Mortgage modification can be defined as a process in which the mortgage terms are modified in a manner outside the contracts original terms of agreement between lender and borrower. This change in terms is on the basis of either the borrower’s inability to process the payments as per the mortgage or the mandate of the government to the lenders. The borrower may be late, bankrupt or in foreclosure when applying for the modifications.
Mortgage modification can benefit the borrower in many ways. The interest rate is reduced. Principal, late fees and other penalties are reduced. The term of loan is lengthened. The monthly income is capped to household income percentage. Mortgage forbearance program is adopted. Modifications are made at the lenders discretion. The lender offers better terms with the motivation and expectation of the borrower being able to afford payment which is lower. This is more valuable than proceeds of foreclosure sale.
Mortgage modification program offered by the government may be voluntary for the lender but there are incentives for participation for the lender. A mortgage modification program can also be mandatory where the lenders are required to modify mortgages in a manner that meets the criteria with regard to borrower, property as well as the history of loan payment. One of the federal mortgage modification plans is the home Affordable Program of Modification. This plan helps the struggling homeowners who are at foreclosure risk. This is done with the help of lenders by lowering the monthly mortgage payments. If one fails to meet the mortgage payments, one should not hide it from the lender who should be approached for assistance. The mortgage company will prefer to offer modification than commencing the proceedings of foreclosure which is costly for them.
A few steps have to be taken to negotiate a loan modification with a lender. It is important to know the state of ones finances before the lender is contacted. Find your monthly income, how much payments are done in bills and areas where the costs can be cut. A financial analysis should be done with the help of nonprofit counseling service. The counselor can help in negotiating with the lender. A good place where one can start is the consumer credit counseling.
The lender should then be contacted with ones needs, explaining the situation and the help one provide in a situation. Decide on a solution to the lenders query on how one can pay the loan eventually. An initial proposal should be submitted. If the financial strain is temporary, the lender can be requested for forbearance, or postponing the payments until the recovery of finances which may take a few months.
If one is not able to pay higher monthly payments, one can request the lender to grant a loan modification. One will then be required to provide complete financial history with details of income as well as the monthly expenses. It would be ideal if one has some kind of cushion in the income in order to justify the modification of the mortgage loan, if the lender changes the mortgage with fixed rate mortgage. On should show and explain the lender that fixed rate mortgage can be paid comfortably through extra income attend through a second job. This will result in easily being granted the modification of mortgage.
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