A loan modification may be the best way to avoid losing your home if you are facing foreclosure. You may get the impression from the media that all the evil lenders want to do is take your home away from you. Nothing could be further from the truth. Lenders would like nothing better than for you to stay in your home and make payments to them every month for as long as possible. When a lender forecloses on a home, they almost always lose money. In fact, they almost always lose a LOT of money.
Most of the time, the company we almost always refer to as the “lender” is really the “servicer” – a company receiving a fee to manage the loan and collect payments. In the past, mortgage servicers often did not have the option of modifying the loan terms in order to avoid foreclosure. However, in 2009 the U.S government passed the Making Home Affordable Act setting up a variety of programs designed to help borrowers avoid foreclosure. One of these programs is the Home Affordable Modification program which gives lenders financial incentives to modify loans to help borrowers avoid foreclosure. In fact, this law requires all servicers of loans owned or insured by Fannie Mae or Freddie Mac to analyze a borrower’s situation to see if they qualify for these programs before they are allowed to proceed with foreclosure.
If you obtained your loan prior to January 1, 2009 and your current payment is more than 31% of your gross monthly income, and you still live in your home, you are most likely eligible to have the terms of your loan modified.
Your mortgage servicer has several options to modify your loan and get your payment lowered below 31% of your income. The first is to lower your interest rate. The servicer has the option to lower your interest rate down to as low as 2. In addition, they can extend the term of your loan up to as much as 40 years. If some combination of those 2 options still won’t get your mortgage payment below 31 percent of your income, then the servicing lender has the option of allowing part of the principal amount due to be set aside and paid at the end of your mortgage term or when you sell the property at some time in the future.
If you feel that you meet the requirements stated above for obtaining a loan modification, you should visit the Department of Housing and Urban Development’s website to locate a HUD approved housing counselor. These counselors are available at no charge for counseling to avoid foreclosure. A HUD counselor is trained to help you find the best program available to get your loan modified and avoid foreclosure.
Unfortunately, although foreclosures have been occurring in record numbers for several years, lenders are still working to set up the processes necessary to deal with all the requests for loan modifications. Therefore working out a loan modification may take a long time. For many, it will be well worth the effort.