beach home loan modificationThe Loan Modification and Save the Home program, Home Affordable Modification Package (HAMP), Make Home Affordable (MHA), Foreclosure Assistance financial package, and others are parts of the Obama administration’s attempt to resolve the financial crisis and stop foreclosures by modifying mortgages. The success of the loan modification programs is debated.

The foreclosure assistance program is not working for a large number of families due to the complicated process, red tape and bureaucracy involved. Adding to the confusion are the many scams that have surfaced.

The pressures of foreclosure are personal as well as financial. The process can have a disastrous affect on your marriage. And, imagine moving back in with your parents with a family of your own. For many homeowners, foreclosure is just the beginning of the nightmare. Losing your home is only one of several consequences.

Consider the affect that it will have on your credit rating. A good rating is always a valuable asset, and now more that ever. A foreclosure can unfavorably affect your ability to obtain loans, business lines of credit, car leases and employment as well.

Even with the “Save the Home” program, great numbers of unfortunate families are losing their homes everyday. HAMP, the key component of the government’s $75 billion program to provide sustainable, affordable mortgage payments, has failed to help many homeowners for various reasons and has been much criticized.

How a loan modification works

If you have fallen behind on your mortgage but are still in a position to make about 60 percent of the mortgage payment, you could qualify. Remember that lenders are not inclined to foreclose if the borrower has a way to make payments. In order to be eligible for a loan modification, you must present a significant hardship.

Loan modification entails negotiating with the lender and coming up with an easier payment plan, usually by lengthening the term of the loan.

The loan can be modified to consolidate more than one loan as well as to extend the term of the loan to make your payments lower. If you have an adjustable rate mortgage (ARM), you can get a loan modification that will give you a fixed rate so that you can budget your monthly payments.

Steps In A Loan Modification

1. Find the person responsible for loss mitigation at your bank or lender.

2. Have documents prepared for the lender to prove that you are in dire straits and that it is to his advantage to re-negotiate the terms of the loan. The Information that you will need includes:

  • Pay stubs
  • Monthly debt expenses (credit card bills, student loans, car loans, etc.)
  • Medical expenses
  • Tax returns, 1099 or W2 Forms
  • Utility Expenses
  • Hardship letter and proof of loss of job if available (unemployment insurance benefits, dismissal letter from employer)

3. Your lender will then access your property and weigh whether or not it will be more profitable for them to foreclose or to modify the term of your loan.

Those who are ideal candidates for loan modification include people who are in the following type of circumstances:

  • Have been the victim of a predatory lender and now owe more than the house is worth
  • Have been laid off from work
  • Are behind on their mortgage for more than 30 days
  • Have a sub-prime loan
  • Have an adjustable rate loan
  • Have low documented income
  • Have little documented income due to being self employed
  • Have excessive medical bills
  • Have experienced a reduction in income
  • Have experienced a catastrophic occurrence causing you financial hardship
  • Owe more on the house than the house is worth

A mortgage modification does not do as much damage to your credit as would a foreclosure. It does not entail refinancing.

Predatory Lending

In many cases, those who are facing foreclosure will be approached by lenders offering to refinance the mortgage. Often, the rate that is being offered is higher than prime and the lender is often banking that you will go into foreclosure and they will be able to take the home. This is known as predatory lending. Unfortunately, the scammers have also arrived with fake loan modification programs to take advantage of the crisis and the confusion of homeowners.

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