Loan modifications are changes in the terms of a mortgage agreed upon by the borrower and the lender. Alterations are considered to aid homeowners in getting lower monthly payments that will deter possible foreclosure. The financial institution and the homeowner meet to determine what loan terms can be altered to the advantage of both parties. The hope is that individuals will be able to pay a smaller monthly payment based on their current income.
Lenders have the ability to deny any modifications, but are usually motivated by revenue to recommend better options to the homeowner. When a financial institution has to foreclose on a property, there may be less income accrued than if they had allowed payments at a reduced rate. Federal programs available within low-income states mandate that lenders offer appropriate modifications. Mortgages are altered in several ways that include a reduction in interest rates, principals and late fees. The loan can also have a monthly payment cap according to a household's income and be extended over a longer period of time. Forbearance programs are obtainable for those needing a few more months to get back on good financial standing.
There are determining factors a lender will consider before making mortgage modifications. There are many factors a lender will take into consideration before making mortgage modifications. The major approval is based on the nature of hardship that has caused the financial problem. The recent economy has shown an increase in the unemployment statistics. Finding work can be very difficult with the influx of lay offs. An accident could leave the sole income provider incapacitated or with an urgency to pay unexpected medical costs. Other determining factors to loan modifications may be the property equity, amount owed and future financial situation.
Many homeowners now have the option of utilizing HAMP or the Home Affordable Modification Program. Applications can be submitted when borrowers are in default, bankruptcy or foreclosure. The process starts with a simple modification affidavit. The borrower then provides proof of income and tax returns. All documents are submitted to the lender to await approval.
With the housing crisis upon us, banks lose money if they have to foreclose on a property that is worth less than the borrower owes. The HAMP program believes struggling property owners should be given the chance to stay in their homes.