Loan Modification Information
News- The numbers released from the Obama
administration show that only 66,000 final modifications
have been completed nationwide through the end of last year
for all lenders under the Obama Making Homes Affordable
Plan. The good news is that that number doubled in the
month of December from 33,000, so it is taking time, but
lenders are starting to implement final modifications.
Loan Modification Process
A loan modification is where your lender agrees to change
the terms of your existing loan.
It is just one of several Foreclosure Alternatives. It is
similar to a refinance, but does not involve a new lender or
loan and typically involves a reduction in the interest rate
on your existing loan, an extension of the length of the
term of the loan, a different type of loan or any
combination of the three. A lender might be open to
modifying a loan because the cost of doing so is less than
the cost of default. In addition, the current federal
programs, including HOPE for Homeowners and the Homeowner
Affordability Plan give lenders incentives for modifying
existing mortgages to keep people in their homes. Some of
the results are:
* Reduced interest rate to lower payments
* Extend loan from 30 years to 40 years to lower payments
* Temporary avoidance of monthly payments
* Reduction of principal
Each lender has its own criteria for eligibility for a loan
modification and the terms of the modified loan often vary
by lender as well. There is no federal or state
law in California that forces a lender to give a
modification to a homeowner. It is a voluntary
agreement; however, the federal government has offered
incentives to lenders to enter into loan modifications.
The most important point about a loan modification is that
the lender will be unlikely to agree to a modification
without evidence to show that the borrower will be able to
make the future payments. Often if there are violations of
laws, such as the Truth in Lending Act (TILA) or the Real
Estate Settlement Procedures Act (RESPA) that occurred
during your loan process, those might be used in
negotiations. If the lender violated these federal laws, the
lender could be sued for all principal and interest paid
during the life of your loan and other damages; however,
these lawsuits can be time consuming, costly, and are
difficult to win.
