Is your home financed with an adjustable rate mortgage? Are you facing possible foreclosure? Is your credit prohibiting you from refinancing into a fixed mortgage? If you answered yes to any of these questions then you have probably recently considered either working out a loan modification with your lender or finding a way to get a house refinance.
Unfortunately most people who are facing foreclosure cannot refinance because of bad credit and negative equity, so this leaves only one option – a mortgage loan modification.
A mortgage loan modification occurs when the lender restructures your original loan agreement so that the payment is reduced to an amount that you can budget based on your current income.
The lender may reduce the mortgage loan rate or the principal. Because a mortgage is a secured loan the lender may need to get a new appraisal value for the home. In order to modify a mortgage with a lender, you need to call the lender and speak with the loss mitigation department or home retention unit.
Many mortgage loan lenders outsource the servicing of the loan to a third-party company called a loan servicer which does not actually own the mortgage loan. The loan servicer simply acts as an intermediary between you and the lender, it is often limited as to what decisions it can make regarding a loan modification.
When calling for a loan modification it is important that you do not speak with the wrong department.
Such an error can cause frustration and confusion because communication among the lender’s departments of your personal file is not always good. Speaking with such departments as the customer service or collection departments about loan modification issues may likely result in confusion and frustration and hinder your process.
The loss mitigation department is responsible for gathering information from you about your current credit worthiness so it can determine whether or not your current financial situation allows you to budget the home if the terms were to be modified.
This determination of your current credit worthiness is similar to applying for a new loan in regards to the approval process; however the lender may not look at your credit. The lender will need to see your income and expenses to make a determination of whether or not you qualify.
As was previously mentioned, the loan servicer cannot always make the final decision about whether or not to approve you for the loan modification. If an investor like Fannie Mae or Freddie Mac owns the loan then the loan servicer must conform to the loan modification guidelines set forth by the investor.
It is a good idea to have all your finances in order and ready to send to the lender when applying for a loan modification. The lender may require bank statements, paycheck stubs, and current proof of insurance. Attached is a sample loan modification document so you can prepare yourself for when you call your lender.
Both private and public programs are available which can assist you in modifying your mortgage or mortgage loan refinancing. Some of the organizations providing these programs have relationships with the lenders which can make the process run smoother and quicker.
It is important to understand that you will need to actively participate in the loan modification process in order for it to be successful. Open and frequent communication between the mortgage lender or loan servicer and you is important for a successful loan modification.
Plenty of online tools are available for your aid as well. The following related topics are abundant online and may be useful to you: mortgage loan calculator, bad credit home loan information, refinancing loan information, how to avoid closing costs, online loan applications, and first time home buyer information.
If you have equity in your home, you will not be able to immediately get a debt consolidation loan during a loan modification, but after you improve credit, you may be able to refinance the loan modification and cash out some equity to pay off some debt.
It is better to pay a low interest rate on a mortgage (interest which may also be tax deductible) than to pay high interest credit card payments. Many people use house refinance options to pay off high interest debt.
Some local banks even offer “no closing cost refinance” or “interest only mortgages.” If there are closing costs, ask the banker what are closing costs that may be reduced. Closing costs on a house will be itemized on a HUD-1 Statement.
