What exactly is a loan modification?

A modification to an existing loan made by a lender in response to a borrower's long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.

Can the lender include late charges in the Loan Modification?

Per HUD, the accrued late charges should be waived by the lender at the time of the loan modification - this varies depending on the type of loan-but always request a complete breakdown and description of all fees and penalties from your lender.

How do I know if I will qualify for a loan modification?

There is never any guarantee. If a person or company says they can guarantee success ie. (specific rate, specific principal reduction amount etc.), they are lying. Make sure you work with a company that will pre-approve every application before processing payment. The number 1 criteria your lender is looking at is your ability to make the new modified payment, now and in the future. You will need to supply the lender with proof of your income, along with a complete and accurate financial statement detailing your income and expenses. This shows, that if granted the loan modification, you will be able to afford the new, lower payment.

Do I have to be currently delinquent on my payments to get a loan modification?

Some lenders are now accepting loan modification applications from homeowners who are not currently delinquent, but who are able to prove to their mortgage company that due to imminent interest rate increases, they will no longer be able to afford the loan payment under the terms of their loan. It is advisable to initiate the loan modification process as soon as possible, whether you are delinquent or not.

What is an acceptable Hardship situation?

Each homeowner has a unique set of circumstances that can cause them to fall behind on their mortgage payment(s). Lenders generally consider divorce/separation; loss of income; death of spouse, co-borrower or family member; illness, job relocation, or military service, to be acceptable reasons for a loan modification. A compelling loan modification letter included in your loan modification application is a very important part of a successful loan modification.

Will a loan modification help me stop foreclosure?

Yes, lenders are not in business of owning homes on there balance sheets, they make money lending loans. It’s in lenders interest to work out your current loan, so you will become current and stay out of foreclosure.

What is Forbearance Agreement ?

An agreement made between a mortgage lender and delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her payments. A forbearance agreement is not a long-term solution for delinquent borrowers; it is designed for borrowers who have temporary financial problems caused by unforeseen problems such as temporary unemployment or health problems.