Loan Modification

In general
A loan modification is a change in one or more of the terms of a mortgage loan. The changes can include a reduction in interest rate, changing an interest rate from variable to fixed, lengthening the term of the loan or even a reduction in principal.

The Process
Loan Modification is a result of a negotiation, or series of negotiations, between the borrower (or his or her agent) and the lender. The Loan Modification process and requirements vary from lender to lender. In general, the borrower provides his or her financial information along with a “hardship letter” explaining why he or she needs a Loan Modification. The borrower also needs to explain how he or she will be able to pay according to the loan terms that are being requested. When an attorney is involved in the process, the loan documents are reviewed for violations of federal and state laws and regulations. At the very least, the discovery of a violation can be used as leverage in the negotiations process, and in extraordinary situations when the violations are grave, the loans can even be rescinded. When a loan is rescinded, the lender takes back the loan and returns to the borrower all interest payments that were made, the loan origination fees, penalties and attorneys’ fees.

Determining whether Loan Modification is for you
To qualify for loan modification, you must be able to demonstrate the inability to meet your financial obligations now or in the very near future. Just because you want a Loan Modification does not mean that you will get one. You must show a need. Some examples include:

  • Currently behind on a mortgage payment
  • Currently in foreclosure
  • Have an ARM (adjustable rate mortgage) that has adjusted or will adjust in the next month or two
  • Reduction in income (pay cut, reduced hours, new job with less pay)
  • Loss of employment
  • Death of household provider

Reasons you should retain LL&K to perform your Loan Modification

  • We review your loan documents for violations of federal and state laws and regulations (including TILA, RESPA, HOEPA, California Residential Mortgage Lending Act, California Finance Lenders Law, and California Usury Law). There are violations found in at least 80% of the loans written in the recent years. If violations are found in your loan documents, you may be able to rescind your loan or at least have leverage in your negotiations with you lender.

  • We know what the individual lenders are looking for in a workout package and what information should or shouldn’t be communicated to the loss mitigation negotiators. This is very important. Once retained, we tell our clients to cease all communications with their lenders immediately. Have you ever noticed that calls from your creditors begin with the statement that the call is being recorded, the call is for debt collection purposes, and all information obtained will be used for those purposes? Many uninformed consumers inadvertently give too much information or the wrong information to their lenders. If you do this with your mortgage lender, you may lose all chances of modifying your loan.

  • We are able to reach the “negotiators” at the banks’ loss mitigation departments. Most borrowers who try to modify their own loans speak only to the customer service agent or some other person at the bottom of the decision-making totem pole. We have the direct phone numbers to the actual decision-makers of most of the major banks.

Alternatives to Loan Modification that allow you to keep your home

  • A repayment plan can be worked out with your lender so that you can get caught up on your payments. You repay the past due amount over a specified period of time.

  • A special forbearance can be worked out with your lender to suspend or reduce your mortgage payments for a short period of time. The amount that is unpaid is tacked onto the end of the loan.

  • A refinance is a new loan in place of your old one. The new loan has more favorable terms that usually lower your monthly payments. A refinance is difficult these days due to the drop in home values and the banks having more stringent standards for extending credit.

  • A Bankruptcy can help you save your home in several ways. In Chapter 7, you are able to wipe out some or all of your debts, leaving you with more cash to keep up with your mortgage. In Chapter 13, you can make up late payments over the life of your three or five year bankruptcy plan (although you must keep up with all your future mortgage payments). You can also ask the court to wipe out your second mortgage. This request is often granted.

Other Alternatives to Loan Modification

  • A short sale is a sale of your home for less than the amount owed. You have to negotiate with your lender to discount the loan balance by showing that you are suffering financial hardship. The proceeds are turned over to the lender. Sometimes the lenders will agree to treat the debt as fully satisfied. Other times, the short sale results in a deficiency balance for which you remain personally liable. Short sale is less detrimental to your credit than foreclosure and spares your of the trauma and embarrassment that can be caused by foreclosure.

  • A deed in lieu of foreclosure is a transfer of your home to the lender in exchange for release of some or all of your personal indebtedness. You’re usually only eligible if your home has been on the market at its fair market price for at least 90 days. Like a short sale, deed in lieu is less damaging to your credit and less embarrassing than foreclosure.

  • Foreclosure is the repossession or sale of your home by your lender.

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