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Loan Modification Q & A

Modification Q & A

I Need To Know More About Loan Modifications!

Q: How will a loan modification affect my credit?

A: Having your undesirable home loan modified favorably may actually improve your credit. Remember that you will not be adding any additional debt, just reducing debt on an existing home. Your payments will actually be lower, allowing more cash flow to pay your other bills. During the process, if you choose not to pay your bills, (or if your circumstances make that unavoidable,) the delinquency has its own effect on credit.

Q: Will a loan modification extend my loan, making it start all over again, like with my last refinancing?

A: Under most circumstances, your modified loan will have the same termination date as the original. If your lender cannot sufficiently stay within the HAMP guidelines for reduction of your payment (for instance having to lower the interest rate below 2%), they have two options; to reduce your principal, or to extend the term. Reducing the principal cost them money they do not want to lose, so they may at that point offer to extend the loan. But most of the time, by dropping the interest rate from 6% to around 3%, most mortgage payments will be lowered by $500 or more per month. That is usually enough to stay within the guidelines, and save both the lender and the borrower some money.

Q: If I try to do it on my own and don't get the results I want, can I try again with professional help?

A: No. The HAMP (Home Affordable Modification Program) eligibility requirements clearly state that you only get one opportunity. The thinking is that if you don't get it right the first time, it is likely that another attempt would be a waste of time, so why bother. I personally feel otherwise, but they don't care what I think, so please get it right the first time.

Q: What if I'm already in foreclosure?

A: Any foreclosure action should be temporarily suspended during the trial period, or while borrowers are in negotiations for the modification. In the event that the Home Affordable Modification fails, the foreclosure action may be resumed. The lenders do have a few tricks to promote failed trial periods. (See the first three bullets under "What should I do while I'm waiting?") In spite of what you may have heard, banks that have enough reserves have been sitting on their foreclosures rather than selling in the current market. By waiting until the market turns the bank stands to profit billions of dollars instead of losing them. For lenders it is all about the bottom line. So far, the number of failed trial modifications is staggering. So be sure to make all of your trial payments on time and turn your trial into a permanent loan modification.

Q: How Long Does a Loan Modification Take?

A: Ralph Roberts from Realty Times sums it up nicely. The loan modification process typically takes 30 to 90 days, depending mostly on your lender and your ability to efficiently work through the process with your attorney or other loan modification representative. The more complex your situation or the greater the degree of concessions needed from the investor, the longer the process takes. Borrowers with a lot of collateral issues can see their loans take longer; from as few as 60 days, to as long as 150 days. A professional can often reduce the amount of time required by processing your paperwork efficiently, presenting your application exactly the way the lender wants it, and knowing from past experience what the lender is able and typically willing to agree to.

Q: What should I do while I'm waiting?

A: Again Ralph Roberts from Realty Times and I are in agreement. When your fate is in someone else's hands, 30 to 90 days can seem like an eternity. By doing your part to keep the process on track, remain informed, and explore other options, you not only improve your chances of achieving a positive outcome, but you can also reduce the stress that commonly accompanies the waiting process. For your part, you can continue to make progress on your own by doing the following:
  • If you hired a loan modification specialist to represent you, do not speak with your lender or lender's representative. Refer all matters to the professional who is representing you. Anything you say to the lender could confuse things or compromise your representative's ability to negotiate the best deal on your behalf.
  • Log all phone calls and correspondence between you and your lender or representative. Write down the number you called, the person you talked with, what the person said, and what you said not word for word, just jot down the key points. Some lenders also use implied actions unscrupulously to influence panic decisions in the lender's favor. Others have been known to send you paperwork that needs a signature, but looks just like something you have already done. (They are hoping you ignore it so they can claim you didn't cooperate; then once it is too late, deny the permanent modification.)
  • Keep track of important dates. If you hired a third party representative, they will (or should) keep you posted, but the lender simply doesn't have the time to make follow up phone calls. If you're dealing with your lender directly, you'll have to be the one making the calls. If you do not hear something back on the date promised, call the next day to find out what's going on. Lenders almost never call you back with updates. Mark your calendar and schedule periodic update phone calls. Consistent follow up is paramount to a successful modification.
  • Explore other options just in case. Especially when trying to get your loan modified on your own, the lender may deny your request for a loan modification or presents an offer that you cannot accept. In that case you will need a plan B (and maybe a plan C and a plan D). Consult a real estate agent about listing your home for sale. Talk to a mortgage broker or loan officer about refinancing. Speak with a bankruptcy attorney to find out whether filing bankruptcy would be a good choice.
  • If you are trying to get your loan modified on your own, don't be surprised if you continue to receive delinquency notices or late payment phone calls. Under a standard modification, lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should ask your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. If the lender is able to foreclose in 30 days and a workout takes 60 days, there's a slight timeline problem. Push to have all default and foreclosure actions put on hold while your workout attempts are underway.

If you would like to do your own loan modification, and would like to be ahead of the game, the information available (Click) here can save you a lot of confusion and the headaches associated with making a mistake.

If you have any questions about loan modification that haven't been addressed on this website, please drop us a note.

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