Loan Modifications: Pros and Cons
Pros and cons of a mortgage loan modification
Mortgage loan modification defined- A loan modification is a permanent change in the terms of a mortgage. This is usually facilitated by the loss mitigation department of a lender or company when the homeowner (borrower) has fallen behind on their monthly mortgage payments. The loan modification of mortgages is a large part of the current stimulus package being advertised by the Administration as a way to help homeowners get back on their feet. The mortgage modification will be handled by the current service department and does not require a new appraisal. There are no closing costs and consequently no closing cost will be charged.
The main reason homeowners request for a mortgage loan modification is to improve their current mortgage situation and the lender is not likely to grant a loan modification unless there is the realistic probability that the homeowner will be prepared to meet the mortgage obligations in the future.
Loan modification plans today are better regulated
Mortgage loan modifications in the past have not been carefully structured by loss mitigation departments and companies and have unfortunately resulted in re-defaults by several homeowners and borrowers within a short period of time. Current guidelines today are now carefully managed and the occurrence of re-defaults have been drastically minimized.
What to expect from a loan modification
- Interest rates may be lowered
- The balance on the loan can be adjusted if it is determined that the outstanding balance exceeds the existing value of the home
- Mortgage rates will most likely be converted to a fixed rate rather than a variable rate
- A combination of the above things can be done in order to reach a reasonable payment based on the financial situation of the borrower
- The loan term can be modified to a longer term to allow a longer repayment plan
During a mortgage loan modification, lenders or service companies are paid a fee to process a mortgage loan modification. The homeowner (borrower) should expect to provide documentation of their finances and prove that they have the ability to maintain the new proposed mortgage payments.
Avoid foreclosure scams
Homeowners, be careful of services which offer mortgage loan modification. You should not provide up front fees for loan modifications. Nor is it necessary to sign a power of attorney or give over your deed to your home in order to get this done. If you ever feel the need to seek professional help, remember to understand the contract terms before signing. Seek government licensed and bonded companies.
Remember and take note that no lender or loan modification companies can guarantee a loan modification. Loan modification is a service that can be requested, but results can not be demanded.
