How does a Loan Modification Work?

An accredited mortgage modification is a process where a lender re-evaluates a loan in the event the homeowner (also called the borrower) cannot continue paying the full amount of the original mortgage payment.  In many cases lenders may waive late fees, lower interest rates to as low as 1.5%, adjust the length or term of the loan, and sometimes even reduce the principal balance to assist the homeowner. Why? Lenders modify mortgages when they have too many foreclosures on their books and it's a smart business decision to do so. The lender would typically prefer to take less each month and have someone living in the property rather than foreclose.

Additionally, lenders often agree to do loan modifications because foreclosures are time-consuming, expensive and problematic. A foreclosure often takes months to finalize and during that time the vacant house might be vandalized, or the real estate market might decline further and the Lender may lose even more money. So the main reason that lenders modify loans is to avoid foreclosure problems. Obviously if very little is owed on the loan and the house can be sold for a profit, the lender might prefer to foreclose and sell the house.

Doing a Loan Modification is not rocket science. A lender will usually quickly determine if the file is doable or not worth doing at all. If the owner can show that he or she currently has not been able to make the payment due to a temporary setback, but he or she is still employed, and their finances are in order they have a good chance of receiving a loan modification. For example, the file most likely will not be approved if the Lender does not feel the owner needs assistance, or if the owner has too many expenses and no proof of income. Remember, you do not have to be behind on your mortgage to qualify for a Loan Modification.  It is also important to have realistic expectations.

Steve Taplin is co-founder of American Loan Restructuring. For a free consultation, call 877-333-6638 or visit our getting started with loan modifiacation page