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Loan Modification Process

The loan modification process is generally intended to help people avoid foreclosure by modifying their interest rate to a lower, more affordable level. Over the past two to three years, the mortgage industry has changed dramatically. According to some, this is due largely to the large number of variable rate loans that have been issued. A variable rate loan is a mortgage with an interest rate that changes almost always increases at specific times during the life of the loan. When the rate goes up, the monthly payment goes up accordingly, sometimes dramatically.

Author: Vlad

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In most cases, it is cheaper for a mortgage company to modify the rate of the loan back to the original, lower rate than it is to have to go through the time and expense of foreclosing on the property, listing it for sale, paying a Realtor's commission, etc. This logic has prompted many of the larger mortgage companies to offer loan modifications to borrowers who's rates have increased and who are in danger of foreclosure.

In general, the loan modification process starts with the mortgage company's retention department communicating with the borrower and verifying all household expenses and income. Then, the borrower usually has to fax or send proof of income, bank statements, and tax returns to the retention department. These documents are reviewed and a decision is made. This process usually takes around thirty days, but can easily take longer.

The loan modification process is mostly about risk assessment. The retention department is analyzing the borrower's current financial situation, weighing income against expenses and calculating the probability that the loan will result in foreclosure at the current terms. If the retention department deems that there is a significant risk of foreclosure, they will generally grant a rate reduction, sometimes permanent, sometimes for a one to five year period. Borrowers should not expect their new modified rate to be lower than their original introductory rate. The retention department is looking to give the minimal amount of assistance to avoid foreclosure while at the same time protecting the mortgage company's rate of return which is dependant upon the interest rate of the mortgage.

The loan modification process is not only for those who are behind on their payments, it is for people who know that they are about to have a rate increase and know that they will not be able to afford the new higher payment. These note modification programs are the internal ones that the various lenders have implemented to avoid the rising tide of foreclosures. In addition to this, the federal government has recently passed legislation aimed at the same goal of helping disadvantaged borrowers avoid foreclosure by lowering their interest rates. Supposedly, the national program will give a borrower a rate lower than the original contract rate. However, the program is new and there are still many questions how it will function.

1800BetterRate.com philosophy is that you should not deal with your lender without professional help on your side. We will help you with complete process so you can concentrate on your family, your job and other responsibilities that you have.

About Author

Vlad has been writting articles on mortgages and real estate for more than 10 years and prides himself in publishing and getting access to most up to date information.

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