Loan Modification Could Save Your Home

I've been trying to get a video out but things are crazy...until then, here's the deal with LOAN MODIFICATIONS, a way you may be able to avoid foreclosure.

A homeowner may want to explore loan modification if (a) their mortgage payment has risen to a point where they can no longer afford it and/or (b) the value of their property has depreciated substantially since purchased.

Lenders ARE taking the time and effort to work out a plan with homeowners. Some are postponing trustee sales, some are delaying notices of default. We had a 90-day moratorium on foreclosures to explore the federal bailout plan and currently in California, lenders will have to prove they have attempted a work-out before foreclosing (full details are not known at this time, please consult with your mortgage company and confirm details of this new plan). Yes, lenders are more kind and gentler than when foreclosures went buck wild a few months ago.

How will the modifications take form? There are a few ways and each lender may choose to handle a case differently, but the goal is to reduce the homeowner's monthly payment. Some examples:

(1) A reduction in the face value of the existing mortgage reflecting current market values (i.e. a $400K note could become a $300K note). Lowering the face value - the home's value - lowers the payment.
(2) A reduction in the interest rate you are currently paying. Lowering the interest rate lowers the monthly payment.
(3) An extension of the mortgage - a 30-year term becomes a 40 or even 50 year term. Extending the term of a mortgage lowers the monthly payment.

Loan modification is based on your ability to make the monthly payments according to the method of modification utilized. Basically, you will qualify to buy the home you already own, like you are acquiring a loan for the first time, but credit scores are not typically a consideration. That makes sense, as most homeowners in this situation have missed one or more payments and that's dinged their credit. Simply, you tell your lender how much you can afford to pay and the lender will attempt to create a plan to keep you in your home.

The process is more difficult if your loan is owned by an investor instead of a direct lender. An investor is an individual or team that has purchased a "block" of loans (assets) as an investment. Getting approval of a loan work-out is a more protracted process in this case and navigating through tiers of decision makers may be frustrating and fruitless. There are no clear guidelines.

How does one approach their lender about loan modification? You can do it yourself - I did! But like selling your home yourself, there are ways and then there are WAYS. There are companies who specialize in loan modification. You've probably received email or snail mail from some of them. They charge a percentage of the face value of the loan to contact the lender on your behalf. BUT - AND HERE'S WHERE YOU NEED TO PAY ATTENTION - not all of these companies are approved by the Department of Real Estate, that sets boundaries and rules and affords some level of consumer protection. You only want to work with a Loan Modifier whose actions are sanctioned by the DRE!!!!! Ideally, this will be a real estate law firm. You will pay them a retainer and MAY have a 100% guarantee that if your loan cannot be modified, your money is returned. My experience is that the bank will deal directly with you. I would suggest taking this route. If it blows up, you can always start again with an attorney.

Now, READ THIS and let's be clear! Because if you have doubts or don't understand, you stand to lose everything. DO NOT pay a real estate agent any up-front costs to modify your loan - it is against California Department of Real Estate regulations for real estate agents to collect advances -money in advance of doing the job. DO NOT pay a company to modify your loan without knowing if you will receive your money back if they fail. DO NOT sign any documents, especially deeds, without knowing the ramifications of signing such documents. PLEASE, call me if you have questions or need a personal evaluation of YOUR situation. I'll point you in the right direction.

RELATED INFO: A term that will become increasingly familiar is SAM - Shared Appreciation Mortgage. This means that the lender who tweaks your loan may be entitled to a portion of the equity you gain when the market turns around. Owners who have utilized city or community financing (down payment assistance) probably already have a shared equity mortgage. When you sell, you share your profit (gain) with the institution that has rendered assistance through down payment or loan modification. Check your loan documents for details - it will be spelled out clearly.


The information contained herein is applicable to the State of California and programs may differ in your state. All information deemed reliable. You are encouraged to seek the advice of qualified legal and tax professionals.