Loan Modification

Most lenders will consider loan modification where most, or all of the delinquent payments and foreclosure fees are added onto the back end of the loan. Payments often can remain approximately the same. In some cases the interest rate may be reduced permanently.

 The objectives of both the lender and the borrower are the same. The goal is to design a payment schedule that ensures the borrower can afford to make their payments. This means being able to pay other necessary living expenses including; car payment(s), food and groceries, utilities, gasoline, insurance, child care, clothing, home maintenance, property taxes, etc.

 Qualification Requirements

 The need to alter a loan can be caused by many factors, including:

• • The borrower having less income than anticipated (i.e. reduction in salary or loss of job)

• • A family or medical hardship (i.e. illness or death in the family)

• • A scheduled change in loan structure that the borrower wasn’t aware of or didn’t anticipate (balloon payment, adjustable rate)

• • A decrease in the value of the property

 

Lenders will consider many of these types of issues a “hardship”, and are generally open to altering the payment terms of the loan, due to the borrower’s hardship.

Recapitalization Programs

 To address the back payment issues of borrowers, many lenders have designed “recapitalization” programs where outstanding payments are added to the principal balance of the loan, and the borrower goes back to a “current” status on the loan.

 Rate Reduction Programs

 Nearly all lenders will also consider rate reduction programs which can substantially reduce a borrower’s monthly payment amount. In order to lower the monthly payment, lenders frequently offer “rate reductions” which serve to reduce the amount the borrower pays monthly, by reducing the interest amount.

 Especially during the early years of a loan reduction schedule, nearly the entire payment is going to pay interest. If the interest is lower, the payment can be reduced accordingly. Today many lenders also offer “temporary rate reduction” programs in which the interest rate is reduced (often well below the market rate) for a period of time to allow the borrower to “get back on track.”

 Principal Reduction Programs

 Many loan modification companies and even attorneys are advertising that they can reduce principal on loans. This type of advertising is misleading. While it certainly is possible to reduce principal on a 2nd or 3rd mortgage, first mortgages are generally not eligible for principal reductions.

 Forbearance Programs

 A forbearance program is where the borrower pays at least 20% of their outstanding payments, plus foreclosure fees, in addition to their regular monthly mortgage payments. This causes the mortgage payment to actually increase during the term of the forbearance program. The balance of the delinquency will be added to their regular monthly payments over a short period of six to forty-eight months.

 Alternatively, a lender may “offer” to allow the borrower to catch up all back payments at once in a lump sum payment to the lender. In either scenario, forbearance programs do not typically stop foreclosure proceedings, forbearance programs simply “postpone” the foreclosure sale date.