What is a Loan Modification?
Loan Modification is when the lender agrees to either permanently or temporarily modify the terms of your loan. As a result of creative financing, many homeowners are faced with ARMS, Interest Only loans and high interest rate second mortgages. These loan products can significantly increase the chances the homeowner will go into DEFAULT (especially when the loan terms change).
Loan Modification Scam
As a result of this scam, many lenders modify payment terms and interest rates in order to make the loans more affordable. The process for Loan Modification is not always an easy one. The lender may make you "jump through several hoops" before it agrees or entertains Loan Modification. You must put your request for Loan Modification in writing to your lender. Currently, lenders are swamped with Loan Modification requests since media outlets have advised homeowners of this option. Loan Modification may involve signing new documents and these documents could seek to take away important legal protections. In the event that you are approved for Loan Modification, consider hiring an attorney for a full review and explanation of your Loan Modification terms.
See the section on Obama’s Making Home Affordable Program Example of a Loan Modification.
Loan Modification Example
You have a loan that is $200,000.00 with a 7.7% Adjustable Rate Mortgage. In two months, the ARM will re-set to approximately 9% in interest. You can afford your mortgage at the 7.7% interest rate, but cannot afford the 9% interest rate. You call your lender to explain to them and offer proof as to why you cannot afford the new 9% interest rate. Your lender evaluates your financial situation and decides that you can afford your mortgage at 7.7% interest. Your lender agrees to have you execute a new note for 30 years fixed at 7.7% interest. Viola! Your loan was modified.
Loan Modification