What is a Loan Modification?
A loan modification is a voluntary change to the terms of your loan made by your current mortgage lender. A loan modification is sought to accommodate a borrower’s particular hardship usually associated with reduced family income, inability to refinance, dramatic decrease in the home’s value, or foreclosure concerns. Modifying your loan can result in a lower interest rate, a lower loan balance, a lower payment or any other type of relief assistance that helps you better manage your monthly payment.
Loan modifications have become very popular in recent years due to the increase in nationwide foreclosures which have been blamed by many in part on adjustable rate mortgages and unemployment. Adjustable rate mortgages traditionally offered homeowners a low fixed rate and payment for a brief period of time then adjusted which in many instances causes a homeowner’s mortgage payment to dramatically increase.
Recently a government program known as HAMP (Home Affordable Modification Program) has promised to help distressed homeowners achieve mortgage relief but the program has reportedly not yet met expectations regulators had intended. The Independent Foreclosure Review sponsored by the Office of the Comptroller of the Currency (OCC) is also a government initiative to ease the burden of homeowner distress for eligible borrowers.
The OCC’s deadline for homeowners to request the Independent Foreclosure Review expires April 12, 2012. A recent $25 billion dollar settlement was reached between the joint federal-state attorneys general and the nations five largest banks. The settlement terms provide distressed homeowners with relief in the form of mortgage principle reduction and cash payment for victims that lost their homes to foreclosure abuse practices. The program also helps people having trouble with their employers in regards to their compensation, as Baltimore workers compensation lawyer is always ready to help.
Although the above initiatives promise to facilitate the loan modification review process, the loan servicer will examine the borrower’s income which demonstrates the ability to make the payments on the new modified terms. The lender also examines the realistic benefit of the modification in comparison to the current loan terms. It is not likely that a modification request will get approved if there is a marginal difference from the loan that you already have.
If approved, a loan modification can alleviate the financial burden caused by a high mortgage payment and can also increase a your disposable cashflow which can be used to address other monthly debt.
Understanding Your Type of Mortgage Loan
Before requesting your loan modification, you should first make sure you have a working understand of your exact type of mortgage loan. Having a working understanding of your mortgage loan will certainly help frame your modification request. You should first get your hands on your mortgage contract which is otherwise called a mortgage “note”.
What type of mortgage “note” do you have? Is it a fixed rate, adjustable or variable rate, interest only, interest only for 10 years, option ARM, fixed rate with a balloon due at the end?
If you haven’t done so already, you should search for a very important document called a “note”, which is most likely located with the stack of papers you received when you last closed on your loan. Now depending on what type of mortgage you have, your “note” will describe exactly what kind of a loan you have.
If you have an adjustable rate mortgage, your note would be titled “Adjustable Note”. If you have a fixed rate mortgage, your note will be titled “Fixed Rate Note” or simply “Mortgage Note”. Likewise if you have a balloon mortgage and hopefully you know if you do, your note will be titled “Balloon Note”. And by the way, a balloon mortgage is not a loan that comes with a set of balloons after you close.
What is a note? A note or “promissory note” is simply the contract that spells out your written promise to pay back the loan. Promissory notes are not only issued on mortgage loans, but also on car loans, personal loans and any type of loan where there is the expectation of regular monthly payments or installments to satisfy that loan debt.
A mortgage note is usually about 5 pages long and the language is separated into numbered paragraphs, which each contain specific information about the loan. The note will identify the borrower, address of the property financed, the interest rate, amount of the monthly payment and loan amount. After reading your note you should have a much better understanding of your exact loan type to request the help you seek from you lender.
How Do I Qualify For a Loan Modification?
When requesting a loan modification from you lender, you should be very specific about what you are looking for and why you should get it. As mentioned above, having an understanding of your current mortgage type will help greatly. You should absolutely make your modification request in writing and not accept any final determination from the lender verbally or over the phone.
You may be surprised to hear that there is no specific criteria of eligibility. Income however is obviously critical. The Government’s loan assistance program coined the Obama Modification and Refinance Program has introduced some confusion about a borrowers qualification, so it is best to address your lender directly.
Do I Need an Attorney to Modify My Loan?
You absolutely do not require an attorney to request a loan modification. In fact you lender would prefer that you don’t have one. Your lender is the only party that can voluntarily modify your loan. An attorney can send a modification request to your lender just like you can, except the attorney will charge you a lot of money for doing so.
The lender does not shake when they see a modification request prepared by an attorney and many law firms or “loan modification companies” market their services as an assured bridge between you and a much lower payment. The lender is not going to say “let’s settle this one” like the old Jacoby amp; Meyers commercials that dramatized the moment the insurance company receives a demand letter from the world renown law firm. You lender will honor a sensible request prepared by you, their customer, as long as it is written, well thought out, and demonstrates good faith on your part.