Important Disclosure: This information is meant to be a general guide to consumers about what to expect from a loan modification. I currently do not do loan modifications nor do I receive any money from any loan modification company for referring people to them, although my employer apparently is setting up a loan modification team, I have yet to refer them someone. I know this information because of the estimated one thousand people that I personally have spoken to over the last year about their options and referred them to various organizations for help. I have been saying the same thing about loan modifications for quite some time – that no lender follows the same process and each individual situation is different – so do not take anything here as a “guideline” or a “formal loan modification process” . In my experience, there is no such thing as a formal loan modification process(even though there are programs recently announced such as the Streamlined Loan Modification Program).
Many people that I speak with are not currently late on their mortgage payments, but are having some kind of financial hardship and are not sure that they can continue paying and curious as to whether or not they would be better off doing a loan modification or refinancing their current loan.
When Loan Modification Makes More Sense Than Refinancing
For people who currently owe much more than their house is now worth, it probably makes the most sense to attempt to work with your lender to get your loan modified – because unless you are in an FHA or VA loan, you cannot refinance and even if you are in an FHA or VA loan, you are possibly going to end up with a better overall financial situation through loan modification process than the FHA/VA streamline without appraisal programs.
If you are currently in situation where owe more than your house is worth – you have two choices: keep paying on your mortgage or don’t keep paying on your mortgage (these choices are brought to you by Mr. Obvious).
If you choose the latter (to not continue to pay your current mortgage) at some point your lender may work with you to modify your loan or they will ultimately foreclose on the property and you will have to move out.
Loan Modifications: What To Expect If You Are Not Currently Late
If you are not currently late on your mortgage and you call your lender to inquire about a possible loan modification, expect them to tell you something like “they are sorry, but they can’t help you because you are current on your payments.” Usually, the lender will add something to the effect of “please keep in mind that if you do indeed become late on your payment, it will negatively impact your credit score.”
So at this point, you have two options: 1. hire a loan modification lawyer or company to represent you and attempt to negotiate with your lender or 2. not pay your mortgage payment (again, Mr. Obvious speaking).
No matter which of the two choices that you choose, you can expect that no matter what happens, your situation will probably take a path that is uncharted. Because there are no official loan modification guidelines, you cannot accurately “predict” what will happen with your situation. The loan modification process varies by lender. It also varies by individual borrower situation at any given lender.
So the absolute best thing that you can do as a consumer is to arm yourself with as much information possible and do your best at negotiating an outcome (with or without the assistance of someone else) that will help you stay in your home and have an affordable mortgage payment.
Possible Loan Modification Outcomes
Some of the loan modification outcomes that I have seen as people have reported back to me what happened in their situation:
- Interest rates reduced to as low as 1% for a period of time, then increasing by 1% per year after a period of time and then fixed in the 5% range for the rest of the loan term.
- The term of the loan being extended from 30 years to 40 years.
- Principal reductions – where the lender agrees to “write off” a significant amount of money on the loan balance to reflect the current market value of the property.
These are the three most common things that I have seen — but because there is no formal process or guidelines for the loan modification programs – anything is possible.
If my experience holds true, there will be more than just a couple of loan modification attorneys who will leave a comment on this post telling us *even more* information about what is possible and how they can help you stay in your home.
Make sure that if you decide to choose a loan modification lawyer or company, you do your homework – many of them have different fees and different experience and it can be confusing who can best help you achieve a successful outcome with your lender.