What is Loan Modification? (Can it Really Stop Foreclosure?)
Every homeowner runs into financial difficulty at some point. Whether it is a death in the family, unforeseen medical bills, loss of job, or some other financial change in the day-to-day life of the homeowner.
The current buzzword in today's mortgage industry is "loan modification."
But what exactly is a loan modification? Simply put, a loan modification is a change to your existing loan terms and conditions regarding your mortgage. The most common loan modifications are reductions to the repayment amount, lowered interest rates, and extensions on the term of your loan.
Why would a bank modify a home loan?
Banks are in the business of making money for their investors. Now while that is true that after a foreclosure bank then owns the property, in most cases, this is not a money making transaction for the bank. You see the bank is hit with legal fees, transaction fees, processing fees, as well as additional marketing fees to sell a property that they now on. In many cases, the banks actually lose far more money than they could gain.
In the long run it is more cost effective for the tribal installment lenders to work with the homeowner in order to modify the terms and conditions of their loan to allow the homeowner to continue to make some form of principal and interest payments to the bank.
In almost every case, the bank will come out ahead even with a loan modification due to the payment of incurred interest over the life of the modified loan.
How a loan modification can prevent foreclosure.
In the simplest terms, a loan modification can prevent foreclosure due to the fact that you enter into a new contract/binding agreement with the lender. This new agreement is designed to allow the homeowner to make a payment or payments that are lower than the initial mortgage allowed.
Once the loan modification paperwork has been completed, the bank/lender has entered into an agreement and understands that the homeowner is going to pay less than the previous mortgage, while the lender modifies the loan and agrees not to begin foreclosure proceedings.
Applying for a loan modification.
Most banks/lenders have a department that deals with or closure proceedings for property it owns. This department is who you must contact in order to submit your application for loan modification.
Your application should be a letter clearly written explaining a genuine reason for the financial difficulties that you are facing, as well as how and why they prevent you from fulfilling your current mortgage obligation. Be sure to include current income levels and a detailed listing of monthly expenses.
Explain in your letter power reduction of the principle/interest rates and or a new lowered payment would allow you to catch up on any delinquent payments. Outline how you are planning on changing your current economic situation to fulfill any mortgage obligation that you would be under, should they grant you a loan modification.
In the current economic climate, we homeowners are led to believe that banks/mortgage offices/lenders are the enemy. This is not the case. Keep in mind that it is in the best interest for the lenders to keep homeowners in their homes, for no other reason than it prevents banks and mortgage houses from incurring debt, by holding onto vacant properties.
Doc Schmyz has worked with investors all over the US and Mexico. His free website shares Real estate investing [http://www.joeinvestoronline.com] information for all over the US. Find Real estate investing information by state [http://www.joeinvestoronline.com/states]