Loan modification consists of working with your current lender to change the terms of you exiting mortgage from terms that are not affordable to terms that ar now affordable. It will simply change the terms of the mortgage that you currently have, instead of applying for a second mortgage.
The Obama administration has recently come out with a new loan modification program aimed at helping struggling home owners stay in their homes. It is specifically aimed at home equity loan products. The program offers financial incentives to those banks that can successfully modify bad loans. This is in hope of alleviating the weight of second mortgages.
To qualify for a loan modification, you need to be experiencing financial hardship but have not yet filed for bankruptcy. You should also own the property in question and it should be your primary residence. The idea is to protect you from further hardship by lowering the interest rate based on your debt ratio and overdue principal.
You can start applying for a loan modification on your home mortgage if you have become more than ninety days delinquent. However, you can not purposely default on your mortgage just to get a loan modification. The lender would be requiring a documentation of your financial hardship before they can start working with you.
Be prepared for a high level of frustration when trying to navigate the loan modification process. First you have to find out the servicer or lender that currently has your home mortgage. In this economic condition, mortgages are often bought and sold. Search for your current lender at your mortgage coupon book or statement. Then, call the lender to verify if they really have your mortgage.
Lenders have different programs as well as different criteria for deciding who qualifies and who doesn’t. But all of them are relying on similar factors to grant an approval for loan modification. You should be able to prove that you’ve made all efforts to meet your mortgage payments and you should be able to demonstrate your capability to make the modified payment scheme.
Writing a letter of hardship will be one of the first things you will need to do in order to get the bank to understand why you are struggling financially. Gather documents of your current income and financial situation to prove your ability to make the modified loan payments. You may also need to submit a detailed monthly expense report.
Bank have a vested interest in performing modifications because the foreclosure process is long and costly. Banks would rather grant a loan modification than letting their borrowers default on the whole mortgage. This makes a perfect business sense to the financial institutions and the best alternative for you as a homeowner.
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