Loan modification: The one clean mortgage solution

06.23.09
By John Ulzheimer

I’ve written time and time again about how almost all mortgage alternatives have a significant downside. Foreclosures, short sales, and short refinancing all have a profoundly negative impact on your credit reports and credit scores with said damage lasting seven years. Having said that, I think we’ve identified the only alternative, other than you writing a huge check to pay down your home loan, which leaves you in your house and leaves your credit intact: loan modification.

“A loan modification is a change in one or more of the terms of your mortgage loan resulting in a payment that’s affordable,” according to Amir Fathi, a mortgage lender and co-founder of LoanModDVD, a do-it-yourself mortgage loan modification kit. “It’s the best option for the homeowner and the lender.”

A loan modification is roughly a five-year band-aid solution. The homeowner should not expect the lender to allow the lower payment to last for the full term of the loan. But it will definitely buy homeowners much needed time to allow for the market to recover so they can get out of the home the old-fashioned way, by selling it for an amount sufficient to fully cover their mortgage balance. The lender makes a little less money in interest, but they also don’t have an empty home rotting on the market while the lenders make nothing.  

The process of modifying a home loan is not a simple one. In fact, it can be cumbersome and time consuming, but not impossible and worth every minute invested. The homeowner will be required to show some sort of hardship preventing them from continuing to make their payments under the current terms, which seems to have varying definitions at this time. A newly unaffordable payment, a lost job by a spouse, an unexpected pay cut… these are all hardships by anyone’s definition. Now your job is to convince your mortgage lender to also accept them as being hardships. You must make your case convincing.  

The processes and procedures, as well as statistics, surrounding loan modifications are becoming more commonly known because of their growing popularity. In fact, I’ve predicted that the “loan mod” will become a very common process over the next twenty-four months as we continue to work through ~$500 million of adjustable rate mortgages. If mortgage lenders can keep up with the demand, we just might save millions of homes from foreclosure.   

More Experts Articles | News Home | Discuss in our Forum

Loan modifications are becoming more commonly known because of their growing popularity.