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What is a loan Modification, who qualifies, and why the banks are allowing them?



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By : mike dunn    99 or more times read
Have you been hearing a lot about loan modifications? The term seems to pop up everywhere these days. But what really is a loan mod, and who can qualify for one? A loan modification is an agreement that is negotiated with your lender that changes the terms of your current loan. It can alter the characteristics of the loan term, rate, balance, and penalties.

Lenders can be willing to negotiate when you are facing financial difficulties and can not find other financing alternatives. You must be able to show your lender why it would be in their best interest to agree to a modification. A lender may be willing to reduce the interest rate, monthly payment or change other terms. It is important to understand that a loan modification is not reported to the credit agencies and will not have an adverse impact on your credit scores.

Today lets take a look at what characteristics the banks are looking for when reviewing your loss mitigation case with the lender. Every lender is different, so there is no exact science to determine if you truly qualify for a loan mod. Based on information we retained from the e-book Loan Mods done right, below is a list of potential reasons why the lenders will allow a loan modification.

  • Someone who no longer qualifies for a refinance
  • Someone currently in an adjustable rate mortgage (ARM)
  • Someone who is behind on their mortgage (it is always recommended to make all mortgage payments as agree when able)
  • Someone whose mortgage payments have become high
  • Someone who has experienced a hardship
  • Someone who is self employed during tough economic times
  • Someone who has no equity in their home or is “upside down”
  • Someone who is about to go into foreclosure

Are you one of these someone? The more of these categories that apply to you the better. The government is forcing the lenders to negotiate and modify Thousands of these loans, so they are picking and choosing who get a mod, and who doesn’t.

So why are the lenders doing this? With the housing market in total disarray, the lenders loosing money, and the economy on a huge downturn, the banks would rather modify your loan terms then take on another Foreclosure. Equity in homes has all but disappeared and in many area’s become negative, leaving homeowners upside down on their loans. Banks would rather reduce the payments and/or balance than foreclose on another property. The banks and lenders are not in the real-estate business, and they don’t want to start now. The fact that banks are willing to negotiate lower payments brings about this part of the real estate cycle known as “The Modification Period”.

Although extremely rare, during these periods, both the bank and the borrowers are deemed powerless. Both face tough times ahead and only as a team can the banks and borrowers pull out of this deep real-estate tailspin. They must work together to keep Americans in their homes but also to begin to turn this recession around. Loan modification often equates to immediate financial losses for our banking institutions, but the long term gain will well outweigh the short term loss.

By slowing future foreclosures through loan modifications, the banks will begin to firm up soft markets. This in turn will offer relief to the homeowner’s upside down on their loans. Slowing the foreclosure crisis right now is the first step to jump starting the housing markets again. So if you think you are a potential customer for a loan mod, the time to act is now!!! You can attempt a loan modification yourself, or you can hire a company. I did mine myself with the help of an e-book I bought online. It cost 20 bucks and saved me 200 bucks a month.
Mike Dunn is a Senior Wholesale Mortgage Executive who specializes in loan modifications. He is the author of loan mods done right. Mike has 14 years experience in Mortgage Lending, and has worked with Countrywide Home loans, Chase, CITI, and wells Fargo.

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