Mortgages Modifacation
What is a loan modification?

A loan modification is a change in the terms of a loan
that is mutually agreed upon by both the lender and the
borrower. Loan modifications are most commonly sought
by homeowners that wish to modify the terms of their
mortgage because they are behind and risking
foreclosure. Since the housing crisis erupted in the US
in 2007 the number of loan modifications has gone
through the roof. Getting your loan modified can be a
terrific way to prevent foreclosure and keep your home.
So what's the downside? Not everyone qualifies for a
loan modification and the big lenders in the US are
overwhelmed with requests and are having a hard time
keeping up (this means lots of consumers not getting
phone calls returned etc...).
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What types of loan modifications are available
and which work the best?

Mortgage modification takes the total amount of delinquent
payments plus delinquency fees and adds that to the principal
balance of the loan. This essentially wipes the slate clean and
allows the homeowner to move forward with no past due
payments and penalties. The problem with this type of
modification is that it does nothing to lower the monthly payments
and make the home more affordable for the long term. This type
of modification is preferred by the lender and was therefore
commonly used in the early stages of the US housing crisis. Initial
data (like the findings mentioned in the paragraph above)
showing that loan modifications have a high rate of short term
re-default is no doubt skewed by the fact that so many of the
early loan modifications were the type that just removed late
payments and late fees and added them to the principal balance.
In early 2009 the Obama administration began pushing for
modifications that would more directly benefit homeowners by
lowering loan payments / interest rates and or increasing the term
of the loan. A study by The Center for Community Capital at the
University of North Carolina - Chapel Hill in March 2009 showed
that the risk of a re-default is greatly reduced when a modification
is done that achieves lower payments through interest rate
reduction or term extension.

Given the seriousness of the current housing crisis it is safe to
say that loan modifications are going to be happening with great
frequency for the foreseeable future. If you find yourself unable
to afford your monthly mortgage payment and fear foreclosure is
looming ahead, then loan modification may be your best course
of action. Keep in mind that early data is suggesting that the type
of modification that is most effective at keeping you in your home
for the long term is a significantly lower monthly payment
achieved by interest rate reduction and or term extension. This is
what you need to fight for regardless of what the lender wants
you to do.
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