Why Loan Modification Can Help You In The Long Run

By Doherty • March 16th, 2011
Half million dollar house in Salinas, Californ...

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Loan modifications are defined as a change in the terms of a mortgage agreed upon by the lender and the borrower. 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 enabled with the ability to pay a smaller monthly payment based on their current income.

Lenders can make modifications at their own discretion, but are usually motivated by profit to offer better options to the borrower. When a financial institution has to foreclose on a property, there may be less income accrued than if they had allowed payments at a reduced rate. There are low-income states that now have federal programs available to mandate lenders into appropriate modifications. Mortgages are improved in a number of ways that comprise of reductions 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. Consent relies on the type of hardship that has caused the borrower’s predicament. The major approval is based on the nature of hardship that has caused the financial problem. The recent economy has shown an increase in the unemployment statistics. People are losing their jobs due to company cutbacks and business bankruptcy. Unexpected medical costs and wage loss may occur if the sole income provider is incapacitated in an accident. Other determining factors to loan modifications may be the property equity, amount owed and future financial situation.

Homeowners now have the opportunity to apply for HAMP or the Home Affordable Modification Program. Borrowers can be in default, bankruptcy or foreclosure when they submit an application. The process starts with a simple modification affidavit. The borrower then provides proof of income and tax returns with all family information. Documents are then submitted to the lender for approval.

With the housing crisis upon us, banks are losing money when they have to foreclose on a property. The HAMP program is based on the belief that struggling property owners will be able to stay in their homes.

If you are living in California, here’s a recommended website for you:
Loan modification Orange County
Foreclosure consequences California

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