2/19/2018

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Loan Modification

The Loan Modification Act of 2008

The Loan Modification Act of 2008 was passed by Congress to give homeowners who find themselves in default, foreclosure, or facing other financial difficulties, the means to have their loans reevaluated and rewritten to make them more affordable and easier to repay.

The need for a more updated loan modification program stems from mortgage excesses over the past few years. With so many homeowners facing bankruptcy and foreclosure, certain members of Congress saw the need to shore up the home loan and housing markets.

The mortgage meltdown presented a negative impact on the economy, the country, and the many homeowners, banks, and mortgage companies that were caught up in the greed and excesses of the time.

This Loan Modification Act sets standards for a qualified loan modification or workout plan on residential home loans and 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.

What is a loan modification plan and agreement? 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 reinstatment 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 have to understand that it is a very serious matter. It may be a good idea to enlist the help of an attorney who is experienced in loan modification.

 

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