Loan Modification

A loan modification is accomplished by changing one or more characteristics of a loan.

If a borrower can demonstrate an ability to make consistent and long-term payments on a modified loan, most lenders will agree to such changes. The principle behind a loan modification is to change the terms of the mortgage to find a mortgage payment that the borrower can afford. As long as the mortgage lender can continue receiving monthly mortgage payments, the lender will continue to profit from the relationship. In a declining real estate market, the lender will lose more money by foreclosing on a property than modifying the loan.

A loan modification can involve one or more the following:

* temporary interest rate reduction
* permanent interest rate reduction
* adding an interest only option
* lengthening the amortization schedule (i.e. for 20 to 40 years)
* principal balance reduction; or
* a forbearance agreement

The process of a loan modification is as follows:

Step One: Analyze current financial situation
This first step involves calculating your monthly income and expenses. Do not get creative with these numbers. You want to be truthful and accurate in the representation of your financial situation. The lender will request supporting documentation. This will help us, as your attorney, and the mortgage lender determine the best long-term solution. Your expenses will include items such as:

* Credit cards
* Auto loan
* Auto insurance
* Child care expenses
* Alimony/Child support
* Medical expenses
* Health Insurance
* Life Insurance
* Cell Phone
* Utilities
* Food
* Transportation
* Cable/Satellite
* Any other monthly recurring expenses

You will also calculate your entire household’s income. This can include anyone that lives in the home. For example, a child that works part-time or a grandparent that collects Social Security disbursements. Other sources of income you want to include are:

* W-2 income
* Commission
* Overtime
* Bonus
* Tips or other undocumented income
* Earned interest
* Rental
* Social Security
* Pension/Retirement
* Disability
* Child Support/Alimony
* Unemployment

The mortgage lender will subtract all your monthly expenses from the total monthly income and determine how they can modify your loan to reach a mortgage payment that you can afford.

It is very important to understand that you do not want to accept any loan modifications that will not be sustainable over the long-term. Generally speaking, you only get one chance to obtain a loan modification from a lender. If you cannot make payments in 2 or 3 years again, they are not likely to modify the loan a second time. At that point, they will more likely foreclose on the property.

Step Two: Demonstrate genuine financial hardship
Every loan modification proposal will involve a hardship letter. Hardship letters are intended to show lenders why someone could not or cannot make their payment as scheduled. If your hardship is permanent but you still have income, you might be a candidate for an aggressive loan modification. If your hardship is temporary, you might be eligible for a less aggressive loan modification. Some types of hardships include:

* Payment Shock (Adjustable Rate Mortgage Reset)
* Loss of Job
* Damage to Property (natural disaster or unnatural)
* Reduced Income
* Failed Business
* Job Relocation
* Divorce
* Death of Spouse or Co-Borrower
* Illness
* Incarceration
* Military Duty
* Medical Bills
* Marital Separation

Step Three: Present Loan Proposal to Mortgage Lender
Our attorneys and staff will take all the information and prepare a formal proposal to the lender to modify your loan. Many experts in the industry agree that the presentation of the package is one of the most important factors in obtaining a favorable result. We understand how to package a loan proposal to give you the advantage. Also, there is a general consensus that when a loan proposal is presented by an attorney on your behalf (compared to a loan modification company) the mortgage lender will give the proposal more weight.

Step Four: Negotiations
We will review the decision of the mortgage lender and negotiate the terms, in consultation with you, to obtain new terms of a mortgage loan that make sense for you. Remember, the key factor is getting the mortgage payment to a level that you can make consistently and for the long-term.

Step Five: Accepting the Offer
Once we come to an agreement with the mortgage lender, our loan modification lawyers will help you tie up any loose ends and review the final paperwork.