Can I Do Loan Modification on My Own
Homeowners can successfully negotiate a loan modification on their own, although it is somewhat more uncommon than hiring a lawyer or private company and obtaining one.
With a decent amount of time to call the lender and sit on hold and fill out documents that the bank will require for the modification, borrowers can negotiate directly. In many cases, it is simply a matter of calling the lender and requesting the documents to get started in the process.
In cases of a more complicated nature, such as those involving predatory lending or mistakes made in the origination of the loan, the bank may be more interested in covering up the wrongdoing and taking the home to foreclosure anyway. It is in these cases where having competent legal counsel can be more beneficial for debtors.
Does Loan Modification Hurt?
Physically, a loan modification should not cause any damage or injury to any human or animal. It is simply a method that homeowners can use to negotiate with their bank for a change of the terms of their home loan. This may include lowering the interest rate or extending the term of the loan, for instance.
In terms of the borrowers' credit score, a loan modification can not impact this. As of November 1, 2009, all loans modified under the government programs must include the following notice on the borrower's credit record:
"loan modified under a federal government plan"
As well, the government has made it mandatory that the credit reporting agencies do not count this note on an account as a negative which will decrease the borrower's credit score.
However, potential creditors do look at the entire credit history of the debtors, and seeing a loan modification may make them less willing to extend credit. This is dependent on the individual financial institution's lending policies and guidelines.
Does Loan Modification Work in a Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy puts the entire debt collection process on hold to give the filers time to work out a court-approved repayment plan for a portion of their debts.
Thus, because the process is on hold, a loan modification can not be enacted while a mortgage is currently under the supervision of the Chapter 13 trustee.
However, it is possible to negotiate a modification of a loan with the mortgage lender during the bankruptcy. But it will be necessary to have the bankruptcy case voluntarily dismissed before the modification can be finalized and put into effect. Banks may not be willing to negotiate with the borrowers under the circumstances of a Chapter 13, though.
How Long Does the Mortgage Modification Process Take?
The time it takes to finalize a loan modification depends on a number of issues, from how long the mortgage servicing company takes to how quickly the homeowners can get their paperwork in order.
The first is how long it takes the homeowners to get back on their feet financially and be able to afford any type of monthly mortgage payment. The bank will not modify a loan that can not be paid even at a lower monthly rate.
It also takes time to contact the bank and discuss what options are available, and get the application for the modification. This might take days to sit on hold and then get the fax from the bank.
Homeowners then need to spend time obtaining financial documents such as bank statements and tax returns, and send this and other relevant information to the lender.
If a servicing company is involved, it will have to send the loan modification application to the actual owners of the loan who have authority to approve or deny the modification.
If the modification is approved, it can go into effect within a period of weeks to a month after the borrowers are informed of the approval.
The entire process can take from a few weeks to six months for some homeowners. Those working with private companies, housing counselors, or attorneys may be able to negotiate an agreement more quickly than debtors working on their own.
What is a Mortgage Modification Loan?
A loan modification isn't a loan. It's not termed a "loan modification loan" -- it's just called a "loan modification."
It works by allowing homeowners and their lenders to negotiate to change the terms of a mortgage, usually to make the payments lower and more affordable to help the borrowers avoid losing the house to foreclosure.
There are a number of ways that borrowers and banks can negotiate for different terms. This list is not exhaustive:
- Lower the interest rate.
- Change an adjustable rate mortgage that may increase in a number of months to a fixed rate mortgage with more stable payments.
- Decrease the amount owed on the principal balance of the loan.
- Take any missed payments and, instead of requiring they be paid now, add them to the back end of the loan.
- Extend the term of a loan from 15 years to 30 years, or from 30 years to 40 years in order to lower the monthly payment.
The original mortgage is not replaced with a new one as in a refinance, but changes are made to the functioning of the current loan.