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What Happens in a Loan Modification?

As a Northern Virginia short sale listing agent, I meet many sellers who really seem confused on what happens in a loan modification. There seems to be a general misconception that loan modification means a portion of your principal loan balance will be forgiven and reflect more of the market value of your home. While this may happen in RARE instances, it is not how mortgage lenders will do business 99.9% of the time.

Loan modification is actually a temporary reduction in interest rate to help you through a financial rough patch. When you signed your loan documents, you promised to repay the amount of money you borrowed. Why would the bank modify that? It is the amount you borrowed. What banks can do is adjust the interest on your loan, but only temporarily, usually for one year.

If you need a longer term adjustment of interest rate, you may want to look into a refinance. Under new guidelines, you may be able to refinance up to 105% of the value of your home. Until you talk to you mortgage lender, you won't know exactly what your options are.

When you are facing difficulty paying your mortgage, the first step is talking to you mortgage holder to see what modification they may be able to perform on your mortgage. Just make sure you go into that conversation with realistic expectations.

Chris Ann Cleland, Realtor- Licensed in Virginia, GRI & Short Sale Specialist. Affiliated with Long & Foster, 7526 Limestone Drive, Gainesville, VA 20155. To contact Chris Ann, call 703-402-0037 or email chrisann@LNF.com.

Posted by Chris Ann Cleland, GRI on 11/09/2009 12:08 PM

Comments (12)

Loan Modification in the Mortgage / Finance Channel

loan modification, short sale, short sale realtor, gainesville short sale realtor

Originally posted at: Speaking of Homes...: What Happens in a Loan Modification?

This post has been included in Virginia Information Prince William County, VA Information

12 Comments on What Happens in a Loan Modification?

NOV

Hey, Chris Ann,

I wasn't at all aware that loan modifications were temporary. Is that typical?

Nancy: Most of my clients are finding they are. And therefore, most banks are finding that the loan modificationees are defaulting a year later.

Chris Ann-I read some interesting statistics yesterday regarding the percentage of loan modifications that banks were or make that aren't doing. It is dismissal!

Cindy: I know they aren't doing many. Maybe it's because such a huge number of the mods they do end up defaulting within twelve month anyway.

NOV

Chris Ann, rats! I thought maybe I could sweet talk Bank of America into reducing my loan balance because it would be much nicer to pay off a lower note. But all kidding aside, I think there is a tremendous amount of confusion over loan modifications and what the banks will or will not do. And it seems like in many cases it would actually make business sense for the bank to lower the principle instead of doing a short sale or foreclosure where they are also getting less money that the amount of the note.

Pat: I can completely understand why they don't. Sets a terrible precident. Who gets it? Who doesn't?

NOV

Chris Ann -

I wasn't aware that the modifications were temporary either. Thanks for the heads up. I need to learn more.

Michael

Hi Chris Ann, I found your post in the week in review, great work (as always) and congrats on making the list again!

NOV

Thanks for the explanation. Unfortunately sellers doing modifications don't usually understand it is a temporary situation and extends their loan term by the 5 years.

Michael: That's why there is such a huge default rate. Doesn't really solve the problem. Some people just can not afford their homes.

Russell: Thanks.

Joyce: And most of the late charges and missed payments are tacked onto the principal.

Chris..It's a wonderful program and can save many homeowners from financial disaster...The extra years are tacked onto the back of their mortgage and can help them through a difficult time until they can get back on their feet again..This program has helped several folks out of temporary hardships..and saved their homes for them..Thanks

Hannah: When folks are in a temporary hardship, this is a great solution.

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