Mortgage Modifications

After last week's post, many of you have sent emails asking about Mortgage Modifications, which I promised to discuss this week. Sorry for making you wait, but I was out-of-town most of this week. (Actually, I traveled back to California, arriving on Monday, El Cinco de Mayo). I then spent some time in Bakersfield and Fresno, and just got back to the LA area yesterday.

A Mortgage Modification is a renegotiation of the terms of your existing mortgage. This is another tool that we use to help people to avoid foreclosure. For the most part, you will have the best results renegotiating for your personal residence. If you have investment property, you may face more resistance from the lender, but approval is not an impossibility.

Mortgage Modification makes sense if any of the following apply to your situation or your loan:

• Your property value has declined to the point that you owe more than its market value
• Your loan interest rate has increase or adjusted (ARM loans) to a point that you cannot afford
• Your job situation has changed or your income has been reduced for any reason beyond your control
• You are now behind in your mortgage payments due to a temporary situation that has now passed, but you are unable to raise the money to bring your mortgage current

If your mortgage is current, you may have a tougher time trying to get a modification on your loan, but if you just explain to your lender that your income situation has just changed, they may be willing to work with you, before your credit score goes into the toilet.

If you have one of these situations, you may be able to get a modification of terms from your lender. A modification may include changing your ARM to a fixed-rate mortgage, an increase in the number of years of your mortgage, which would lower your payments (i.e. 30-year to 40-year), a permanent lowering of your interest rate, and forebearance, which capitalizes your late payments, and adds them to the principal balance on your loan.

Every modification plan is different, so the only hard-and-fast rules here are those that the lenders place upon their loan negotiators. Generally, if you are three months behind in your payment, you are in a position to renegotiate your terms.

Now, you may be asking, "Should I contact my lender and negotiate this myself, or should I pay for help?"

You could try to do this yourself, but this is about as effective as trying to beat the dealer when buying a car. They play this game all day, every day, and you are (hopefully) only going to attempt this once. My recommendation is to get help. A third-party, who is not emotionally involved in your situation, and has the experience and relationships with the lenders from having done this many times, will negotiate a much better deal on your behalf, than you would ever be able to negotiate on your own.

As part of the negotiation, your loan will be brought current, and you generally will get to skip one month's payment, while the lender goes through the paperwork process of modifying the terms of your loan.

You will want to stress to your negotiator what is important to you with regard to the mortgage, so that s/he may best represent you. You should determine how much payment you can afford, how long you plan to keep your home, and convey any other information that may be helpful, such as any knowledge of recent sales prices for similar homes in your area.

We offer mortgage modification services, which are provided by a legal team that we have under retainer. Generally, we charge the greater of $1,995 or one month's mortgage payment (after modification) as a fee. Our negotiators will save you much more than the fee by getting you a much better deal than the lender would likely offer, if you were to negotiate a plan yourself. We also have a 72-hour turnaround on most files.

You will need to provide information on your income and debts, including credit cards, student loans, and support payments. If you have additional regular expenses, such as children's or your own current educational costs or ongoing medical expenses, be sure to include these as well. We will determine what payment you can afford, based on your financial situation.

If a workable agreement cannot be reached with the lender, then go back to last week's article, and read up on short sales. If this is the route for you, let me know, as we can refer you to a short-sale experienced Realtor who can assist you.

As always, I hope this information proves helpful. Your comments and subscription to this blog are always welcome. See you next week!

*** Just a reminder: All reader comments to this blog are moderated and approved before they show up on the website. You may contact me via email at randall_parker@yahoo.com or by posting a comment to this article, and I will contact you, but remove your comments, so that your personal information does not appear in the blog. ***