A loan modifications is an agreement that is negotiated with your current lender that will change the terms of your loan. Lenders are willing to negotiate when their borrowers are facing financial difficulties and can’t get other financing alternatives. The borrower must show the lender why it would be in the lender’s best interest to agree to a workout arrangement. If convinced, a lender may be willing to reduce the loan interest rate, reduce monthly payment amounts or change any other loan term.
A loan modification usually happens when parties on a loan mutually agree to workout the problem by creating new and better loan term(s). The expectation is that the new loan enables the borrower to meet their obligations.
When applying for a loan modification, as borrower, make a plan on how are you are going to approach the lender. These people are highly trained in minimizing loss for their company and they get paid to by getting the most amount of money out of the borrower as possible or declare that the borrowers case is unworkable and trying to foreclose on the borrower. That is how they mitigate loss. By understanding this, the borrower knows that he/she has to approach the lender and be highly careful with the conversations with the lender. Everything the borrower says will be used against themselves.
Items a Borrower Will Need When Applying For a Loan Modification
Document income and expenses. Before negotiating a deal, the borrower must gather all the needed information, starting with any correspondence from their lender. That includes anything that the borrower have unopened from the lender.
Collect everything that relates to income and expenses. The last pay stubs (2-4). The lender wants to see at least one month of income. If the borrower’s income is very sporadic, then, support the story by showing how you’re getting paid so the lender can calculate an average over time. Gather at least three years worth of W2s and tax returns, plus three to six months of bank statements. Find all the mortgage paperwork and add that to the file. Pull together all bills, paid or not, from the times you were falling behind on the house payments until now. Include utilities, auto payments, credit cards, student loans, child support, medical bills, etc. You need to also include everything that documents why you fell behind. An employer’s notification of reduced hours or a layoff, an invoice for an auto repair or a furnace replacement, a shutoff notice from a utility.
What to Do When You Call Your Lender:
Your lender has two platoons of employees who talk with delinquent borrowers. The first is the collections department, which consists of people who try to pry money out of the borrower and get them current on the payments. The second group consists of the loss mitigation specialists. These departments go by different names, depending on the servicer, including foreclosure prevention, loan resolution and delinquency customer service. We’ll use the most common name for the department: loss mitigation, or loss mit. It can be difficult to get through to the loss mitigation department if collection agents are discouraged from transferring calls. This is one of the benefits of having a helper, such as an attorney or a housing counselor. The first will intimidate bill collectors and the second might have contacts within the loss mitigation department.
