Question 1: What exactly is a loan modification?

Answer: A loan modification is any change in one or more terms of a borrower’s current home loan, without having to refinance.

Question 2: Can the lender include late charges in the Loan Modification?

Answer: Per HUD, the accrued late charges should be waived by the lender at the time of the loan modification - this varies depending on the type of loan-but always request a complete breakdown and description of all fees and penalties from your lender.

Question 3: Can the bank require an interior inspection of the property if they have concerns about the property condition?

Answer: Yes, the lender may conduct any review it deems necessary to verify that the property does not have physical conditions which might adversely impact the value.

Question 4: How do I know if I will qualify for a loan modification?

Answer: There is never any guarantee. If a person or company says they can guarantee success ie. (specific rate, specific principal reduction amount etc.), they are lying. Make sure you work with a company that will pre-approve every application before processing payment. The number 1 criteria your lender is looking at is your ability to make the new modified payment, now and in the future. You will need to supply the lender with proof of your income, along with a complete and accurate financial statement detailing your income and expenses. This shows, that if granted the loan modification, you will be able to afford the new, lower payment.

Question 5: Do I have to be currently delinquent on my payments to get a loan modification?

Answer: Some lenders are now accepting loan modification applications from homeowners who are not currently delinquent, but who are able to prove to their mortgage company that due to imminent interest rate increases, they will no longer be able to afford the loan payment under the terms of their loan. It is advisable to initiate the loan modification process as soon as possible, whether you are delinquent or not.

Question 6: What is an acceptable Hardship situation?

Answer: Each homeowner has a unique set of circumstances that can cause them to fall behind on their mortgage payment(s). Lenders generally consider divorce/separation; loss of income; death of spouse, co-borrower or family member; illness, job relocation, or military service, to be acceptable reasons for a loan modification. A compelling loan modification letter included in your loan modification application is a very important part of a successful loan modification.

Question 7: Will a loan modification help me stop foreclosure?

Answer: Yes, most lenders are anxious to work things out, they are not in the business of owning homes but collecting on loans. One of the ramifications of a successful loan modification, is that your mortgage becomes current, bringing you out of foreclosure.

Question 8: Can my missed payments be added back into my new loan modification?

Answer: It is possible. The arrears are either spread over the life of the loan, added to the back of the loan or spread over a shorter period. Every lender has different guidelines.