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Loan Modification: Let’s Talk About It

Avoid Foreclosure With A Loan Modification

Avoid Foreclosure With A Loan Modification

‘Loan modification’ is the name we give to the process of negotiating with your loan provider so that you keep your mortgage contract, but with terms that are more realistic for you. The reason we’re talking about this is that the process of loan modification has changed since the Great Recession hit. In 2007, the typical loan modification was a short-term interest-rate reduction that was linked to a specific provable hardship like a job loss or divorce.

Today, however, loan modifications are undertaken for a much wider set of reasons and are generally permanent rather than temporary.  They are, however, still for the same purpose: to make sure that someone who can afford their house, but can’t afford their mortgage, can keep both. The Home Affordable Modification Program helped streamline the modification program and codify the requirements to help keep the roof over millions of American’s heads.

That means that in order to get a loan modification, you have to be able to prove that you can afford your house — which generally means proving that you have a reliable source of monthly income. That’s the first of the three keys to obtaining a loan modification: reliable monthly income.

The second key is the proof of hardship. You have to be able to demonstrate to your lender (and sometimes a court of law) that something legitimately happened to you to make you unable to afford your previously agreed upon mortgage. That thing can’t be “I signed up for a mortgage I didn’t realize I couldn’t afford.” Some significant circumstance has to have changed to render your payments unaffordable even though you have regular income.  Some of the more common reasons include:

  • Your ARM adjustment was unreasonable.
  • A family member became ill or otherwise dependent on you.
  • Your employment situation changed (i.e. you’re still employed and have a regular income, it’s just not as much as it used to be.)
  • The borrower passed away and their spouse or other relative took over the mortgage.
  • Military duty called you away.
  • You had to go to the hospital, and your obligations to pay off your absurd medical bills have meaningfully impacted your monthly income.
  • Other property you once rented was damaged or otherwise became unrentable.

Excuses that definitely won’t work include “I didn’t realize it would be this expensive” or “my real estate agent/loan servicer/spouse lied to me about the actual cost.” No mortgage is filed without substantial paperwork telling you exactly what you can expect, so the “surprise” excuse is a no-go from the start.

The last key to getting your mortgage loan modified is documentation. In other words, even if the first two factors are true, if you don’t have proof of it on paper with legitimate origin, the lender will discard your story out of hand.

Of course, no lender is under any obligation to accept your request for a loan modification in the first place. They are overwhelmed with loan modification requests. So the process can be arduous. But if you’re prepared and armed with the information mentioned above you may be able to convince your lender that a loan modification is much more advantageous for them in your case. After all, the foreclosure process is much lengthier and can cost the lender considerably more. Gather your proof of hardship and your proof of reliable income on paper and call your lender. Nothing ventured is nothing gained. You may just walk out with your home and your mortgage intact.

Scott Storace

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