification might be the right choice for you. Whether or not you meet the HAMP eligibility requirements, Lenders and loan servicers are more willing than ever to work with borrowers to modify their existing mortgage loans. Unfortunately, borrowers who try to negotiate their own loan modifications have had a failure rate of over 80%. And because there is a short time frame for obtaining a loan modification before a foreclosure is actually completed, a borrower is wise to obtain experienced real estate legal assistance before his or her options run out. The Loan Modification Legal Center can help you avoid foreclosure and save your home.  After initially qualifying you a loan modification, we will aggressively work directly with your mortgage lender(s) to modify your existing mortgage loan and agree to new terms and a monthly payment that you can afford