what are mortgage loan modifications?

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Can someone explain how a loan modification works? What are the pro’s and con’s from the home owners standpoint?

2 Comments
  1. Reply
    chatsplas
    May 21, 2011 at 2:52 am

    Change in terms of loan. . . loan still stands, still valid, with modifications. . . . generally only modification banks will do is to lower the interest rate. . . .leaving loan otherwise unchanged. . . .still owe same amount on house, but monthly payments decrease due to lower interest rate. . . .
    No real negatives for homeowner, only for bank which gets lower interest rate than you promised them, making your loan of lesser value to them. . .
    As you’re not changing lenders or doing refi, don’t have all the expenses of refi (title, etc.), quicker, faster deal

  2. Reply
    BOB B
    May 21, 2011 at 3:37 am

    A Loan Modification varies in definition by lender but in general means “a permanent or temporary change in one or more of the terms of a mortgagor’s loan, which allows the loan to be reinstated, and can result in a payment the mortgagor can afford”. In other words, your interest rate can be lowered, your remaining balance re-amortized and/or the current term of your loan extended, in order to reduce your monthly payment.

    ADVANTAGES:
    A successful Loan Modification will give the applicant the possibility of:
    1. An interest rate reduction up to 6%
    2. The advantage of having the reinstatement amount (total amount of late payments) deferred to the back end of the mortgage and added to the current principle.
    3. A reduction in the actual principle balance of the loan
    4. Demonstrate to the Lender that they are “pro-active” to the foreclosure process and trying to resolve the situation.
    5. Can start a Loan Modification at any time in the foreclosure process and even if you are not even in foreclosure!
    6. Has many of the same features of a refinance, without the high cost.

    DISADVANTAGES:
    You only get one shot at the Loan Modification so you need to get it right the first time. You may need to make a payment to start the Loan Modification between zero and two payments, depending upon the Lender.

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