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What is a Loan Modification and How Can I benefit?
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A Loan
Modification is a permanent change in one or more of
the terms of a
mortgagor's loan, it allows the loan
to be reinstated, and results in a payment
the
mortgagor can afford. A modification is made to an
existing loan 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 may
be open to modifying a loan because
the cost of
doing so is less than the cost of default.
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A loan
modification agreement is different from a
forbearance agreement. A
forbearance agreement
provides short-term relief for borrowers who have
temporary financial problems, while a loan
modification agreement is a long-term
solution for
borrowers who will never be able to repay an
existing loan.
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help now!
A short
sale is the sale of a property by a financially
distressed borrower for less
than the outstanding
mortgage balance due. The proceeds from the sale
will be
used to repay the lender. The lender then
accepts the less-than-full repayment of
the mortgage
and the borrower is released from the mortgage
obligation in order
to avoid what would amount to
larger losses for the lender if it were to foreclose
on the mortgage.
A
mortgage short sale is one of several options other
than foreclosure that might
be available to a
financially distressed borrower. Borrowers with
temporary financial
problems should try to negotiate
a forbearance agreement with their lender. For
borrowers with more lasting financial problems, in
addition to a mortgage short sale,
a deed in lieu of
foreclosure or a short refinance might be potential
options in
avoiding foreclosure.
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now!
A deed in lieu of
foreclosure gives the home to the lender (the
“deed”) in exchange
for the lender canceling the
loan. The lender promises not to initiate
foreclosure
proceedings, and to terminate any
existing foreclosure proceedings, if any. Make
sure that the lender agrees, in writing, to
forgive any deficiency (the amount of the |
loan
that isn’t covered by the sale proceeds) that
remains after the house is sold.
There is a
possibility that the Bank will probably require
you to put your home on the
market for a period
of time (three months is typical).
Benefits to
a Deed in Lieu:
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Many sources believe that a deed in lieu of
foreclosure looks better on your credit
report
than a foreclosure or bankruptcy does. Also,
unlike in the short sale situation,
you do not
necessarily have to take responsibility for
selling your house because
you may end up simply
handing over title and then letting the lender
sell the house.
Disadvantages to a
Deed in Lieu:
There are a few disadvantages to a deed in lieu.
Similar to a short sale, you probably
cannot get
a deed in lieu if you have second or third
mortgage, home equity loan, or
a tax lien
against your property.
It may be difficult
to get a lender to accept a deed in lieu of
foreclosure these days
because many lenders want
cash, not real estate, especially if they own
hundreds
of other foreclosed properties. On the
other hand, the bank might think that it may be
better to accept a deed in lieu, rather than
incur foreclosure expenses.
Required Documents For
Bank Submission (Employed)
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l
2
months of most recent bank statements all pages.
l
2
months most recent payroll stubs
l
Last 2 years of W2's
l
A
letter of authorization signed and dated by the
customer.
l
Letter of hardship in correct form.
l
Most recent mortgage coupon for each mortgage
l
All legal notices.
Required Documents
For Bank Submission (Self Employed)
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l
2
months of most recent bank statements all pages.
l
Profit and loss year to date for self employed.
l
Last 2 years of 1099's or 1040's
l
A
letter of authorization signed and dated by the
customer.
l
Letter of hardship in correct form.
l
Most recent mortgage coupon for each mortgage
l
All legal notices.
LETTER OF HARDSHIP "Do's and
Don'ts"
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A
Letter of Hardship is a personal letter to the bank
describing what has caused
you to become delinquent
or why you foresee a delinquency on your mortgage.
This letter simply needs to state what the
particulars are about your individual
situation.
Below is a list of DO's and DONT's to assist you in
preparing this letter
to the bank.
DO
1.
Make the letter about your
individual situation. (example-job loss,
family,
medical, death, divorce, birth, Etc.....)
2.
Include what you have done to
help correct your situation.
(example-getting a
second job, reducing expenses, renting a room
in
your house, clipping coupons, downgrading vehicles,
Etc.....)
3.
Include in the letter why it is
important for you and/or your family to
keep the
property. (keep the message as positive as
possible.)
4.
Include in your letter that if
they were to modify your loan you could
make the
payment and will continue to do so.
DON'T
1.
Blame the economy or the real
estate market as the reason you
are having trouble
or foresee difficulty making your payments.2.
Say that the bank is rude or
refuses to work with you.
3.
Make the letter sound like the
bank owes you something or that
they put you in this
situation. (keep in mind the bank does not
have to
modify your loan)
4.
Ask the bank to take money off
the balance that you owe.
(the banks do not reduce
amount owed they will only change
interest rate and
term of loan.)
5.
Ask the bank to remove late fees
or past due balances. (the bank
will always
capitalize this back into the loan after
modification.)
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