What is a loan modification?
It is when the lender (Bank) and borrower (Homeowner) enter into a new agreement that replaces or modifies the original agreement. For example the Bank may allow you to defer 3 months worth of payments without penalty or any negative information being placed on your credit report.
What is modified?
There are several components to a loan.
o The Rate, or Interest which is usually a percent (APR)
o The Term which is a number of months or years
o The Principle which is the total owed
o The Payment which is the amount you must pay each month
o Penalties -- Some loans have early repayment fees.
o Costs -- These are the "fees" that are charged to get or modify the loan
o First payment due date
All of these may be modified but this is uncommon. Usually a Bank will allow a customer to modify what is reasonable based on their unique situation. I will give some examples.
Example) If you currently pay $1,500 per month Principle and Interest (PI), and your income decreases by 30% due to a temporary condition such as illness. The bank may allow you to pay $1,000 for the next 12 months until you are able to "recover."
Who can do it?
You - IF IT IS YOUR LOAN - but it does take skill. If you found a "Loan Mod" business make sure they are legal. This is the biggest scam currently in Florida and numerous other states! As a rule all attorneys can perform the loan modification. In many states Mortgage Brokers can do
them. In some states Real Estate Brokers are allowed. As a good rule -- If the number you call is a cell phone, no website exists or a new website, the BBB has no information, you cannot Google anything about the company, you saw the ad on the side of the road on a 1x3 handmade sign, you are made promises that seem too goodaEUR?MOVE ON! In many states such as Florida only $150 can be collected upfront by an agency, however, attorneys are exempt due to trust accounting regulations and other rules.
How is it done?
The procedure is started by contacting the "loss mitigation" or "workout department" or "loan modification" department of your bank. They may have forms to complete or instruct you to begin the process online.
You will need many documents:
o Hardship Letter stating why you need this
o Pay stubs or documentation of income
o A qualified opinion of price -- Appraisal, BPO, CMA, Etc. If you have no clue what these are you need to do more homework or seek a professional.
o A request for what you want modified
o Condition or pictures of the house (If it helps)
o Documentation of changes in the neighborhood
o Crime rates (If it helps)
o Credit score knowledge -- Do you still have good credit -- if not why?
o Copies of your last statements (1, 2nd mortgage if applicable)
o Proof that it is you - Drivers license etc.
o Proper phone numbers to call and initiate the process
o Some documents they may request you complete online, print and send.