Blog

Can a Loan Modification Save Your Home?

By Philip Tirone

In the wake of the turmoil caused by the global crash of the housing bubble, the government has been advocating loan modification programs, which are designed to encourage banks and other lenders to offer more favorable terms to borrowers with existing loans.

The housing bubble saw many homeowners take advantage of unprecedented loan opportunities. Lenders bent over backwards to hand out a smorgasbord of seemingly lucrative options like adjustable rate mortgages to homeowners. However, as we all know, the roof fell in rather quickly, and homeowners were left in desperate straits with sky-high payments due and on the verge of foreclosure. Many distressed homeowners started looking into bankruptcy facts, wondering whether bankruptcy was the best option.

Loan modification programs are based on the premise that the already-struggling banks may benefit by seeing these borrowers pay back some money rather than face a complete loss. Helping these homeowners avoid bankruptcy and foreclosure means the banks will get something rather than nothing.

Loan modification programs are a bankruptcy and foreclosure fix for many besieged property owners.

Most loan modification programs are based on reducing interest rates or payments for a period of time or even giving borrowers a complete break on interest payments for a few years. In other cases, a bank may renegotiate the terms of your loan; for example, you may be able to switch from an adjustable rate mortgage to a fixed rate mortgage based on your circumstances. Theoretically, loan modification programs can help delinquent homeowners achieve a semblance of stability and pay off the remainder of their loans.

The first step in the loan modification process begins with you picking up the phone and contacting your bank’s hardship department. You will need to divulge your income and explain the circumstances that are preventing you from making regular payments on your loan. Your lender can tell you whether you qualify. Most loan modification programs exist for people who have already defaulted on at least one payment. If you are making timely payments, the banks might be reticent to modify your loan, figuring you can continue to stay current on your loan and they can recoup 100 percent of the loan.

All modifications you might make to your loan will be conducted through your lender and not via the government. And because the loan modification program is only encouraged by the government, not all lenders have chosen to participate. As I mentioned, some loan modifications may be available only if you have been tardy on your payments, though I have heard of a few available for people who have never been late. Keep in mind that some loan modificationprograms may be subject to fees based on the type of alteration requested, so get all the information before you make a decision.

No matter how dismal your financial situation, you might be able to find a way to retain your house and prevent a dreaded foreclosure through a loan modification. This might be a wonderful option for you, but its availability will depend on your lender and its willingness to work with you. Call your bank’s hardship department to see if you are eligible for a loan modificationprogram and if so, what type of program might best benefit you. An important thing to keep in mind when you talk to your bank is that the economic situation is changing faster than we can predict. What might have been valid yesterday may no longer be available tomorrow. If you are turned down for a loan modification, try again in a month or two.

Google Rating
4.9