Qualifying for a Loan Modification

Many experiencing a hike in their monthly mortgage payments are seeking ways to obtain a loan modification through their mortgage lender, in which the Treasury and FDIC are huge backers.

Since banks do not want to retain ownership of many homes with failing mortgages, they are becoming more open to modifying loans. So what is a loan modification?

A loan modification is where the lender and borrower agree on new terms of the loan and the loan is restructured so that the homeowner avoids losing the property.

A true loan modification is a good permanent solution to help the homeowner afford the mortgage on an ongoing basis and help them stay in their home.  It is different than a repayment plan or foreberance which are typical short term solutions “band-aid” temporary solutions.

The loan modification could include a reduction in interest rate, a change from a fully amortized Interest Only payment for 5 to 7 years with an extension of the loan term, or a reduction in principal balance (which can be rare).  The modification does not require an apprasial, title reports or credit reports and are simply a way to renegotiate the terms on the note without doing a refinance.

Loan modification offer quite a number of positive solutions to these difficult times by keeping families in homes, the house off the market and can be done quickly.

But who qualifies for a loan modification?

A loan modification is a viable solution if there is a hardship that left the homeowner unwilling to make the current mortgage payment or an increase in payment due to an ARM will make it difficult for the homeowner to pay.  There also needs to not be enough equity in the home to sell it and payoff the mortgage without the lender agreeing to take less on the mortgage.  Finally, the homeowner must prove they can afford the modified payment.