Why Loan Modification Can Help You In The Long Run

Loan modification or loan workout as sometimes commonly called, is a change in the terms of a mortgage agreed upon by the lender. The successful outcome though such adjustments is the avoidance of possible foreclosure through lower mortgage payments. The lender meets with the owner to reach an agreement in determining what loan terms can be changed for the benefit of both parties. The hope is that individuals will be able to pay a smaller monthly payment based on their current income.

Lenders have the ability to deny any modifications, but are usually motivated by revenue to recommend better options to the homeowner. When an individual continues to make payments at a reduced rate, the financial institution accrues more income than if they had to foreclose on the property. Some lenders are mandated into appropriate modifications through federal programs available in low-income states. Mortgages are improved in a number of ways that comprise of reductions in interest rates, principals and late fees. The loan can also be extended for six months or more with a monthly payment cap based on the homeowner’s family income. Forbearance programs are offered for those who just need a few months to get back on their feet.

Lenders have the ability to defer payments for an agreed upon amount of time. Approval is dependent on the nature of hardship that caused the problem. The recent economy has brought upon the stress of employment loss. People may get laid off and lose their regular income at no fault of their own. Finding work is difficult with everyone vying for the same jobs. An accident could leave the sole income provider with unexpected medical bills or the inability to work. Other factors that determine alterations to loans may be the property equity, amount owed and financial future situation.

Many homeowners now have the option of utilizing HAMP or the Home Affordable Modification Program. Borrowers can submit an application even if they are in default, bankruptcy or foreclosure. The process is very simple and begins with a modification affirmation. The borrower then provides tax returns and proof of gross monthly income. Once the documents are collected they should be submitted to the lender for approval.

With the housing crisis upon us, banks lose money if they have to foreclose on a property that is worth less than the borrower owes. The HAMP program helps provide the relief sought out by struggling property owners so they can stay in their homes.

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