Considering a Loan Modification?

A loan modification may be right for you if you are experiencing a hardship or facing foreclosure. A foreclosure can be postponed while working with your lender to find a loan modification solution, once approved your loan is brought current and the foreclosure is halted.

Something you should know is there are 4 main types of loan modifications, when discussing a loan modification with the lender it is important you understand the differences and which modification can give you the greatest benefit and how it will affect you in the short and long run.

First you have what is called the Straight Capitalization Loan Modification; this modification is where delinquent interest is added to your principal balance and is amortized over the existing term and interest rate. This will cause an increase in the homeowner's monthly mortgage payments. The straight Capitalization Loan Modification is not a good option for the homeowner that is facing a long term hardship and is struggling to make their monthly payments. In my opinion this is the worst modification available. The homeowner would have to qualify for this modification proving they would be able to afford the increase in payments.

Second is the Loan Modification with Term Extension; this modification extends the loan terms (the length of the loan). In most cases the delinquent interest is added to your principal balance, the term of the loan is extended a certain amount of months or years thereby reducing your monthly payments and making them more affordable. For example, a homeowner that had a thirty year mortgage and 25 years remaining could extend the term to 40 or more years. There can be many benefits to this type of modification; it can help you achieve the lowest monthly payment, lower payments may protect you in the event of future financial crises. If you become stable and are in the position you can always pay extra towards the principle to lower the balance and providing there is no prepayment penalties shorten the term of the mortgage.

Third is Step Rate Modification; this could be a good fix for a short- term hardship or problem, this modification is where the interest rate on your mortgage is lowered a maximum of 3% temporarily. A typical step rate mortgage reduces the interest rate by one percent for every year of the step rate plan (for a maximum of 3 years and a total of a 3% reduction). After the first year with a 3% reduction the rate begins to rise until it reaches its original rate.

Fourth is a Reduced Rate Loan Modification; this is a permanent reduction in the interest rate of your mortgage to make payments more manageable for the remaining term of your mortgage. Keep in mind the rate reduction can only go so low or it won't make since to the lender.

Another option a lender may consider is a combination of the above modifications. For example extend the term and reduce the interest rate to accommodate an affordable mortgage payment for the homeowner.

There is a lot of controversy surrounding Principle Reduction Loan Modifications; this is where your principal balance of the mortgage is reduced thereby reducing what you owe and lowering your monthly payments. Although lenders are rarely considering this type of modification, depending on your circumstances it may be beneficial to see if you qualify for a Principle Reduction Loan Modifications.

A complete comprehensive loan modification package can make the difference of being approved or denied for a loan modification. Just as thousands of homeowners already have, you can easily and successfully apply for and receive a loan modification on your own. There are many benefits associated when applying for a loan modification on your own; you will save the fees associated of hiring someone to do a modification for you, there is no chance of getting scammed, you are in control, you will not get lost in the crowd of an overwhelmed negotiator, and you will always know where you are in the process at all times.

We estimate at least 90% of denials are due to an incomplete file, the budget was improperly presented, or there were no comparisons to aid the lender in evaluating what was in their best interest a loan modification or foreclosure. Remember you are not alone thousands of homeowners are in the same position as you are in, no matter what you decide to do always keep open communications with your lender.

For information on how you can develop a complete comprehensive bank ready loan modification package in minutes, visit our website http://www.diyforeclosurehelp.com for easy step by step tutorials to an affordable proven online software program that incorporates the same tools and forms as the loss mitigation firms and attorneys use to develop bank ready loan modification package.

I have over 22 years of experience of owning, managing, and operating my own businesses employing anywhere from 1 to 35 employees and subcontractors at one time. I have spent the past 5+ year in the note and mortgage industry specializing in the analysis, structuring, and restructuring, of residential and commercial mortgages and promissory notes nationwide, for the purpose of the procurement, selling or brokering of the note with banks, other institutions, and private investors.

I have strategically aligned myself with experts in the mortgage real estate and mortgage industries taken several courses related to loan modifications and short sales. Seeing the down turn in the economy over the last few years, failing banks, mortgage crisis, and increase in foreclosures I have elected to turn my primary focus using my network and experience bringing solutions to struggling home and business owners to provide valuable alternatives and information to people who are upside-down, struggling to make their payments, behind on payments, or facing foreclosure. Visit our website for more detailed information regarding foreclosure http://www.diyforeclosurehelp.com

What is Loan Modification?

There is a lot of confusion and misinformation out there regarding loan modification and loan modification companies. In February of 2009 President Obama signed into law the Troubled Asset Relief Program or TARP1 legislation. This legislation included 75 billion dollars allocated to loan modification and refinancing. A significant portion of President Obama's stimulus package is focused directly at helping American citizens facing foreclosure. If an American homeowner is facing foreclosure President Obama wants that person to examine loan modification.

The recent housing crisis which has effectively crippled the economy has conversely created a new and fast growing business niche. The business of loan modification, unheard of a scant 13 months ago, has quickly become one of the fastest growing businesses on the web.

Loan modification or mitigation companies by design are meant to help troubled homeowners. These homeowners, facing foreclosure or the financial hardship presented by depreciating asset values and increased monthly obligations are looking for relief. One possible avenue is home loan modification. Loan "modification" is not loan "refinance," but a change to the parameters of the original loan. These changes include (but are not limited to) change of term, lowering interest rate, fixing adjustable interest rates and/or reducing principle amount.

Mitigation companies are intended to act as a "proxy" or "liaison" between the homeowner and the mortgage holder. The mitigation company works with the homeowner in compiling all the pertinent and required paperwork, submitting it to the mortgage holder and negotiating a modification to the loan. This modification, in principal, allows the homeowner to avoid foreclosure and helps to alleviate financial hardship associated with high monthly home payments.

With rapid growth in a new industry, however, comes open opportunity for con artists, scammers or simply disreputable business people. There is a growing cadre of mitigation "companies" that are nothing more then predators. These companies prey upon those facing foreclosure. They exploit those that find themselves in unfortunate circumstances. They take a lot and deliver little in return.

The largest number of complaints to the Better Business Bureau and the state's Attorney Generals offices concern lack of consideration. These complaints have two things in common: large upfront fees and non performance. Examination of complaints against mitigation companies finds that most of these companies simply took the money and ran.

The internet is a perfect haven for these type of predatory modification "companies." The internet allows virtually anyone with a laptop and internet connection to create a loss mitigation "company." A slick website can easily and effectively disguise a high school dropout "working" out of someone's basement into what appears to be a professionally run modification company with office space, multi-racial workforce and government approval.

The government has taken a proactive stance against this type of predatory company and has put out advertisements warning homeowners against using "for profit" mitigation companies. The government has taken the position that homeowners can do mitigation for themselves.

Unfortunately, this is basically an uniformed or "knee jerk" response to reports of disreputable people taking advantage of distressed homeowners. The simple fact is that loan modification is not easy. It is a very time consuming process often taking 60-90 days or more. Home loan institutions are overwhelmed and sometimes simply not able to walk thousands of novices through the steps of the process. Files without the right information or containing incorrectly filled out paperwork go to the bottom of the stack to start over again. A form of triage occurs where correctly compiled packages are given preference and addressed while incorrectly compiled packages are set aside.

Many bank negotiators are hundreds if not thousands of files behind and falling further behind every day. Homeowners are losing sleep worrying about losing their homes. Facing foreclosure is a very emotional time for homeowners. Mitigation companies can act as an emotional buffer between the homeowner and the mortgage holder.

So how does one secure real help? The most prudent first step is to do your own due diligence. If homeowners are considering modification but lack the expertise, confidence, negotiating skills, patience or time to jump in and attempt it themselves then they must consider seeking assistance from a qualified service company.

Posted By: Tyler J Stanford

Sponsored BY: Principal Mitigation Corp

[http://www.pmcloanmodification.com]

Loan Modification Failure - What Your Lender Isn't Telling You About "NPV" And Principal Reductions

Loan modifications have been big news (not all good) over the past few years as the government has fully instituted the Home Affordable Modification Program (HAMP). Although HAMP has thus far been an unmitigated failure, it was originally intended to provide financial incentives for lenders to lower interest rates, extend maturity dates and reduce principal so that financially troubled borrowers could afford their mortgage payments and stay in their homes. What we have seen, however, is that of the very small number of borrowers who actually receive a loan modification, more than 60% re-default within 1 year.

What's the problem?

Traditional modification methods only focus on interest rate reductions and term extensions while almost completely ignoring principal balance reductions (i.e. lowering the amount owed on the loan). This approach simply fails to address the borrower's lack of equity or the long term sustainability of the loan modification. Principal reductions are the key to a successful loan modification, but we know that they are going to be the rare exception to the rule.

Why? Three words: Net Present Value.

A common refrain among borrowers facing default and seeking a loan modification is the following: "Why doesn't my lender just reduce my loan balance to the current market value? They aren't going to get any more than that at a foreclosure sale." While it is absolutely true that a lender can only obtain current market value if it forecloses and sells the property (in fact they will probably get LESS), this argument ignores the complex financial analysis that the servicer (that's the company responsible for collecting payments and reporting to the lender) must complete to make sure they are limiting the loss to the lender. The servicer MUST select the option which provides the highest recovery to the lender by using the NET PRESENT VALUE TEST.

In simple terms, if the lender reduces the loan balance to the current market value, they are stuck with 30 or 40 years of payments based upon that lowered loan balance (and possibly at a much reduced interest rate). However, if they foreclose and sell the home, they get that money (less costs) RIGHT NOW. Lenders understand that receiving a lump sum of money today is far more valuable than receiving that same amount of money over the course of 30 years or more along with the added risk of re-default. In fact, it is possible that a lender could receive LESS THAN current market value through foreclosure but still realize a HIGHER NET PRESENT VALUE by getting that money immediately as compared to taking payments over the life of the mortgage. Therefore, a foreclosure almost always generates a higher NET PRESENT VALUE for the lender as compared to a loan modification with a significant principal reduction.

So, if a servicer is obligated to limit the loss to the lender, they are simply unable to offer a loan modification if a foreclosure would generate a higher Net Present Value for the lender. Therefore, the servicer CAN'T offer, and the lender WON'T accept, a loan modification. The home will be forced through foreclosure.

In Part 2 of this article, I will give a detailed explanation of the TWO PART loan modification test and how NET PRESENT VALUE affects whether your loan modification is approved or rejected.

Derik N. Lewis assists clients (both lenders and borrowers) in resolving troubled real estate loans. his company Lawyers Realty Group advises on real estate workouts involving complex loan restructuring, forbearance, foreclosure, short sale and other recovery and/or disposition options. Derik also has substantial experience representing real estate investors in the purchase and sale of distressed and non-performing loans along with the acquisition of troubled real estate assets.

Prior to becoming an attorney, Derik was a real estate consultant for regional and national real estate companies such as Trammel Crow, Related Companies, and Balcor/American Express. In that capacity, he provided short-term management services for large residential apartment properties that were experiencing management transitions during rehabilitation or renovation or while under contract for sale.

Derik graduated magna cum laude from Boston University School of Law and was named both G. Joseph Tauro Distinguished Scholar and Paul J. Liacos Distinguished Scholar for his academic accomplishments. He is licensed to practice law in the state of California and is also a licensed California real estate broker & Realtor�.

Understand the Process Before You Try to Stop Foreclosure With a Loan Modification

There are many things that need to be considered before you try to stop foreclosure with loan modification, and the quicker you learn about them, the better off you are. Do not forget that you are not the only one facing foreclosure problems. There are many more like all over America who too are facing it. The first and the most important thing that you should keep in mind is avoid approaching your lender. You can be rest assured that they will not help you out with anything more apart from accepting the required forms and submitting them to the government.

Try asking them about the details of any form and they will keep silent. Basically, they will try their level best to see that you are not able to stop foreclosure. The mathematics is simple to understand. These lenders stand to earn a good sum of money by possessing and then selling your home. The global financial crisis is slowly abating and the prices of properties are increasing and this is what the lenders are eying. There is no need for you to worry when you are faced with such a situation.

There are many online sites that are willing to help you out. They employ legal professionals, especially those who are well versed in foreclosure laws, and these professionals will help you to retain the home you have worked so hard to obtain. These professionals will guide you through each and every step required to stop foreclosure with loan modification. In case you are worried about the term 'loan modification', here is a simple explanation of the same. As its name suggests, the process of loan modification reduces the amount you have to pay to the lender to an amount that you can afford.

Once your application has been approved, you no longer need to worry about the lender. You can start paying them the lower amount as calculated by the government. There is one thing that you need to keep an eye out for. Not all online professionals are equally good. You should check up their credentials and if required, request them to provide you with genuine testimonials that you can check out. There is no time to waste, and you should act now to get an upper hand on your lender. Within a few months you can start working peacefully with the knowledge that you have been able to stop foreclosure with loan modification.

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