A Loan Modification can refer to any change in terms to an existing loan product. Typically there is substantial benefit to the borrower in the case of loan modification. There are many potential benefits such as a reduced monthly payment, an improved interest rate, an extension in duration, or a total revision of the original mortgage arrangement. Loan modification is not the same as debt consolidation or refinance of the mortgage. Loan modifications typically involve a long term restructuring of the loan agreement, and provide the following advantages:
- Loan modification can save your home.
- Loan modifications can halt foreclosure proceedings.
- Loan modification is an alternative to bankruptcy.
- Loan modification can create long-term stability in homeownership.
Federal loan modification programs such as Making Home Affordable are not the only programs available. Banks and private lenders also benefit from loan modifications, with distressed properties becoming cash producing assets. Lenders know that loan modifications increase their revenue, result in more reliable payments, decrease foreclosures and maintain value in the housing market.
In order for a loan modification to be successful, the homeowner must document the hardships that they have faced in recent months or years when they have been unable to pay their mortgage. There are many factors and situations that can result in financial hardship, especially in the volatile economy of today. Potential financial hardships resulting in loan modification include:
- Loss of Employment
- Loss of Income through Investment Failure
- Medical Issues Such as Trauma or Disease
- Deaths in the Family or Immediate Social Circle
- Separation and Divorce
- Predatory Lending Practices
- Increase in Family Size
- Force Majeure
Most banks operate a mitigation department with clearly defined policies for potential loan modifications. Foreclosures are expensive, and no lender wants to foreclose when there are other options on the table. With the many government incentives and loan modification programs available, there are many better options than foreclosure. As long as you are still making monthly payments to the loan, most lenders will work hard to prevent foreclosure. Collecting a reduced monthly payment makes better financial success than receiving no payment in a foreclosure. This also saves the bank the expenses associated with maintaining a bank-owned property. In nearly every situation, it makes sense for the bank to renegotiate.
There is room for some negotiation and creativity when it comes to loan modification. The winning strategy is based on the ratio of income versus expense. You must first prove that you cannot afford your current loan agreement. However, you must also be a qualified borrower at the better terms. While economic hardship has prevented you from paying the full amount, your income is still strong enough to cover a substantial monthly payment. In order to get the assistance of the bank in agreeing to a loan modification, the homeowner must prove an economic hardship, as well as substantial income. Simply contact a loan modification specialist today to understand the strategic ratio of income to expenses, and learn about your options.
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