Loan Modifications


I read many real estate blogs and subscribe to multiple financial journals, I thought this is a well written article by Elizabeth Weintraub from Sacramento, California, explaining the loan modification process in a clear and concise manner.  A link to her site…

 I believe loan modifications will prevent foreclures and this is why. Nobody wants to admit it, but the lenders are making loan modifications seem confusing and difficult. Perhaps it’s an effort to discourage applications? If you’re considering a loan modification, the first thing you should do is pick up the phone and call your lender to find out if you qualify.

If you do not qualify, and can no longer afford to make your monthly mortgage payments, then call a short-sale specialist and put your home on the market as a short sale. Many lenders are placing a 3- to 4-month moratorium on foreclosures, so this will give you extra time to get that home sold.

The criteria for a loan modification is tight. Many banks insist on the following qualifications:

  • Existing loan origination date prior to Dec. 31, 2007 
  • Existing subprime loan (fixed or adjustable) or Option ARM
  • Loan-to-value ratio above 75%
  • Owner occupied as primary residence
  • Employed homeowner
  • Existing mortgage payments exceed 31% of gross monthly income.

However, if you qualify for a loan modification, you can assemble the paperwork the lender wants by putting together the following package:

  • 2 years of W2’s 
  • 2 years of tax returns
  • Financial Statement that lists assets and liabilities
  • Last 2 pay stubs
  • Hardship letter

Don’t pay a company to do this for you. Do it yourself.

If you are successful, a loan modification may give you:

  • A lower mortgage balance. 
  • An interest rate between 2% and 4%.
  • A loan term of 30 to 40 years.
  • A low monthly mortgage payment.
  • Elimination of negative amortization and / or a waiver of prepayment penalties and fees.

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