Loan Modification
What is a Loan Modification?
A loan modification is a permanent change to a loan agreed to by both the lender or mortgage servicer and the borrower. Lenders and servicers modify existing loans in an effort to help homeowners in a period of documentable hardship. The goal of the loan modification is to make the loan affordable for the borrower in the long term. The typical loan modification may result in a permanent fixed rate reduction or a temporary rate reduction. Some lenders may reduce the principle balance of the loan to make the loan more affordable for the borrower. Loan modifications used to only be given to borrowers when they were behind on payments and had serious, documentable hardships such as loss of employment, serious illness or death in the family. Now, however, many lenders are willing to permanently modify the terms of a borrowers loan for the better due to unaffordable interest rate adjustments or a change in income.
So how can you decide if a loan modification is a good option for you? First and foremost, understand you will have to describe to your lender a documentable hardship. Documenting a hardship is perhaps the most important aspect of the loan modification puzzle next to the borrower being able to afford to make modified payments. Even if the hardship is not permanent in nature, the most important aspect of the hardship is that it must be documentable, i.e. provable.
Her are some examples of hardships that justify a loan modification:
- Adjustable Rate Mortgage Reset-Payment Shock
- Illness of the Borrower
- Illness of a Borrowers Family Member
- Curtailment of Income
- Loss of Job
- Abandonment of Property
- Property Problem
- Inability to Sell the Property
- Inability to Rent the Property
- Mortgage Servicing Problems
- Transfer of Ownership Delays
- Reduced Income
- Failed Business
- Job Relocation
- Death of the Borrower
- Death of Spouse or Co-Borrower
- Death in the Family
- Incarceration
- Divorce
- Marital Separation
- Military Duty
- Medical Bills
- Damage to Property (natural disaster or unnatural)