Loan Modification - Overview
In a typical home mortgage, the mortgage is paid off over a long period of time. Payments eventually extinguish both the principal of the loan and any interest that accrues. Meanwhile, the lender holds a lien on the real property until the debt is repaid.
If a borrower defaults on his or her payments a few times, the lender can foreclose on the property and the borrower will lose his or her home. One way this process may be stopped is to file for Chapter 13 bankruptcy, but another way is to obtain a loan modification from the lender. A “loan modification” is a permanent change in one or more of the terms of the borrower’s mortgage.
Loan modification happens through a loan workout or agreement that changes the borrower’s current loan terms. It is made possible when the borrower advises the lender he or she is unable to repay the loan under the original terms over the long-term. The loan modification permits reinstatement of the loan and should result in lower payments that the borrower is able to afford long-term. If you are having difficulty making your mortgage payments, an experienced Los Angeles bankruptcy lawyer can help you assess whether filing Chapter 13, seeking a loan modification, or some other option is best for you.Can a Loan Modification Help You Save Your Home?
- Some lenders are willing to negotiate with borrowers who have significant financial problems because it is more advantageous to get repaid through a modified loan than to have to foreclose on a property or deal with a borrower’s bankruptcy. When you apply for a loan modification, you must have a plan to explain why a loan modification is in the lender’s best interest and will minimize their loss.
- For your loan modification meeting with the lender, you will need all your lender correspondence and every document that relates to your mortgage, along with documents reflecting your most recent income or expenses, including your bank statements as well as your W2s and tax returns. If you have documentation to show why you have fallen behind in your payments, such as a letter laying you off from your job or a series of expensive medical bills that have left you with reduced income, you should also bring those documents.
- A lender who negotiates a loan modification with you may want you to apply a certain percentage of what you owe to delinquent fees and attorney’s fees. Therefore, be prepared to pay a chunk of past due money you owe, even if you cannot afford to repay the full amount you owe up front. Before accepting an offer of loan modification or forbearance, you should describe your situation to an attorney or accountant to make sure the terms are reasonable and offer long-term relief.
Under certain circumstances, you may consider getting a loan modification or refinancing through President Obama’s Making Home Affordable initiative. One of the programs of this initiative is the Home Loan Modification Program (HAMP), and its goal is to help homeowners whose loans were owned or guaranteed by Freddie Mac or Fannie Mae and were unable to pay their mortgage. The program was designed to help them get a mortgage with better terms such as a lower interest rate, lower premium payments, fixed rates, or a shorter term.
Eligibility for HAMP is dependent upon several specific requirements. This includes an unpaid principal balance equal to or less than $729,750 for a single-unit property, and a mortgage payment that is more than 31% of your current gross monthly income. You will need to check with your lender or an attorney for additional eligibility requirements. If you are interested in modifying your loan, talking to an experienced Los Angeles loan modification attorney like Devin Sawdayi may help ensure that you obtain the most favorable outcome possible. Contact us at 310-475-9399 or via the online form.