Facing foreclosure can be overwhelming and scary, but by taking the right steps you may be able to keep your home and save your credit. The following information is provided to help give you a better understanding of loan modifications.
Overview of Loan Modifications
A loan alteration is one of the best options obtainable for struggling homeowners and lenders alike.
A loan alteration is advantageous to the borrower because it allows the individual or family to keep in their home and grants them loan terms that work better for their particular life style or situation. A loan alteration in comparison to foreclosure, bankruptcy, or some of the other options, allows the borrower to keep their credit score intact.
Loan modifications are also advantageous to edges and lenders, especially with foreclosure rates sky rocketing in the last few years. edges lose a lot of money in a foreclosure. Not only does it cost money to go by with a foreclosure but it often results in an overall loss for the edges, as the homes often sell for less than they are worth, or less than the noticeable loan amount itself.
In a CNN report on March 6, 2008 Bob Moulton of America Mortgage said, “It’s cheaper for a bank to renegotiate payments than to chase someone and miss out on monthly mortgage payments.” This is thoroughly true; edges lose over 50 cents to the dollar on homes that are sold by foreclosure auctions.
Loan alteration is a long-term solution that will help the borrower make their loan payments and stay in their home. This can be achieved by:
decreasing the interest rate
changing from a variable to a fixed rate mortgage
extending the term of the loan (the period of time the borrower has to pay the loan back)
switching to a different kind of loan altogether
Some forms of loan modifications are more easily obtained than others. One of the easiest ways to modify your loan is to ask for a decline in the interest rate. Most lenders are willing to aggressively decline interest rates for qualified applicants. A decreased interest rate can save you anywhere from a few hundred to a thousand dollars every month; this depends on the amount of your loan.
Lengthening your loan is another way to modify, which is often not too difficult to have a lender carry out. By increasing the number of years you have to pay off a loan a homeowner can decline their monthly payment by a associate hundred dollars. However, it should be noted that this option increases the overall amount of the repayment as additional interest accrues over the extended period of the loan.
A rule balance reduction is the most difficult loan alteration to acquire. This involves the lender forgiving a portion of your debt. It is very difficult to get a lender to agree to this kind of alteration, because the lender has to report that money as a loss on its balance sheet and the purpose of the loan mod is to minimize losses.
Background on Loan Modifications
Sub-chief mortgage practices deserve much of the blame for the current crisis. Throughout the early part of this decade, mortgage lenders earned huge profits lending money to borrowers with questionable credit histories. The roaring housing market and the availability of easy credit perpetuated a cycle of refinancing whereby a borrower that could no longer provide their monthly mortgage payment could simply refinance into a new mortgage; often at a low teaser rate.
Once the housing market stalled, however, sub-chief borrowers found themselves unable to refinance. This led to record numbers of foreclosures. As reported in a New York Times article in December 2006, “about 1.1 million homeowners who took out sub-chief loans in the last two years will lose their houses in the next few years.” The article further explains that, “foreclosure will cost those homeowners an estimated $74.6 billion, chiefly in equity.”
Recently, a new wave of problems has arisen from so-called different-A loans. These Alt-A loans were very popular over the past several years among self-employed borrowers or those with stated incomes. Many individuals who obtained Alt-A loans have been unable to stay current on their mortgage payments, especially as those loans have modificated to higher interest rates. With housing prices dropping, borrowers are finding themselves upside-down and truly owing more on their loan than the value of their home.
If you are facing a serious financial crisis, Contact Western Capital today at [email protected]