Are Home Loan Modification Programs Bad


Home loan modification programs were developed to reduce the monthly mortgage payment on properties to prevent the property from going into default. They are an alternative to refinancing the loan on a property, selling to an investor, filing for bankruptcy, or filing foreclosure proceedings for those trying to save their interest in a property. Many people see loan modifications as a hit on credit ratings and as a bad thing to show on their records. But, if you look at the process and the results over time, the benefits far outweigh any bad that people may conjure in their thoughts.

Home Loan Modification Benefits

Let’s look at some of the benefits. A loan modification will reduce the monthly amount you pay on a mortgage. The amount will be more affordable for the borrower to consistently make on-time payments. By requesting a loan modification, the property can be saved if it is facing foreclosure or default. Even though the credit score of the borrower may take an immediate hit, the finished result is a credit score undefiled by missed payments, bankruptcy or foreclosure. Upfront fees will be charged to approve the process, but they are more than offset with the monthly savings realized. Once the financial crisis has passed and the borrower’s financial situation has turned to the better, the borrower can afford to make extra payments and possibly even repay the loan earlier at a reduced interest rate.

There are a few circumstances that would force a person into considering a loan modification program, such as, loss of job, loss of pay, medical issues or bills, death of a family member or any other serious financial matter that reduces a person’s ability to pay timely. That is one of their criteria to apply for a loan modification. The borrower must be in a financial situation that makes it difficult or impossible for them to repay the loan at the current monthly payments on time. Things happen. Rather than lose all of their funds in a foreclosure, which is a very costly event for the lender, it is easier to work with the borrower to make arrangements to repay the loan on different terms.

Types Of Home Loan Modifications

Loan modifications come in various forms. A modification might be to lower the interest rate, which right now is at an all-time low, making it a very viable option. The loan modification may include extending the length of the loan, from 30 years to 35 years, That results in lowering the monthly payments and making it more affordable. In this situation, the lender will end up making more money over the length of the loan but it will help the borrower. Another option is to forgive a portion of the debt. This is found more often when people were buying houses at prices that were substantially higher and the market took a crash, leaving the property ‘under-water’, so to speak. The modification may be a combination of different options available at the time. The goal is to keep the property with the current borrower, modify existing terms so that the borrower can afford to make continued payments and to keep the property out of default. On top of that, many financial institutions charge fees of around $1,000 upfront to complete the loan modification documentation.

Many lenders have their existing in-house programs in place with their set qualifying terms and their set objectives in mind. Some institutions may deny a loan modification application. However, in California this may be appealed. We are seeing this option favored by more states and the courts more and more. A bankruptcy judge may ask a lender why they have not worked with the borrower before the situation got beyond anyone’s control. A loan modification application is one way to keep a property out of foreclosure and/or bankruptcy. If for some reason your application is denied, HUD has a free advisory program that will help the buyer find out exactly why and what is necessary to reverse a negative decision.

To the outsider looking at the situations involved with loan modifications, it is to the benefit of the lender to work with a borrower. Government studies show that in very few cases do the lenders end up losing money! In most cases in the long term of the loan, or until the property is sold, they benefit far greater than the original contract.

Some institutions have no program at all in-house and require that you use an outside service, such as those offered by the federal government through Fannie Mae and Freddie Mac. These institutions have a government-backed foreclosure-prevention program, called the Flex Modification Program. The Flex Modification Program replaced HARP, The Home Affordable Refinance Program. It is conducted when the US experienced property devaluation to an extreme, often caused by lender greed. Remember, it is to the benefit of the financial institution to consider all options to keep an existing loan viable. Reputable lending companies do not want to take back ownership of a property through foreclosure.

During the HARP period, loan modifications became more and more popular. Properties were underwater in valuation and interest rates were falling. Rather than have any properties face foreclosure proceedings, short sales, or people walking away from their loans, loan modifications became almost essential.

Home Loan Modification Options

The other option to a loan modification, besides losing the property in a default foreclosure, is to sell the property. You may notice many of these signs on street corners and even freeway billboards that say, “we buy houses”. Many of these are the result of problems that are caused by financial difficulties or property devaluation. FL Home Buyers is one of those companies that seek to help people get out from under their homes. At FL Home Buyers, we purchase properties and close within 7 days. We can help design a custom solution and timeline to fit your financial and real estate needs.

Economies are cyclical and often based on world events. The USA has been blessed with a good economic structure enduring its share of ups and downs. In the middle of a personal financial crisis caused by circumstances beyond our control it is good to know that such programs exist for the benefit of homeowners, giving the opportunity to rise above unfortunate events and reverse negative impacts. How awesome to know that whether a home modification loan plan, seeking outside assistance or finding reputable investors to offer us a chance to sell and start over we have options. With some planning and assistance we can rise above circumstances. The opportunities exist. The ultimate choice will be to the individual borrower whether to seek immediate financial release by selling their property, or hanging on long-term during the recovery period.

Weigh the options available to you and evaluate your personal financial situation and expended recovery to determine your course of action. There are short-term downsides to a loan modification, but there are many benefits long-term. If approached logically and with thought, a loan modification may result in greater financial benefit through the current crisis you face. There is wisdom in a multitude of counselors. With thought and planning you can reach your goal with more in pocket and a higher credit standing. You can reach the light at the end of the tunnel stronger, more seasoned and prepared for other situations life brings your way.

On the other hand, if you are not in a position to move forward with any options that your lender has provided you with, give us a call here at FL Home Buyers to see if we can be of assistance. After a brief phone call we would be able to determine what we feel is the best outcome for you and your loved ones. We buy houses fast and we pay cash. We have helped countless homeowners avoid foreclosure and we’ve created win-win solutions for all parties involved. Give us a call or fill out the form on our website today!