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Home Loan Modification Resources

What is a home loan modification?

A loan modification is a reduction of your payment by your lender. This new payment is supposed to be affordable for the homeowner and in exchange for this lower payment your bank is now saved the cost and hassle of a foreclosure sale of your home.

The payment is reduced to 31 percent of the home owner’s income to loan ratio, and so the program is therefore only really of any use to those homeowners who have home loan payments that exceed 31 percent of their monthly income.

The goal of a home loan modification is to help homeowners who find themselves unable to meet current home loan payment obligations by renegotiating interest rates, financing rates, deferred payments or exiting the obligation to avoid foreclosure. Read more about the requirements to qualify for a home loan modification.

For the vast majority of homeowners, the truth is home isn’t really owned, exactly. There is a mortgage, funded by a bank, which must be paid every month for the life of the loan.

Some of these mortgages are as long as 10, 20 or even 30 years and can take a literal lifetime to repay. A home loan modification is basically a change to the rates or other terms for a home mortgage such as this.

Any changes will need to be agreed upon by both the lender and the homeowner or other person responsible for borrowing the money. This ensures that neither party can just make addendums or additions to the contract without the other knowing ahead of time.

Not everyone is going to meet the requirements to qualify for a home loan modification but for homeowners who feel they’ve been duped with ridiculous rates or know they’re stuck in a bad deal, there are ways to beat the system.


What is the Point of a Home Loan Modification?

If protecting your credit score is a factor in your decision to make a home loan modification, then homeowners who are delinquent on their home loan payments should note that they have already experienced an impact on their credit score, however, this impact is significantly lower than the impact that a foreclosure will have. Working with a home loan modification lawyer can help homeowners to maintain their property and prevent their credit score from taking any additional hits.

The specific effect of a loan modification on your credit score depends on how the bank reports the modification to the credit bureau. It is possible and advisable to request that the bank report the change to the loan as a loan adjustment, showing on your credit report as a new loan with a lower payment and no increase in the debt structure. Reporting that the modified payment agreement is current will also help to protect your credit rating during the ‘trial modification’ phase of the home loan modification.

The current mandate as outlined by the Obama administration to reduce foreclosures is a solid plan, but like any new program, there is a learning curve for both the lenders and the borrowers. The party that is usually ahead of the game is a home loan modification lawyer and can often cut through any cloudiness and guide the borrower while helping the lender see the benefits of yielding to a home loan modification and to see it as a financially positive choice.

In addition, you’ll want to have the experience of someone who renegotiates home loans for a living and knows from that experience and the experiences of previous clients what a proper new home loan should look like for someone in your particular situation. You don’t want to find out after 6 months or a year that your new home loan is still a difficult one to maintain.


Who Would Want a Home Loan Modification?

Just about anyone will find at one point or another, interest rates, payment schedules or other aspects of their home loans could use some adjustments. Maybe someone lost a job and can’t continue to pay at the same rate as before, or there’s a new source of income and the loan could potentially be repaid faster.

These methods offer a way to save one’s credit from being destroyed by missed mortgage payments or a bank foreclosure, but only if the lending agency is interested in working with the homeowner.

Some banks are surely out to get people and would sooner snatch up a distressed property than allow someone to make reduced payments. Institutions such as these are often responsible for issuing predatory loans as well, charging obscenely high rates for small amounts of money to be repaid over extended periods of time. While the government is cracking down on agencies like these, families still find themselves stuck in bad deals on a regular schedule.

If the credit rating is a major consideration, consider things just a bit longer. As long as the mortgage on a property is up to date, it is only having a positive impact on the owner’s credit scores.

If the payments should fall behind, doing something to make them up, even at reduced rates, will save a credit score. A full foreclosure with the building being seized by the bank which funded the loan will irreparably harm a person’s credit. Allowing a home loan to become this overdue is ill-advised.

Modifications made to a home loan will not matter if the new information isn’t reported to proper agencies. People who believe they’re making right by paying a smaller amount may actually be getting ripped off, another practice of shady banks and lending agencies. There are a horde of concerns and horror stories that go along with clueless homeowners who got railroaded in their greatest time of need.

Consult our Home Preservation Experts to handle your home loan modification application, it might be your only chance to get what you deserve!