What is a Loan Modification?

Turn on the news and you likely hear talk about the government planning foreclosure prevention measures with pressure on lenders to modify loans for struggling homeowners.  What is a Loan Modification? First let’s spell out what a modification means today.  Ten years ago when I was originating loans, we called them note modifications and they were extremely rare.  Today, most people refer to them as a loan modification or mortgage modification, but they are extremely common and probable for distressed homeowners to be approved by most lenders.  A home loan modification, can only become official if the present mortgage lender’s agrees to modify the existing mortgage note.  The loss mitigation department actually creates a legal addendum to your mortgage note that specifies the changes in terms like, interest rate, term and in some cases the outstanding loan principal amount. 

 

With the subprime mortgage meltdown fueling the foreclosure crisis, loan modification has become quite the buzz word.  Loan work outs and mortgage modification programs have been promoted and in some cases sponsored by Government agencies (ie. FDIC loan modification) to for homeownership preservation, but they have introduced some interesting new twists in the home financing maze.  Both government counseling agencies and local community service agencies concede they have been swamped by demand for loan modifications agreements.

Loan modifications have been around for years, but the recent events in our economy and the FDIC endorsement has created a whole new world for loan modification terms.  The media continues to magnify the spotlight on foreclosure prevention options with short sales, forbearance, and bankruptcy. However, homeowners seeking home loan modifications are at the mercy of lenders, because the workouts are voluntary and often without regulatory standards.  Now recent reports indicate that many homeowners are finding it difficult to know when a modification will benefit them and exactly how to qualify for a loss mitigation plan.    Read the Loan Modification Buzz article >