A term many people are becoming familiar with is "Loan Modification". This occurs when a mortgage lender gives a borrower a permanent change in borrower's loan.
A loan modification from a lender is may include all or some of the following; a change in rate, terms and principal reduction so the payment becomes affordable for the borrower. Usually, it is a win-win solution for the homeowner as they receive a long term fixed rate below market rates and the lender avoids foreclosure expenses.
Some common questions and answer on mortgage loan modification are:
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1) When the borrower is late and the loan is brought current will penalties be added to the modified loan balance. The answer is it depends on the lender on how they will implement or wipe out the fees.
2) Can the lender add late fees or service charges in the new loan modification?
According to federal law, accrued late charges should be waived by the lender once a loan modification is offered to the borrower in the negotiation process. In situations when the mortgage loan is not behind, the lender may request a service fee for processing your loan modification.
3) Can the borrower use a qualified asset for loan modification if the borrower is unemployed, the spouse is employed, although the spouse's name is not on the mortgage?
It is recommended that the borrower make a financial analysis of their total household income and expenses to see if other income is enough to qualify for the new modified loan payment. Once the analysis is completed the borrower should then seek legal advice to since the spouse is not on the original mortgage.
4) Can a homeowner qualify for a loan modification if they are current on their mortgage payments, not in default and not in foreclosure?
Generally speaking, the lender will not consider a loan modification unless the mortgage is in default or you are in or will experience a financial hardship in the near future. The financial hardship can be an adjustable rate mortgage that is within 120 days of an interest rate change, loss of job, divorce, death, etc. As a result of the rate adjustment, the borrower is now unable to pay the increased payment. The lender may freeze the interest rate with a Loan Modification Agreement to mutually benefit both parties.
5) Can I really get a principal reduction in my loan balance?
Yes, this is an option but fits borrowers who want to participate in the government Hope Now program where if they can reduce the balance, they will share in any of the property's equity gain as long as you own the property.
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