Reduce Your Monthly Mortgage Payment by Restructuring Your Home Loan.
One of the most popular foreclosure prevention methods is known as “loan modification“. Also known as “mortgage modification” and as a “restructured mortgage“.
What Does Loan Modification Mean for Homeowners?
Mortgage modification is likely the best foreclosure alternative that exists for homeowners who need to stop foreclosure and want to keep their home.
This type of mortgage workout provides help for homeowners who can not afford their current mortgage payment by adjusting the terms of the mortgage in a way that yields a lower monthly installment.
Mortgage Variables Modified
- Interest Rate
Often the rate of interest is lowered as part of the new loan agreement.
- Length or Term of Mortgage
Sometimes a mortgage loan term will be increased as a way to lower the monthly mortgage payment.
- Principal Balance
Rarely the lender will lower the actual balance due on the home loan. This is typically only done when the loan principal is much higher than the actual value of the property.
- Type of Mortgage
Sometimes a balloon mortgage or an interest only mortgage will be changed to a fixed rate mortgage. This allows for stable affordable monthly loan payments.
Obtaining a Loan Modification
A loan modification is ultimately granted and executed by the homeowner’s lender. To obtain one the homeowner must request it from their lender.
The adjustment to payment terms of a mortgage is performed and authorized by the lender. Though the homeowner and even a third party may be actively involved in the request, negotiations, and act of modifying a mortgage, the mortgage lender (or mortgage servicing company) is the only party that can actually modify a homeowner’s loan.
Technically you, the homeowner, must agree to the new mortgage payment terms. However, the want to restructure a home loan agreement typically starts with you the homeowner and is ultimately approved by your lender.
Why Would a Lender Lower My Mortgage Payment and Take a Loss?
A mortgage lender will approve restructured payment terms that yield lower monthly installments as an effort to restore the functionality of a troubled, nonperforming mortgage asset. Mortgage modification is a way for the mortgage lender to salvage value, or cut losses, a practice known as loss mitigation.
Getting Approved for Loan Modification
There are several key concepts and ideas that will help you obtain a loan modification. Think about these key principles during the loan modification request and approval process.
Key Borrower Variables Lenders Focus On
1) Financial Hardship
Your lender receives no pleasure from simply lowering the mortgage payment of any and all homeowners who want a lower mortgage payment. They will not just give away money. You are going to want to give your lender a legitimate and valid hardship. Think of this as an excuse note for an absence from high school, or even work. Just any old excuse won’t work. You need a valid excuse. Typically you communicate your incurred hardship via a mortgage hardship letter that you write and submit to your lender.
2) Household Finances and Budget
You are asking your lender to give you a second chance and to lower your monthly payment. Your lender will ask you for a budget and other financial records. Count on it. Lenders will modify your loan as long as it is in their best interest. Thus they are going to want to see how much money you make and how much money you spend.
Your budget has to fit the request and make sense. If you ask them for a loan modification and they are given a budget that shows your current mortgage payment is only 5% of your income then you can kiss that loan modification goodbye and in a hurry. Typically they will target about 30% of your income as your mortgage payment. The Obama loan modification program sets the monthly payment to 31% of your household income.
3) Borrower Presence
How you interact with your lender can have a lot to do with how you make out in the end. This notion is pretty straight forward. For starters, you are going to have better luck getting a loan modification if you are likable rather than rude and threatening. There are also other factors that will require a little more effort on your part.
Lenders tend to develop a workflow or system in which they process applications. Think of this concept like a stream. This stream has a current towards “approval pond”, your goal is to stay as close to the center, the fastest route, of the stream as possible. This means you should prepare the paperwork and requested documentation just as your lender requests. Your lender is going to work on loan modification applications that are easiest to process and “misplace” the others.
4) Loan to Property Value
Unfortunately, the more valuable the home is to the homeowner, in respect to earned equity, the less likely the lender will be to modify the loan to avoid foreclosure. This is for the simple and obvious reason that if a lot of equity exists in the home it will be easy for the lender to get their money back immediately in a foreclosure sale. However, keep in mind that the lender really does not want your home, nor do they want to go through the process of immediately collecting the loan just to have to find another borrower to loan the money to all over again.
Homeowner Negotiation Tip – Who’s Listening
The person or agent who is looking over your loan modification request can have a major influence over the approval of your loan modification request. This fundamental concept has been made taboo by governing agencies as of late. They argue that all homeowners and consumers are approved or disapproved under the same guidelines and no one is given special treatment. This is actually true 99% of the time but in the end, it is still 100% false. Who you know and who you are talking to play a big part in what happens to your file. Obviously having a high-end contact or decision maker bless your file or application is going to help.
Third Party Loan Modification Help
Consider getting professional assistance when restructuring your mortgage.
Sometimes it just makes sense to get help with financial matters such as finding a mortgage, planning retirement savings, and investing. Help to get a loan modification can be obtained just as one gets help with other financial matters.
The government and much of the media advises against paying a third party to help you with a loan modification. Though I disagree with this as advice to homeowners we certainly understand where such advice comes from. There have been more than a few scams reported. Though we believe many of these reports were a derivative of the media slamming the industry. There is no doubt that there were many scammers taking advantage of homeowners in their time of need. Thus we want folks to be aware of these industry problems and we want homeowners to do their research before hiring loan modification help or any type of professional debt help services.
Finding Loan Modification Help
Homeowners are able to negotiate and obtain a loan modification or other form of mortgage workout on their own. Just the same, many homeowners may want to seek out the assistance of a third party to play an active role in this process.
Often Homeowners will request the help of a third party to assist in their efforts to obtain a loan modification. Many Homeowners are unfamiliar with the technical aspects of a mortgage, loan modification or the loss mitigation process. Others are simply too busy with their professional and personal life, and or feel more comfortable obtaining the help of a third party to assist with obtaining a restructured mortgage agreement.
Homeowners who are interested in obtaining help from a negotiation service should proceed with extreme caution. There have been many reported loan modification scams since 2009. The authorities seem to be getting a grip on the situation but the risk still remains. Homeowners may want to begin their search with Hope Now or some other trusted source of information on the matter of finding loan modification help. Though we should note that Hope Now is a lender funded and operated association.
Loan Modification Help Sources
- Private Mortgage Insurer – PMI
- Your Mortgage Lender
- Government Programs and Efforts
- Loan Modification Service
- Nonprofit Housing Counselor
- Hope Now
- Loan Modification Attorney
- Real Estate Agent
- Family Member and or Friend
- Foreclosure Prevention Specialist
- Loss Mitigation Specialist
President Obama’s Assistance Program
In 2009 there was no uniform process for applying, approving, or processing homeowner requests for mortgage modifications. Things are much different today.
The Obama loan modification and mortgage assistance program includes a modification program known as HAMP or the Home Affordable Modification Program.
HAMP provides outlined standards to act as both guidance and as a reference for lenders. Make no mistake, the decision to modify a loan is still totally up to the lender. However, thanks to Obama’s strong public encouragement and the program’s built-in lender incentives, mortgage lenders have adopted and embraced HAMP procedures, processing, and the ultimate purpose of providing homeowners the opportunity to make home affordable.
Where to go From Here
If you are a homeowner facing some hard times don’t lose hope. Just the fact that you are reading this finance blog shows that you are seeking a solution to your mortgage troubles. You will find a solution if you diligently search for one. Contact your lender once you figure out what your best option is. Whether it’s a restructured mortgage, or a short sale, or some other type of workout you can stop foreclosure. Settle your current money issues and get back on your feet. I know you can do it because I did, and if I can… anyone can.