Preparing for a Loan Modification - Loan Modification Advice
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Much of the confusion surrounding home loan modifications comes not from the process itself but all the issues which arise before the process begins. Issues such as qualifications required for a home loan modification, what can be sorted out by a loan modification, and whether a home owner should go it alone or hire a professional to negotiate the terms of the modification have been argued across the internet, television, radio, and in print. Prior to initiating a loan modification a homeowner should find the answers to the following questions:
* Who qualifies for a loan modification? The homeowners that loan modifications are designed for can demonstrate a verifiable financial hardship such as a job loss, a change in income, a divorce, an illness, or an increase in their mortgage payment due to a reset of interest rates or a recast. The homeowner must also be able to demonstrate that he or she will be able to make payments on the modified terms of the mortgage. Lenders will not consider modifying a loan unless the homeowner can afford to make the new payments. If homeowner is current, and paying on time, he or she can still get a modification if an upcoming reset or recast is going to push the payment beyond the reach of the homeowner’s ability to pay.
* Should I do this on my own? Loan modifications can be done directly between the homeowner and the lender or servicer. There is loads of free information at HUD’s website and through the department of real estate in the homeowner’s state of residence. The difference between “can” and “should” is huge one however.
* Should a homeowner sign up with a company that “specializes” in loan modifications? As mortgages go further into delinquency, homeowners are often contacted by individuals or companies offering to help them avoid foreclosure with a loan modification. In California, however, state law only allows attorneys providing services in the course of legal practice to accept fees upfront if a notice of default has been recorded against the property. This is true in most states. While there are many good companies helping homeowners, the loan modification industry is full of “bad actors” using deceptive practices to separate desperate homeowners from their money with last minute offers to help them save their homes. Exaggerated claims of success are common while little is delivered putting homeowners in an even more precarious position. If there has not been a notice of default filed, a licensed real estate broker can assist with a loan modification and ask for payment in advance for their services. Be warned, however, that many of these brokers were the same ones selling toxic subprimes and that their interest is much higher in a commission check than working out the solution for a homeowner’s problem. Additionally, they must have the homeowner sign a contract that details what services they are performing, their schedule, and the fees paid by the homeowner.
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br />* How can an attorney add value to the process? An experienced attorney can look for predatory loan conditions which can be used to negotiate with the lender, but what an experienced loan modification attorney brings to every loan modification is negotiating experience and what can be negotiated on each mortgage with each lender. Part of that negotiation is making the loan modification look like a win for sides where the lender saves more money by changing terms than by foreclosing on the property and the homeowner wins by being able to stay in the property. Most lawyers prepare their presentation to highlight the benefits for both the homeowner and the lender.
* What can be negotiated with the lender? Technically there are several outcomes of a loan modification but only a few actually benefit the homeowner. Some of these changes, included in the definition of what a loan modification is do not provide long term relief to the homeowner and have played a role in the high re-default rate on early loan modifications. Included in the short term relief solutions are; a reinstatement where the lender agrees to let the borrower pay the total amount they are behind, in a lump sum payment and by a specific date. These are often combined with forbearance when the homeowner can show that funds in the form of a bonus, tax refund, or other source will become available at a specific time in the future. The second bit of assistance is called forbearance. This occurs when lenders offer a temporary reduction or suspension of mortgage payments while the homeowners get back on track. Forbearance is often combined with a reinstatement or a repayment plan to pay off the missed or reduced mortgage payments depending on the surrounding circumstances. Considered a loan modification but of essentially no assistance to homeowners are repayment plans. These give homeowners a schedule to repay the amount they are behind by combining a portion of what is past due with the regular monthly payment. Needless to say, struggling homeowners see their payments go up instead of down. The most beneficial changes which can be negotiated are terms of the loan which decreases the monthly payment. This is the type of relief sought after by most homeowners in trouble on the home loans. The terms which are usually negotiated in a loan modification agreement are a lower interest rate, an extension of the maturity of the loan, changing from an adjustable rate loan to a fixed rate loan, and reductions in the principle amount owed on the loan.
One of the other great benefits of hiring an attorney is their ability to cut through the red tape often encountered by homeowners trying to modify their loans on their own. If you are in need of a loan modification, educate yourself as much as possible. During that education you’ll see the difficulties that people are having doing their own modifications.
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About the author
The Feldman Law Center has negotiated hundreds of attorney driven positive outcomes for their clients. Call them today at (800) 527 8497 for loan modification assistance and loan modification advice. |
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