Avoid Foreclosure, Consider A Loan Modification

A loan modification is exactly what it sounds like, a modification of a loan. A lender and a borrower come to terms with the fact that the loan stipulations put it at risk and so they come to a happy resolution such that both parties win. In this period of uncertainty, with loan rates being adjusted and borrowers finding themselves in a crunch, lenders are more receptive to a loan modification because it’s much better than having a borrower default on a loan. In a default on a loan without collateral, the lender often just sells it for pennies on the dollar to a debt collector. In the default of a mortgage, the lender has to go through the messy and expensive process of foreclosure in which they’re certain to lose money in the process. So, a loan modification, if terms can be reached, is a winning proposition for both parties.

There are several risks to this on the lender side that I believe a borrower needs to understand so that you are fully prepared for the questions that will come. First, you won’t actually be talking to the lender, you’ll be talking to the servicer of the loan. This means that you’ll be talking to someone who may not have all the facts and may not have all the facts correctly, so you have to make sure that you keep the person you’re working with very well informed about your financial situation, the market climate, and any other pertinent details.

Secondly, there are scamming borrowers as much as there are predatory lenders, just because you’re on one side of the fence doesn’t make you immune to greed. There are borrowers who will want a loan modification because it’s better financially for them, not because they’re in dire straights and need the modification in order to stay in their home. This means that there’s a higher burden of proof on the folks who legitimately need a modification to stay in their house, you must accept the scrutiny and the extra workload if you want to succeed.

Lastly, there is a lot of work involved and so the borrower has to be persistent. Part of the persistence required will weed out some of the scamming borrowers because it’s not really worth it for them. The ones who are forced to persist, because they must in order to save their homes, are the ones who are left and your servicer understand this.

So, the key to a loan modification is to get all your paperwork in order, remain persistent, and be proactive.