How Does a Loan Modification Work

Modifications are available for different types of home loans.
Modifications are available for different types of home loans.

How does a loan modification work? A modification may help you avoid foreclosure when financial difficulties arise and can save you money compared to a traditional refinance. In this LoveToKnow interview, Brian Suder, Mortgage Expert, explains what you need to know about mortgage loan modifications.

How does a loan modification work?

A mortgage loan modification is the process of restructuring your current mortgage into a mortgage that is more affordable. This means that the terms of the loan change, but the lender remains the same. Modifications to your mortgage generally involve the reduction of your interest rate to make the monthly payments more affordable. In many cases, a modification is the only way for homeowners who are unable to refinance their homes to avoid default or foreclosure.

Are mortgage loan modifications designed for people who are in financial trouble?

Loan modifications are generally used by people in financial trouble who are having problems keeping up with their loan payments. However, there are plenty of examples of homeowners who are keeping up to date on their loans, but are what's called "underwater." This means that the amount owed on their home exceeds the value of the home. In this case, a forensic loan audit may be required in order for your loss mitigation specialist to confirm that the original terms, submission, and lending guidelines were all compliant at the time the loan was first processed. If the audit reveals errors in the original loan, a loan modification will then be used to correct the situation.

What is the most common result of a modification?

The most common result of a modification is a temporary interest rate reduction, saving the homeowner money each month. However, the term temporary sounds as if this reduction is short lived, and that's not necessarily the case. Interest rates can be reduced for years, if homeowners work with an experienced loss mitigation company.

How can homeowners avoid loan modification scams?

Unfortunately there are modification scams, so homeowners need to conduct due diligence into the company they select to help them modify their mortgages. Warning signs of scams include a "guarantee" that the loan will be successfully modified. There is never any guarantee at the beginning of the process that a loan can be modified. Other warning signs may include phone calls from modification companies claiming to be working as an employee of your lender. Loss mitigation companies are independent that are not employed by your lender.

To make sure that you're working with an ethical and experienced company confirm transparency of the company.

  • Does the company have a professional website?
  • Can testimonials from clients be provided?
  • Is the company a member of any professional associations, such as the United Loss Mitigation Association or The Home Loan Modification Association of Companies?

Confirming these items can allow you to feel comfortable that the company is qualified to assist you.

What is the process for requesting a mortgage loan modification?

The first step in the process for requesting a mortgage loan modification is to select a reputable company for assistance. The company will then pre-qualify you for modification, collect all documents required from you, and begin working as an advocate on your behalf with the lender.

Do all mortgage lenders offer modifications?

All major lenders do offer loan modifications. Some of the smaller companies or hard money lenders may not, but generally speaking, the well-known lenders will all offer modifications.

When should homeowners consider requesting a modification?

Homeowners should begin considering a modification once they've fallen into a state of financial hardship. Indications of hardship include the inability to keep up with your loan payments, or finding yourself underwater on your home. At the first sign of trouble, reach out to an experienced loss mitigation company.

Is getting a loan modification easy?

The truth is that the process of modifying your home may be stressful. Homeowners should be aware that they may continue to receive Notifications of Default in the mail, as the foreclosure process will continue during the time that the loan is being modified. Secondly, confusing letters and phone calls may arrive from people in various departments at their lender, demanding payment. These tactics can be intimidating, as sometimes the calls and letters may even attempt to discredit the loan modification company the homeowner is working with.

It can be a trying process, but it's not something that should frighten you away from choosing to modify your loan. After all, you're saving your home, and the stress will be well worth it once you've reduced your monthly payment and are able to stay in your home.

About Brian Suder

Brian Suder is the President and Founder of Home Rescue Programs. A tenured real estate and mortgage expert, Brian was mentored for more than two years by one of the nation's leading experts in the loan modification industry, a former Commissioner of HUD. To date, Brian has helped thousands of homeowners save their homes from foreclosure through successful loan modifications.

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