Loan Modification

Loan Modification attempts to protect the Lender's interest and keep the Homeowner in their home. The agreement to Modify a Loan can be permanent or temporary depending of what is agreed upon and can also include promises of future equity or to pay more at a later time. Often is just to allow Alternative Payment Options with your Lender or to facilitate the sale of the property without going through Foreclosure. The key to determining your likelihood for success would be to properly estimate all parties involved motivation, having something of value to offer other side, know what it is that you want and being able to justify (document) the outcome.

 

What are the possible results of doing loan modification?

• Lowering the monthly payment
• Converting loan to a fixed rate
• Change in interest rate
• Adjusting the length of the loan
• Deferring interest/fees
• Deferring portion of principal balance
• 2nd mortgage for the negative equity
• Reducing the principal balance

What motivation a Bank has to work with a Homeowner?

• Property has negative equity (Current Value less 20% less amount owed)
• Foreclosure process is expensive
• Political pressure to not foreclose on properties
• Bank Investor Pressure (to loose less money)
• Future stability of Bank (Percent of loans gone bad)
• Cost of Loan Modification compared to Foreclosure
• REO Inventory is high (Bank owned properties)
• Avoid risk of Predatory Lending suit

Banks have plenty of motivation to do a Loan Modification, the issue is their ability or willingness to make a decision.

What you, the Homeowner has to offer the Bank?

• Documented ability to pay on new terms
• Retaining a loan instead of going through a Foreclosure
• Ability to avoid significant loss
• Offer of deferred payment (balloon)
• Offer of share in future equity.
• Additional Promissory Note (paid at later date)