Loan Modification

A Loan Modification is the re-tooling of an existing loan made by a lender in response to a borrower’s long-term inability to repay the loan based upon the original terms and conditions. Loan Modifications typically involve a reduction in the interest rate and/or principal balance of the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender will consider modifying a loan because the cost of doing so is typically less than the cost of default.

A Loan Modification agreement is different than a forbearance agreement. A forbearance agreement provides short-term relief for borrower who has temporary financial problems, while a Loan Modification agreement is a long-term solution for borrowers who do not have the capacity to repay their existing loan.

In most cases, the decision to offer a Loan Modification is not made by the firm that owns the loan, however, it is made by the Loan Servicing company under contract to the owner. The owner may be a single lender, or a group of investors who own pieces of a mortgage-backed security collateralized by a pool of loans.

Whoever the owner, the Loan Servicing company is contractually obligated to find a solution to payment problems that will minimize losses to the owner of the loan. Loan Servicing companies have an interest in facilitating loan modifications because they typically cost less than a foreclosure.

Borrowers in trouble, however, can’t assume that the Loan Servicing companies will take the initiative in proposing any loan modification deal, let alone a more complex variety that may include a pledge of future appreciation. The culture within Loan Servicing companies discourages these initiatives because they raise costs and don’t generate any additional revenue. We are your advocate and will help facilitate your Loan Modification which will keep you and your family in your home at a payment that makes sense.

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