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Modify Your Mortgage
by John M. Roberts

A Loan Modification is a permanent change in one or more of the terms of a mortgagor's loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.

If you are in default on your mortgage payments and experiencing a possible foreclosure, there may be help for you. Congress has passed the Loan Modification Act of 2008 which gives relief to certain homeowners who find themselves unable to pay their mortgages.

To qualify for a loan modification, or workout plan, your lender will require you to show enough income to qualify. If you qualify, your loan will be reevaluated and rewritten and then you must be able to prove that you can make your payments in the future. The plan is designed to make your mortgage more affordable and easier to repay.

The need for a loan modification program stems from the mortgage industries unregulated lending practices over the past few years which resulted in a devastating affect on the economy. The mortgage meltdown caused property values to drop substantially around the country and left many homeowners facing bankruptcy and foreclosure.

The mortgage meltdown presented a negative impact on the whole economy, thereby forcing the government to come up with a plan to shore up the home loan and housing markets.

The Loan Modification Act was written to set standards for a qualified loan modification or workout plan on residential home loans. It takes into consideration those who might benefit from changes to their mortgage contract and it weeds out those who are not financially able to maintain a mortgage payment, even if it is rewritten under more favorable terms.

It is a set of permanent changes to a current mortgage that makes the repay contract more borrower friendly, thereby making the loan payments somewhat less by lowering the current interest rate, giving fixed rate terms, and reinstatement if the loan is in default. It helps the borrower by modifying one or more of the set terms that were present in the contract when the loan was first underwritten, approved, and funded.

The resulting changes are implemented to make the loan more affordable for the borrower by reducing the interest rate and/or rewriting the loan so it becomes fixed. If the borrower is in default, it allows the loan to be reinstated, making the arrearages a source for a new second trust deed that is amortized over a certain period of time in which the borrower pays the balance back in small monthly installments that are affordable.

The Loan Modification Act of 2008 grants a safety net for holders of mortgages who enter into loan modifications or workout agreements with troubled borrowers and clarifies the responsibilities of and provides protection from legal liability for mortgage servicers who help troubled borrowers remain in their homes.

There are a number of criteria that must be met before a qualified loan modification or workout plan is implemented.

  • The Loan Modification Act prohibits the causing of a negative amortization of the loan.
  • It prohibits the requiring of the borrower to pay additional points or fees.
  • It must improve the ability of the borrower to avoid foreclosure.
  • The agreement must also provide a regular scheduled payment that is reasonable for that borrower.

If you are under the threat of foreclosure or bankruptcy, you already know that this is a serious matter. Call your lender and ask to speak directly with the loan modification department because service representative who initially answer the phone may not have the right information for you.

There are also attorneys and other companies advertising their expertise in the field of loan modification. For a fee, they will represent you, but as always, make sure you check their credentials before enlisting their services.

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