Loan Modification Q&A
These are the most frequently asked questions and answers involving the Loan Modification process. If you don't see the question you need answered... Contact Us!
Who qualifies for a loan modification?
How will you know if you can qualify for a loan modification? Many of the banks are doing a lot more to help with all the homeowners out with the current real estate market.
Many responsible homeowners are now finding themselves in difficult financial situations because of unemployment or some other hardship. Some of the qualifications in addition to unemployment that establish a justifiable hardship include income reductions, furloughs, death in the family, divorce, etc. Banks now are even looking at hardships proactively.
Will a loan modification affect my credit?
The quick answer is “No”, assuming you haven’t missed any payments, however if you have then yes, your credit will be afftected. As long as you can prove a hardship or that you are making payments with your credit cards or establish a hardship and the likelihood of losing your home do to extenuating circumstance, then your bank will want to work with you. Be prepared to submit a detailed hardship letter, current financials, and proof of income. Certified Mitigation can help you get this ready for you and help guide you through the process.
What will I be getting with a loan modification?
Loan Modification Expectations:
- A general principal reduction
- A temporary interest rate reduction
- A permanent interest rate reduction
- Have all the delinquent payments moved to the back of the loan – forbearance
- Delete any derogatory marks on credit from lender
- Remove all late fees or other bank instituted fees.
Is a Loan Modification For Me?
Usually a loan modification is a good solution for a property owner if the property owner has a steady source of income, can keep paying if the mortgage is reduced and wants to stay at the property.
Do I qualify for a loan modification?
To qualify for loan modification, the property owner must have enough steady income to keep up with the mortgage if the payments are reduced.
Do I necessarily need to be in default to modify my loan?
No. Loan modifications can be negotiated for properties in default and current in payments.
What is forbearance?
Forbearance is a voluntary postponement of the foreclosure process by the creditor. Often the creditor refrains from foreclosing in exchange for the homeowner paying part of the arrears in default. The other part of the arrears are “thrown into the back end” of the loan. Typically there is no change in the monthly payment amount. Creditors typically attempt forbearance before accepting a loan modification. Property owners often confuse forbearance as being the same as loan modification.
How are Loan Modifications Negotiated?
The best and most successful loan modifications are negotiated by expert facilitators and/or attorneys. In the most common arrangements, a third party firm represents a property owner to make the case that the loan should be re-structured such that the property owner can keep up with the mortgage payment. These experts provide the needed evidence. The facilitator assists the property owner in gathering the needed documents.
Can a property owner negotiate his or her own loan modifications?
Yes! Homeowners can definitely negotiate their own loan modification. However, most property owners don’t have the expertise, time and instruments to effectively negotiate an advantageous loan modification.
What are the advantages of a facilitator-based loan modification?
- Uses the judicial system in your favor
- Takes advantage of consumer protection laws
- Experience
- Efficient
- Faster
- Systematic approach
- Has team in place
- Objective view of the situation
- Creditors respond better when they hear the word "attorney"
What makes a loan modification proposal acceptable to the lenders?
For a loan modification to be acceptable by the creditors, the property owner needs to show two main facts:
- Evident hardship and inability to keep making mortgage payments at the current rate.
- Demonstrated ability to continue paying if mortgage payments are reduced.
What is better: A refi or a loan modification?
Loan modifications and refinances are entirely different animals. One is not better than the other.
- In a refinance, a new mortgage is created and the existing mortgage is paid off.
- In a loan modification, an existing loan is re-structured such that payments are more affordable.
What is important is to select the right option based on the existing situation. Both refinances and modifications have advantages and disadvantages.
How long does it take?
Loan modifications take between 50 to 80 days to negotiate. There are two main time variables:
- Speed at which the client can collect the needed documents.
- The lender’s final response time
In loan modifications time is of the essence. It is critical to act as quickly as possible for two reasons:
- If you are behind in payments, the longer it takes, the more arrears and legal fees will accrue.
- If you are up-to-date in payments, the longer you will have to keep paying the high monthly mortgage fees.
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