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Loan Modification Goals & Expectations:

_____ Principal balance reduction to reflect market value

_____ Interest rate reduction for interim

_____ Permanent interest rate reduction

_____ Delinquent payments moved to the back of the loan - not repayment plan

_____ Actual deletion of delinquent payments and fees

_____ Removal of bank fees from delinquency

 
"The most prevalent method of loan modification is an interest rate reduction, which involves establishing a fixed rate of interest for an extended period of time. Lenders prefer this option because it ensures that there is a continued stream of payment and it prevents more drastic measures, such as foreclosure or a short sale. Lenders, of course, do not want to resort to a foreclosure or a short sale because they stand to lose an inordinate amount of money.

The effect of the foreclosure on the borrower is sadly not a consideration to the investor and lender, though the presentation and the facts of the borrower's condition do impact the decision. This is why it is imperative to use a loan modification specialist to present the strongest possible case to the lender for the modification. The amount of equity in a home is a crucial factor affecting the modification. The lower the equity in the home, the greater the chances are for a modification service. The level of equity depends on the overall property value, which a homeowner can generally determine by comparing the sale value of other homes in the neighborhood and the trend of the sale prices. The greater the equity in the home, the less motivated a lender is to allow a modification. Other criteria considered in the loan modification process include whether the loan is based upon an adjustable rate. Adjustable rate loans are preferred for qualifying for the modification. The adjustable rate should be coupled with a borrower who is behind on payments and who has a verifiable, reduced income. This reduced income is known as the homeowner's hardship and is used as leverage in the modification process.

The FutureLoan modifications are here to stay! Legislators and government officials are pushing new proposals and legislation to save homeowners (and the economy). The FDIC recently unveiled its own proposal from Chairwoman Sheila Bair to streamline the process. "It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures," the Federal Deposit Insurance Corp. said in a statement on November 14, 2008. One of the key elements of the proposal is that housing payments for the delinquent borrowers would be reduced to 31% of their income. The plan would help 2.2 million borrowers in obtaining loan modifications. Bair's proposal is commendable but it is only one of several options currently being considered. However, regardless of whether the FDIC's plan is approved or whether alternate legislation prevails, borrowers are the beneficiaries and loan modifications are here to help keep people in their homes. "

-From "The Crux and Craze of Loan Modification" by Andy Warshaw, J.D.

To view the complete article go here: http://www.thenichereport.com/the_crux_and_craze_of_loan_modification_by_andy_warshaw