The Debt Management Expert

Overview
For qualified homeowners that need to renegotiate the terms of their mortgage with their lender, a loan modification is a good option when properties values are dramatically declining. Loan modifications are the best recourse for homeowners looking to renegotiate the terms of their loans, because the homeowner is unable to make payments under the original agreement or because the value of the property is worth less than the homeowner owes on the mortgage. Loan modifications also serve the needs of lenders that would prefer to avoid foreclosure and a sale of the asset at a significantly reduced price.

Refinancing is advisable in a stable or increasing market. It gives homeowners the ability to take cash out when needed, lower their interest rate, and fix their interest rate, among other options. In today’s declining market, refinancing is available to a much smaller group of homeowners — only those who are current with their mortgage payments, have a strong credit history and job security, disposable income after all bills are paid, and significant equity in their property are eligible.

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Whether you will be able to refinance or qualify for a loan modification depends on your individual situation. Most homeowners interested in making a move in this market are the ones who are in trouble and therefore do not qualify for a refinance. If you are behind on your mortgage, always attempt a loan modification first. When a homeowner is late but can show the ability to pay a lower payment, the benefits from a loan modification will greatly outweigh that of a refinance. The interest rate on such a loan modification will generally be lower than that of an on-time homeowner with good credit who pays to refinance.

Getting approved for a traditional refinance is extremely difficult. Since Wall Street is no longer purchasing loans from originating banks, lenders have cut programs to less qualified homeowners. When considering refinancing in a market where equity has evaporated, causing balances to exceed value, there is no option to refinance. This is true for all homeowners, sub-prime as well as qualified homeowners.

If you are a homeowner that is upside down, you would have no option to refinance and your best bet would be to seek out a loan modification. If you are not late but are upside down, loan modification companies such as ours can make it a seamless and transparent effort that could potentially knock tens of thousands of dollars off of your principal balance. Who could argue with that?

Overview
Loan modification is a process whereby a homeowner’s mortgage is adjusted and both lender and borrower are bound by the new terms. The mortgage terms are adjusted because the borrower is unable to make payments under the original agreement or because the value of the property is worth less than the borrower owes on the mortgage.

When homeowners fall behind on their payments, they are faced with a few very tough choices: foreclose, deed in lieu of title, short sale or loan modification. Loan modification is the only one of these options that does not force the borrower to vacate their home. Loan modifications are designed with three basic objectives in mind:

• Offer proactive workout solutions designed to address borrowers who have the willingness but limited capacity to pay.

• Provide borrowers the opportunity to stay in their home while making an affordable payment for the life of the loan.

• Ensure investor interests are protected; loan modification must always result in a positive net present value outcome for the investor; the cost of the loan modification must be less than the estimated cost of foreclosure.

Banks will allow certain changes to be modified for borrowers who can document the ability to repay the loan in a reasonable and sustained manner. The most common loan modifications are:

• temporarily or permanently lowering the interest rate,
• reducing the principal balance
• ‘fixing’ adjustable interest rates
• adding an interest only option
• increasing the loan term (i.e., from 30 to 40 years)
• a forbearance agreement
• forgiveness of payment defaults and fees

… or any combination of these changes.

Loan modifications are designed with payment levels so that the borrower can consistently make his mortgage payment as well as pay his other bills. Mortgage payments within an arranged loan modification are not intended to consume an entire monthly budget. Lenders will generally take the homeowner’s entire budget into consideration i.e. car payment, cell phone, utilities, credit card payments, and other necessary expenses needed to live a normal life while still maintaining a reasonable mortgage payment. With loan modifications, the benchmark ratio for calculating a borrower’s affordable payment is 38 percent of monthly gross household income.

A loan modification is a negotiation between your modification company and the primary lender (a bank or other financial institution). Your modification company will present the lender with a proposal backed up by your documented income and monthly expenses, which includes both hard and soft expenses. Soft expenses are difficult to document. Your modified monthly mortgage payment is determined by the difference between your total income and your expenses.
Great! I know what a Loan Modification is now. Do I Qualify?

Until you go through the process it is difficult to say if you qualify. Ideal candidates have a number of the following characteristics:

• An interest rate above 6.9%
• Unaffordable Payements
• An Ajustable Rate Loan
• Are Deliquent on Payments
• Are Currently in Forclosure
• Have Negative Equity in their Home