Loan Modifications, The Truth Behind The Spin

Loan Modifications have caused an awful lot of spin in the last year. They have been portrayed as the only hope for cash strapped homeowners, as the Devil incarnate out to rip off desperate debtors. It is also the single largest investment the Government is backing in order to fend off the black clouds of the current Housing and Construction Industry crisis.

So what is the truth?

Are Loan Modifications great news for debtors or a risky business that can leave you in a worst state than when you started.

The answer is both, either or non of the above because it all depends on your personal circumstances and the way you deal with your loan modification.
Loan modifications are different to loan refinancing in that there is not a change of contract. When you refinance your mortgage or loan you have to start the whole contractual process with all the expenses for the debtor and lender that it involves. Loan modifications keep the old contract with some variations. These variations can reduce the interest rate, principal (the amount you borrowed) reduce the monthly payments and increase the length of the loan. The Government is investing trillions of dollars to encourage banks to get their act together and help borrowers in trouble to modify their loans.
This of course is not an easy task as Banks are not geared to modify loans, but to provide loans and collect payments. The whole structure of a bank is designed to do pretty much the opposite to modifying loans.

However the alternative to a home loan modification is a mortgage foreclosure which is a costly operation for the bank that is rarely the best option, certainly not for the borrower who loses his home. Having said that in extreme cases when the borrower really can’t afford the payments and the price of the home has not dropped considerably it can be better for the homeowner to sell the house and foreclose the mortgage. This means that banks generally open to negotiating a loan modification as long as they are certain that the borrower can afford the modified monthly payments or that the customer can really not afford the current payments. Convincing your bank that this is actually the case is vital. The way you do this is by providing accurate information in the format and portrayed in the light your bank wants to see.

Presenting the information you are asked for and still portraying a picture that will help you get the loan modification you need is not a simple task. It does require an understanding of how loans work. You can do this yourself but you will need to spend some time researching the forms you are asked to fill and decide how to present the facts.

Loan modifications can also be expensive procedures that cost you money you don’t have and don’t provide you any benefits. This is the case of borrowers that do not qualify for loan modifications but are still made impossible promises by dubious loan modification consultants that ask for outrageous fees upfront for their services.

Loan modification companies can provide accurate advice and help you understand the intricacies of loan modifications, helping you decide how to present your case to the bank. However it doesn’t take a rocket scientist to do this if you are willing to spend some time researching your loan and the options you have.