Loan modifications are defined as a change in the terms of a mortgage agreed upon by the lender and the borrower. Alterations are considered to aid homeowners in getting lower monthly payments that will deter possible foreclosure. 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 enabled with the ability 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 altered in several ways that include a reduction in interest rates, principals and late fees. The loan can also have a monthly payment cap according to a household’s income and be extended over a longer period of time. Forbearance programs are obtainable for those needing a few more months to get back on good financial standing.

There are determining factors a lender will ponder before making loan modifications. Approval is dependent on the nature of hardship that caused the problem. The major approval is based on the nature of hardship that has caused the financial problem. 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. Unexpected medical costs and wage loss may occur if the sole income provider is incapacitated in an accident. Other reasons that determine modifications to mortgage loans may be the financial future situation, property equity and the amount owed.

Homeowners now have the option of applying for the Home Affordable Modification Program or HAMP. Borrowers can be in default, bankruptcy or foreclosure when they submit an application. The process is not difficult and starts with a modification affidavit. The borrower then provides proof of income and tax returns. 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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