FAQ'

• What is a loan modification?

  A loan modification is an agreement between a lender and a borrower to change the original terms of a loan in order to payments more affordable.

  Loan modifications can be accomplished through a variety of methods. The interest rate on a loan can be temporarily or permanently reduced. An adjustable interest rate can be changed to a fixed interest rate. The term of a loan can be extended from the standard 30 years to 40 years. In some cases the principal balance owed a mortgage may be reduced. One or more of these methods can be used to reduce the monthly payment for the borrower.

  Modifying loans is becoming increasingly common as the declining housing market and struggling economy take their toll on homeowners. Lenders are beginning to see the benefit of loan modiciation which can result in relatively smaller losses than foreclosure. Borrowers have a clear benefit to seek loan modification since a lower monthly payment can help them keep their home.

  Recently there has been political pressure for loan servicers to implement widespread programs to review and modify troubled loans. The Federal Deposit Insurance Corporation, the agency that insures most bank deposits recently proposed a plan which provides incentives for servicers implement systematic and sustainable processes for modification of loans at risk of default. Through conservatorship of IndyMac Bank, the FDIC has already started carrying out such a program.

  Loan modification is still a relatively new arena. Many lenders have not definied clear criteria about which loans will qualify for a loan modification, and process for obtaining a modification may be similarly unclear. The government has not taken a clear stance on whether they will support or subsidize a widespread program. Perhaps most importantly, the long term impacts of widespread modifications on the banking industry, broader economy, and real estate markets will not be known for years.

• Is a Loan Modification the Same Things As a Loan Refinancing?

  Loan Modifications and Loan Refinancings are different processes.

  With a loan modification, a borrower’s current mortgage is simply adjusted (interest rate, loan term, principal amount and/or payment requirements) in order to achieve an affordable, manageable monthly mortgage payment for the borrower.

  With a loan refinancing, on the other hand, a new closing will take place. The end result may be a more affordable monthlt mortgage payment for the borrower, but this option can result in prepayment penalties, taxes, closing fees, legal fees, property appraisals, etc… which the borrower may incur.

• Why Would a Bank Agree to a Loan Modification?

  A Loan Modification is a resolution that is mutually beneficial for the borrower and the lender. According to the Center for Responsible Learning, citing a report of the Joint Economic Committee, a foreclosure sale costs a bank fifty thousand dollars, on average, per property. In addition, a property sold at a foreclosure sale will likely not sell for its full market value but will, instead, sale for a fraction of what the property is actually worth. It is therefore in the bank’s best interest to work with a borrower to make a loan more affordable and to prevent the need for a foreclosure sale, to the extent possible.

• Will a Loan Modification Hurt My Credit?

  A loan modification will not negatively affect a borrower’s credit report. A loan modification can only improve the credit report of borrowers who are delinquent or are in jeopardy of becoming delinquent on payment of their mortgage payments due to the imbalance between their monthly income and expenses.