In our current economic crisis, more and more home owners are having difficulty keeping current on their mortgage loan payments, are upside down on their mortgage, and are facing possible foreclosure. There are several options available to these home owners, but for those who qualify, getting a loan modification is the option of choice. With borrowers who qualify, banks will agree to modify the terms of the existing mortgage loan resulting in a new reduced monthly payment that the home owner can afford. The advantages to the home owners are that they avoid foreclosure, keep the house, and maintain their current credit standing. Mortgage lenders today are granting loan modifications in numbers never before seen in this country, and, as a result of recent federal programs and legislation, the availability of loan modifications will only increase. The time has never been better for home owners to seek a loan modification with their mortgage lender.
What Exactly Is It?
A loan modification is a permanent change in the terms of an existing mortgage loan. The most common changes involve reducing the interest rate, converting an adjustable interest rate to a fixed interest rate, and reducing the principal. With a loan modification, mortgage lenders will also usually agree to forgive any late fees and move any late payments to the back of the loan. Also, unlike a refinancing, with a loan modification a borrower pays no fees or points. The aim of a loan modification is to avoid foreclosure and allow the home owner to stay in the home by adjusting the terms of the loan so that the monthly payment is set at a rate that the home owner can afford.
Why Would a Mortgage Lender Agree to a Loan Modification?
The answer to this question is, quite simply, that it is cheaper for the mortgage lender in the long run. Banks are in the business of investing, borrowing, and lending money. They are not in the business of buying and selling homes. With a foreclosure, lenders can lose money in three ways: they lose the income stream from the loan itself; they usually have to sell the house for less than the foreclosed borrower owed on the loan; and they incur hefty administrative costs. If a borrower can come up with a reasonable modification scheme that would provide greater positive income to the lender than the lender would get in foreclosure, then the lender will usually accommodate that borrower. It simply makes good business sense.
Federal Legislation and Programs
Mortgage lenders have responded to the foreclosure crisis by being more willing to work with borrowers in creative ways to modify distressed loans. As a result, these mortgage lenders are granting loan modifications in numbers never before seen in this country. In fact, to date, lenders have modified over 500,000 mortgage loans. Fortunately for the distressed home owner, as a result of recent federal programs and legislation, the availability of loan modifications will only increase. Also, until recently, reductions in principal were rare. With these new programs, mortgage lenders have additional incentives to work with borrowers to provide loan modifications that reduce the principal on their mortgage loans.
In response to the crisis in the housing market, the White House put into effect the $75 billion Home Affordable Modification Program (“HAMP”), which provides financial incentives to lenders and loan servicers to work with borrowers to provide mortgage loan modifications to those borrowers who qualify. HAMP provides a uniform guideline for modifying mortgage loans on terms that result in a monthly payment that a borrower can afford. In addition, HAMP provides up to five annual $1,000 payments to borrowers who remain current on their modified mortgage loan to be used to pay down the principal on the borrower’s mortgage loan. While not every distressed mortgage will qualify for a loan modification, HAMP is expected to benefit between 3 – 4 million households.
If you live in California and are now having difficulties making your mortgage loan payments, or if you now owe more on your mortgage loan than your house is worth, contact JPS to discuss whether a loan modification might be the right choice for you. Whether or not you meet the HAMP eligibility requirements, Lenders and loan servicers are more willing than ever to work with borrowers to modify their existing mortgage loans. Up to this point, however, borrowers who try to negotiate their own loan modifications have had a failure rate of over 80%. With a short time frame for obtaining a loan modification before foreclosure, a borrower is wise to enlist the aid of an attorney before his or her options run out. The Law Offices of John P. Skowronski can help you avoid foreclosure and save your home by working with your lender to modify your existing mortgage loan and agree to new terms and a monthly payment that you can afford.
