The lending industry has changed dramatically in the past two years. Declining home-equity, credit problems, loss of income and a tightening of lending guidelines have made it impossible for many homeowners to refinance into a lower payment. As a result, almost all banks are offering alternatives to their customers. This solution is called a loan modification.
A loan modification works by changing (improving) the existing terms and rate on your current mortgage. It is not considered a refinance because you are not paying off or replacing your existing loan. As a result, there are no closing costs. The whole process is done by negotiating with your existing lender. When completed, the results can be dramatic. Many borrowers will see payment reductions on their mortgage in excess of 30%. Other benefits include:
-Reduction in the interest rate/mortgage payment
-An adjustable mortgage can be converted into a fixed rate
-Principal reduction (the lender forgives a portion of your loan)
-Delinquent and late payments automatically brought current
The philosophy behind a loan modification is very simple. Your lender knows that if they can improve your situation, it is less likely that you will default. It's a small concession for them which can have tremendous benefits for you.
Negotiating a modification is not as hard as you may think. Recent changes in the law have improved half the battle as all banks are accepting the practice of modifications now (they weren't just 12 months ago). Today, getting a loan modification is merely a matter of qualifying for one. The guidelines have become pretty standard.
If you can demonstrate a hardship and show your bank that you have some regular income which would allow you to make a reduced mortgage payment, your chances are good that a modification will work. You have nothing to lose by trying. The worst thing in the world that could happen is that they say no.
Your decision now should be to use a do it yourself loan modification guide or hire a professional. Professional services charge approximately $2000, sometimes more depending on the situation. Last year it might have made sense to hire a professional. Banks were not prepared, they did not have formal guidelines and weren't completely acceptant of the modification concept. Things are much different now as the Government has stepped in and standardized qualifications and also mandated acceptance. Today, using a professional might be convenient if you don't have the time or desire to call your bank. However, don't expect the results to be any better than if you had done it yourself. Banks do not give preferential treatment to customers who have professional representation. In fact, many banks warn against it (Chase has a outgoing message regarding this)
In many cases you might get better results doing it yourself as you are able to communicate directly with the bank, you are in control and thus can "sell" yourself better. Professional services don't do this. It's all about the volume for them. For example, if you take your car to the car wash it will get cleaned quickly, but if you do it yourself and invest some time, you can clean it better. The same principle applies here too. Keep in mind that it is always the bank that makes the decision on your modification, not the professional services.
A small amount of time invested can have dramatic affects if you are considering a lower mortgage payment
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J. Pisicchio is a mortgage professional with 20 yrs industry experience. Working at small banks & large institutions (Chase), he was formally trained as a credit analyst. His goal is to help consumers make the best financial decisions regarding their mortgage needs. For information on the
Do It Yourself Loan Modification Guide visit
www.mortgageloanmodificationsecrets.com
