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Examples And Summary Of The Loan Modification Process (Page 1 of 2)
If you are trying to stop foreclosure, or have a mortgage payment that is too much, then you’ve probably thought about getting a mortgage modification. A mortgage modification is when the terms of a loan are permanently changed to allow a reduced payment.
The reduced payment is accomplished by either reducing the interest rate, lengthening the term, or lowering the balance to be more in line with the current market value. In most cases, a combination of all three of these choices are used to reduce the mortgage payment. There are other interesting options to reduce a payment with a modification too, but they all center around the term of the mortgage, the payoff, and/or the interest rate.
Here is an uncomplicated example of how a mortgage modification can lessen the payment, using each of the three options above.
Method 1 Dropping the interest rate
Lets assume the mortgage balance is $200,000 and the current interest rate is 7.75% and the payment amount is $1,750. Lets also assume this borrower has 20 years left on a 30 year loan. The borrower can no longer afford this payment because of a loss of income. They can afford a $1,250 payment, so the bank agrees to reduce the interest rate to a fixed rate of 4.25% for the remaining life of the mortgage. This will give them a payment of $1,240, without the need to lengthen the term of the loan or lower the payoff amount..
Method 2 lengthening the term of the loan
Lets use the same example above, only this time, we’ll assume the homeowner can afford a $1,500 payment. The loan amount will still be $200K and the interest rate will still be 7.75%. But in this case, the investor was not willing to reduce the interest rate. This happens very often, because the investors on the loan are not willing to accept a reduced rate. In this case, extending the length of the mortgage will make the payment affordable again and the investors will keep their 7.75% interest rate. The $200,000 balance is re-amortized over a 30 year period to get a reduced payment of $1,430. Everyone is happy because the foreclosure was prevented and the new payment is affordable.
Method 3 Dropping the payoff amount
In order for a payoff amount to be reduced, the value of the house must be less than the payoff amount. In a few cases, lenders will reduce the payoff amount without this stipulation, but it’s highly doubtful. To get the payoff amount reduced, you must give documentation to the lender that foreclosing on the house will cost more than dropping the amount owed to make the loan affordable again.
In this case, we’ll assume the home’s current market value has been established at $179,000, but the payoff is still $200,000. If the bank forecloses on the property and tried to re-list it, their estimated loses will be 30% of the home’s value. So after foreclosing on the property and re-selling, they will receive approximately $125,000, if they are lucky. Most lenders expect to lose 30%-60% on every foreclosure property, so this amount is being very generous.
Loan Auditing Tips: Modify your Loan Easily
The process of loan auditing is never an easy as dealing with lenders in this concern makes the work slow and arduous. The loan modification is different for every lender. Not only this, the standards change can be seen on weekly basis within the same lender. This fact is due to the new legislation that is passed by the administration. Therefore, for this reason it is said that loan modifications are unique and fluctuating. A borrower must consider a few loan auditing tips to increase ability for negotiating with loan modification. These are given below:
It is better to get a Forensic Loan Audit
The forensic loan audit helps the borrowers to separate themselves from various others who are contacting their lender to avail loan modification. The loan audit strengthens the borrowers position by giving legal power against the lender. Under this category, you can put the lender on notice of lending violations rather than relying on a financial hardship.
Be Patient and Courteous
Being patient and calm are very important points. The modification of loan takes time i.e. 90 days. So, it is worth to be patient during this time. Therefore, calling and harassing the lender everyday can make him irritated and time consumed by the people who are supposed to be work on loan modification is affected. So, it is requested that a borrower must follow the time allotted by the lender. Being courteous is another important factor that must be considered.
A borrower must present himself as a Good Candidate
It is important that a person should not understate his income, assets, and ability to repay a loan modification. In such situation, the lender may file you foreclosure now or then.
The lenders are willing to work with those borrowers who are generating their accurate income and are ready to pay the terms of new loan modification.
By following these tips, the borrowers can get the most out of their negotiations with the lender. There are many lenders in the market who can provide you loan auditing. Before making a decision on auditing, it is important to consider various loan auditing tips.