A modification of an existing loan is when the terms of the loan are altered by the lending institution. It may involve a slight decrease in the interest rate, an extension of the amount of time for repayment, a different type of loan, or any combination of the three types of loans.
The borrower is typically unable to repay the original loan, which is the primary reason why such modifications are made. The majority of loan modification processes that are completed successfully are negotiated with the assistance of either an attorney or a settlement company. Some borrowers may be qualified to receive assistance from the government in modifying their loans.
How Loan Modification Works
Although a modification of a loan can be requested for any type of loan, the most common type of loan for which they are requested is a secured loan, such as a mortgage.
• A borrower in a financial crisis who is unable to repay the loan under its original terms is typically eligible for a loan modification.
• Successful applicants are typically represented by legal or other professional counsel.
• Certain customers have access to government programs that can assist them in paying off their mortgages.
During the process of settling a dispute or in the event that there is a possibility of foreclosure, a lender might decide to modify an existing loan. In these kinds of circumstances, the creditor has arrived at the conclusion that a charge-off of the debt or a foreclosure would be more expensive for the company than a loan modification would be.
An agreement to forbear payments is not the same as an agreement to modify an existing loan. A borrower who is experiencing a temporary financial difficulty can find temporary relief in the form of a forbearance agreement. An agreement to modify the loan is a solution that is good for the long run.
A loan modification could involve lowering the interest rate, extending the amount of time needed to repay the loan, switching to a different type of loan, or any combination of these three options.
When it comes to negotiating a modification of your loan, you have two options for getting professional assistance:
• Mortgage modification attorneys specialize in negotiating for the owners of mortgages that are in default and threatened with foreclosure.
• Settlement companies are for-profit entities that work on behalf of borrowers to decrease or alleviate debt by settling with their creditors.
A portion of the borrowers may also qualify for assistance from the federal government.
Government Programs
Because of the significant amounts of money that are at stake, mortgage loan modifications are by far the most common type. During the crisis of home foreclosures that occurred between 2007 and 2010, the federal government established several programs to assist borrowers in modifying their existing loans.
Although some of these programs are no longer active, some borrowers may still qualify for assistance in modifying their loans through programs sponsored by the government. The government-sponsored mortgage company Fannie Mae offers a program known as Flex Modification. Mortgages insured by the Federal Housing Authority may be eligible for modification through agency's FHA-HAMP program. The United States Department of Veterans Affairs offers mortgage delinquency counselling to veterans of the armed forces.
Traditional financial institutions often operate their very own loan modification programs.
Making an Application for a Modification to Your Mortgage Loan
When applying for a modification to a mortgage loan, you will need to provide specifics about the borrower's financial situation, as well as the mortgage and the circumstances under which they are struggling.
Qualifications and prerequisites are going to vary from one program to the next. These are typically determined by the total amount that the borrower owes, the value of the property that is being used as collateral, and particular aspects of the property that is being used as collateral.
An offer with new loan modification terms will be included in the approval package for a borrower if that borrower is given approval.