Loan Modification

Loan Modification is fast becoming a buzz word heard on the news and other related entities.  The fact of the matter is it has been around as long as mortgage and it really is under the umbrella of Loss Mitigation Services. 

When borrowers have been misled and put into a fraudulent mortgage, an attorney would take recourse in correcting these RESPA and TILA violations.  Today, due to the credit crunch, we have encountered another new phenomenon in which borrowers we not mislead per say, but due to adjusting rates and declining home values clients are stuck in situations that ultimately lead to foreclosure. 

Clients are truly experiencing hardships due to market conditions.  Many attorneys and brokers have started to loss mitigate the situations trying to find fraud in a loan and leveraging a law suite against a bank to modify the existing loan.  This may work but does not seem ethical and on many stated loans, the borrower may be the one that overstated the income in the first place.  There is hope. 

Some quality companies have developed a business model designed to help you stay in your home and help banks keep a paying asset on the books.  It's a win-win and nobody gets sued. In fact, the bank can say no to the potential agreed upon terms, and the client can as well. The goal is to find a common fit based on cash flow.  The last thing a k\lender wants to see is a loan get modified twice.

Ways to modify an existing note are:

1. Reduce Principle
2. Fix Rate
3. Reduce Rate
4. Extend Terms
5. Fix Terms

It is important you understand the difference is a forbearance agreement.  The banks may try to offer a forbearance agreement to lower your payments, but adding the difference to your existing loan balance. This technically is not a loan modification and may not help in a long term solutions.  

Helpful Links:

Learn About the Mortgage Forgiveness Debt Relief Act

Freddie Mac Pushes Out Foreclosure Guidelines

New York Times: Housing Lenders Fear Bigger Wave of Loan Defaults