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Loan Modifications

Loan Modifications    Loan modifications seem to be what every homeowner wants today.  You can't avoid the constant advertising for loan modification programs promising you they can get your loan modified.  Every week, it seems like the government or the various lenders announce a new loan modification program and proclaim that the lenders will now work with homeowners. Unfortunately, reality has not kept up with the hype. The reason why these new programs are continually announced and touted is because the prior programs didn't work.  The lenders keep announcing they will now work with homeowners because, in fact, they continue to be extremely difficult to deal with.  The other harsh reality, according to the the federal government, is most loan modifications end up in default within the first six months following the modification.  Why is this?  Simply because many of the loan modifications do not significantly improve the terms of the loan to make a long term difference to the homeowner.  Because lenders refuse to reduce the principal amount owed and interest rates are already low, the new monthly payment may not be significantly lower and can actually be higher than before the modification! Can a loan modification be obtained form a lender?  Can a loan modification improve a homeowners situation?  In some situations you can obtain a loan modification from your lender that will significantly improve your position.  The first trick to qualifying for a loan modification is that if you make too much money they will have no incentive to modify your loan, yet if you make too little income, they will not modify your loan because you will not be able to make the loan payment.  Even if they will modify your loan you have to carefully look at the terms of the modification to determine you are really better off with the modification.    A loan modification is designed for borrowers who cannot afford a repayment plan.  The lender may agree to permanently change one or more terms of an already existing mortgage resulting in a new payment the borrower can afford.  The lender can extend the length of the time the borrower has to pay the loan back, may lower the interest rate of the mortgage to reduce the monthly payment, change the interest rate from an adjustable rate to a fixed rate, or roll the past due amount into the loan and re-amortize the new balance so the borrower has additional time to pay back the mortgage debt.   For more information regarding Loan Modifications, click here.   The Hidden Trap Many companies are making promises they can't keep to induce the unwary into paying too much for a loan modification that they either will not obtain or that will not significantly improve their position. Make sure that you know who you are dealing with, that they are knowledgeable, trustworthy and will stand behind their service.

Repayment Plan

Repayment Plan For those borrowers who do not have the ability to come up with a lump sum payment, another alternative would be a repayment plan.  A repayment plan consists of a program where the borrower agrees to pay part of the delinquency each month to the lender for a period of time, together with the borrower’s regular monthly installment.  For more information on Repayment Plans, click here.

Forbearance

Forbearance lender may agree to delay or reduce the payments for a period of time with the understanding that another option will subsequently be used (such as a repayment plan or loan modification) at the end of the time period allowed to bring the borrower’s account to a current status. For more information on Forebearance, click here. Loan Modifications   Partial Claim (for FHA loans only)  A lender, working together with the Department of Housing and Urban Development (HUD) may be able to assist a borrower with a one-time payment from the FHA insurance fund.  Under a partial claim, a borrower will be required to sign a new promissory note in favor of HUD and HUD will place a lien on the borrower’s property.  The HUD loan will be interest free, will immediately make the borrower’s delinquency current, and will be due when the borrower either sells or leaves the property or when the original loan is paid off.  For more information on Partial Claims, click here. Deed-In-Lieu Deed-in-Lieu of Foreclosure:    A deed-in-lieu of foreclosure can be beneficial to both the borrower and the lender.  The primary advantage for the borrower is that a deed to the lender will immediately release the borrower from most or all of the personal indebtedness of the loan in default and it may also save the borrower from the shame and humiliation of the foreclosure process.  A voluntary conveyance to the lender also allows the lender to take possession of the property right away instead of waiting for the redemption period to end following the foreclosure sale.  Most lenders will not accept a deed-in-lieu of foreclosure if there are any other liens on the property besides that of the lender.    For more information on Deed-in-Lieu's, click here.   The Hidden Trap Many people believe that giving the lender a deed-in-lieu of foreclosure will avoid having a foreclosure on their record and/or avoid having to deal with a potential tax issue of forgiven debt. Unfortunately, a deed-in-lieu does not necessarily mean that you will avoid either consequence. Often the lender will still report a foreclosure and will write-off the debt in excess of what they can sell the property for. So while giving a deed-in-lieu of foreclosure at times can be the right solution for the homeowner, make sure that you are not doing so for the wrong reasons.   Bankruptcy Bankruptcy While this option may have been popular in the past, the new bankruptcy laws make the process much more difficult in the present.  Filing for bankruptcy may not relieve the borrower from the obligation to repay the mortgage and may not prevent the foreclosure from proceeding.  Generally, when a borrower files bankruptcy prior to the Sheriff’s foreclosure sale the lender must seek relief from the automatic stay.  If a borrower files for bankruptcy after the Sheriff’s sale and during the redemption period, the right of the borrower to redeem the mortgage is extended for 60 days.  Filing for bankruptcy will generally preclude a lender from modifying a mortgage or approving a short sale.  For more information on Bankruptcy, Click Here.   The Hidden Trap Timing is everything in bankruptcy. Filing bankruptcy has a ripply effect on every other part of your plan to move forward so you must make sure that all of the consequences of the bankruptcy has been thought through and a determination hs been made as to the timing of the bankruptcy so that you do not unintentionally adversely affect another part of your over-all plan.     To Return to No Home Equity Flow Chart To Return to Home With Equity Flow Chart