With millions of people facing foreclosure on their homes and other real estate, and the government seemingly powerless to make the situation better anytime soon, it's no wonder that lenders and homeowners alike are looking for other solutions. Everybody loses during a foreclosure. Not just the lender and homeowner, but neighbors who watch their values affected, cities who lose tax revenues, businesses who lose customers, and on and on. The best solution is to keep people in the homes. But at what expense to everyone else, and how do you make it quick and painless? That is the point of loan modifications.
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Loan modifications are nothing new, and have been done ever since the beginning of real estate financing. A loan modification is simply taking the existing agreement, and modifying it to the satisfaction of both parties. The loan modification can be anything under the sun - including changing the payment, terms, interest rate, forgiving some of the payments, moving them to the back end of the loan, increasing the loan amount - or even getting rid of some of the loan itself!
Loan modification companies have sprung up all over the country, and homeowners facing foreclosure are especially vulnerable to some of their high-pressure tactics. If you are facing foreclosure, having a hard time making your payments or are upside-down in the value of your home, a loan modification could be for you. Before you consider hiring someone to help you though, here are some tips for tackling the loan modification process yourself:
1. Call the lender or servicer directly FIRST.
Many lenders now have departments and specially trained personnel to handle loan modification requests. Some properties and borrowers have even been pre-approved for a loan modification request in advance! One such company doing this is the government-controlled IndyMac Bank. Regardless of who your lender is, call the number on your loan statement and ask for the loan modification department. If they say there isn't one, ask for the loss mitigation department, and they'll guide you from there. The 800# "customer service" department is trained to say "no", so don't be alarmed when they say they don't know what you're talking about, or that they don't do loan modifications. They most certainly do!
2. Do not pay someone in advance for loan modification services.
This is a process you can do yourself with a little bit of time and effort. You do NOT need to hire someone to represent you for a loan modification, although at certain times you might want to consult your attorney to be sure you understand the details of the loan modification offer. Most companies claiming to be loan modification specialists are out-of-work loan officers or worse, and are not qualified to represent your interests. Certain states such as Colorado have recently passed legislation prohibiting unlicensed persons from performing loan modifications.
3. Make sure they are licensed.
If you do end up working with a loan modification company or specialist, make sure they are licensed in your state. Even if it is not required, this is good practice to insure that you're getting someone that at least has some knowledge and experience regarding the real estate and mortgage industry. Check their license with the state, investigate their record with the Better Business Bureau, and ask for references. It's easy for someone to come up with a fancy looking business card and slick forms claiming to be a specialist on loan modifications and foreclosures.
4. Get an appraisal.
Values in most areas of the country have dropped. You know it, I know it and more importantly the lender knows it. Before they agree to a loan modification, they will want to know what the true current value of your property is. Be prepared by getting a fee appraisal done through a locally licensed and certified appraiser. Find one by contacting a local lender or checking an online directory. Even though it will cost a couple of hundred bucks, it will be necessary and useful for negotiating with the lender. Try to find an appraiser that is FHA approved to make sure it's a quality appraisal that the lender will take seriously in evaluating your loan modification request.
5. Threaten foreclosure or bankruptcy.
You will need to be prepared to play hardball. The lender wants as much of their money as they can get, and they know that a loan modification means that they will be losing some of it. You need to show the other options are worse. If you continue down the current path, and do not get a loan modification in place, you're probably looking at foreclosure. Under a foreclosure, the bank loses even more money. When you mention that one of your other alternatives is simply dragging out a foreclosure for a year, they may become much more interested in a loan modification agreement. Bankruptcy scares the hell out them just as well! They know that not only do they lose money through a bankruptcy procedure, but that Congress is poised to authorize bankruptcy judges to perform loan modifications anyway! It's much cheaper for them just to approve a loan modification in advance and try that first.
6. Go LOW.
Ask for the sun and be grateful when you get the moon! When it comes to loan modifications, almost anything goes. There are certainly guidelines, especially when it comes to FHA, VA or other government loans, but you'll never get if you don't ask. When asking for a lower rate or a lower payment as part of your loan modification, go low and expect them to come back with a counter-offer. You need to take control and tell THEM what you can do, and then make sure that you can live with the new terms. If you want them to lower the loan amount, ask for a $20,000 reduction, then gladly settle when they offer $15,000. If you start at $10,000, they'll never just hand you an additional $5000 for fun. When it comes to the terms of the loan modification, always start low in your initial request.
Loan modifications can be performed very quickly and painlessly in terms of time and costs involved. A loan modification can save you thousands of dollars up front and over the long term, and save the bank or lender money as well. But you only get one crack at the deal. Be realistic with your finances and what you can afford to pay. Be prepared to plead your case complete with paycheck stubs (or unemployment filings), bank statements, credit reports, copies of past due bills, medical receipts - anything that will support your case that you need help now before it becomes worse.
You can do this on your own, and don't need to pay someone thousands of dollars to execute a loan modification agreement. The sooner you get started, the easier it will be, and the more time you can spend on getting the other problems in your financial world fixed. Loan modifications are common, so if you're in a pinch, don't be bashful - pick up the phone and negotiate!
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