Mortgage Loan Modification

by admin on February 9, 2009

It seems that the only beneficiaries of the global meltdown and recession are the loan modification companies and debt consolidation agencies who are doing brisk business. This trend had begun much before recession was declared officially by the National Bureau of Economic Research. Whether it is the print media or the web, home owners are flooded with offers from such companies soliciting their services.

What is loan modification and how do they function?

The U.S. Department of Housing and Urban Development defines it as an enduring alteration in single or multiple conditions of the loan agreement so as to make the payment affordable to the borrower and results in reinstatement of the loan. This implies that as and when a borrower cannot make payments or delays them, he can make an application for loan modification, that will make his future payments within his means and any pending dues are padded into the fresh principal.

Predatory lenders and the implications

It is sad that the genesis of this problem lies in the way greedy lenders price loans such that home owners cannot sustain payment. By offering no margin payment facilities and nil interest rates for the initial period of 4 years, such lenders made suckers out of the common homeowner. That is because after the initial honeymoon, when the repayment was negligible, it suddenly went up due to the floating rate of interest.

Any legal violations of the agreement must be taken up with your lender who will make sure that he offers you the option of loan restructuring. The lender prefers to restructure the loan to a lawsuit. It is therefore prudent to engage a competent lawyer to peruse your agreement before finalizing. The saving in terms of money and mental harassment can be significant.
Be prepared
Mortgage lenders who faced retrenchment some time back due to the deteriorating scenario now find themselves back in favor through the loan modification route. This is akin to taking the help of people who botched it up in the first place.
Many of these agencies commit to reducing payment on the second mortgage as well as associated reduction in the principal. These promises are far fetched and needs to be taken with a pinch of salt.

Advance fees charged

Loan modification service is supposed to be free. Some unscrupulous agencies however take this opportunity to make hay and levy advance charges, supposedly to push your application through influential attorneys to guarantee success. The home owner gets gypped again as very often; it is the agency who benefits more than the lawyers.

You need to ensure you do not fall prey to such tactics and for that you have to do your due diligence and assign a reputable law firm with your mortgage. The saving will be better in the long run.
Be aware that the objective of loan modification is to place you in a better financial condition. If you do not achieve this, you need to take legal recourse.

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