Here are the most frequently asked questions about loan modification programs that I receive and the answers based on my 25 years of wholesale and retail lending experience:
1. What is a loan modification program?
A loan modification program offers a change in the terms of your existing home loan resulting in an affordable and sustainable monthly loan payment. The loan modification program may include a reduction in the interest rate, a longer loan term, and sometimes a reduction in the principle balance.
2. Why would my bank be willing to do this for me?
Your lender is willing to offer a loan modification program to you if it serves their best interest. Meaning, the bank will agree to a loan modification program if it is more cost effective to modify your home loan so you can afford to keep making payments as opposed to the cost of a foreclosure proceeding. Banks are saddled with record high foreclosures, and with the continuing decline in home values, the lender will probably lose more money foreclosing and trying to sell your home than if they take a loss on the loan, because you keep making loan payments to them. Banks have to answer to the FDIC if they have too many non-performing assets on the books-like REO's (foreclosed houses)
3. How do I know if I qualify for a loan modification program?
The number one deciding factor for your lender is your ability to afford the new payment, now and in the future. You have to show the lender that based on your income and expenses, you will be able to sustain the new house payment.
4. How do I prove to my bank that I will be able to make the new house payment if they place me in a loan modification program?
The lender wants to see an accounting of all of your monthly expenses and your monthly income. You must calculate your debt
ratio so that your new housing expense (taxes, insurance and HOA included) do not exceed a certain percentage. I provide an easy to use financial statement-and give you detailed instructions on how to complete it along with information on how to calculate your debt ratio properly.
5. I don't have any extra money to pay my bank-can my missed payments be added into the loan modification program somehow?
Yes, part of the negotiation process is to have your missed payments added back into the new loan and spread out over the term in an affordable payment structure.
6. My bank has added a lot of fees and penalties-do I have to pay those?
First of all, you are legally entitled to a complete, detailed accounting of all fees & penalties. Depending on your type of loan, the lender may be required to WAIVE those fees & penalties. Learn your legal rights before you agree to over pay for any loan modification program!
7. What if I owe more than my house is worth?
That could actually work in your favor. Ask your local realtor to provide a Comprehensive Market Analysis. This is a widely accepted report that documents the actual current value of your home. You can use this information to ask your bank to reduce the amount you currently owe them as part of your loan modification program based on this lower current value.
8. Do I have to be working to qualify for a loan modification program?
Generally, yes, you have to show your bank that you will have the income necessary to pay the new loan payment. If you have a VA or FHA loan, there are some loan modification programs that will give you time to find a job before you start making payments again. The foreclosure process is halted during this time.
9. I really don't know anything about home loans and I am afraid to call my bank, do regular people like me actually do their own loan modifications?
I admit the hardest part of a loan modification program is actually picking up the phone and calling your lender to start the process. But remember, hundreds of thousands of homeowners are in the same boat as you-your bank has a special department set up just for this purpose. President Obama and Congress is encouraging banks to offer all borrowers a loan modification program as an option to avoid foreclosure. Thousands of homeowners just like you have already had their loans modified into a new, low monthly payment-you can too!
10. How do you recommend I get started on my own loan modification program?
You need to do your research and learn as much as you can about the loan modification process process. There is a lot of information available online about loan modification programs. It is important to get the most up to date and complete information you can so you will present your loan modification application properly and have the best chance for approval.
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