In today's economic environment, mortgage foreclosure hurts everyone. The homeowner's credit score is destroyed and, most importantly, they are forced out of their homes causing them to lose everything they put into the property. The homeowners' neighborhood loses as property values decline, crime rates go up, and the tax base evaporates. And the lenders lose because the cost of foreclosure is extremely high and they must report foreclosures as non-performing assets. If you are a homeowner facing foreclosure today, however, you can use this information to help yourself prevent foreclosure by seeking a mortgage loan modification.Things You Will Need
Home
Mortgage
Willingness to not give up!
Step 1 As A Threshold Matter, You Need To Understand The Benefits Of A Mortgage Loan Modification. It is important that you appreciate that a mortgage loan modification is just that - a modification of your original loan with your bank. Because the change in terms can only be to the benefit of the homeowner and not the lender, you may ask yourself "why would a lender change the terms of my mortgage to make them worse for itself?" The answer is, at least as far as the lender is concerned, two-fold. First, is the most obvious reason - cost. It is very expenses to foreclose real property. By some estimates, it costs banks approximately $50,000 to $100,000 to complete the foreclosure process. From attorney's fees, to filing fees, to real estate broker commissions, to title expenses, to carrying costs such as real estate taxes and home insurance, these are more than enough reasons to cause lenders to attempt to save on these expenses if given a reasonable alternative. The second reason has to do with the way the lenders lend money and report assets. While fairly complication, suffice to say that a loan in foreclosure is a non-performing asset that cannot be loaned or borrowed against. Most lenders will jump at the change to make the loan a performing asset again. A mortgage loan modification has these advantage for the lender. Of course, if successful, the homeowner get to keep his or her house.Step 2 Next, You Need To Understand The Different Mortgage Loan Modification Programs That Are Available In Lieu Of Mortgage Foreclosure. Because mortgage loan modifications can be a good thing for all of the parties involved, you should understand the different mortgage loan modification programs that are available instead of mortgage foreclosure. Step 3 First, The Lender Can Reduced And / Or Fix The Interest Rate On Your Home Mortgage Loan. One of the biggest problems most homeowners now face are related to their initial choice of mortgage product. Unfortunately, while interest rates were lower and real estate prices were on the rise with no end in sight, most new homeowners (and some experienced real estate investors) chose ARMs (adjustable rate mortgages). These programs were sold with the focus on the low initial interest rates that permitted consumers to buy more house for less money. They were further sold on the idea that if interest rates increased substantially after the initial period (the most popular of which was the 5-1 ARM - the rate increased after the initial five year period and every year thereafter), the homeowner could either do a mortgage refinance or simply sell the house and enjoy the profits. However, as we all know, interest rates did go up but property values plummeted. As a result, many homeowners' mortgage payments went up so high that they were paying more than the house was worth. Moreover, because there was no longer equity in their houses, most homeowners could not quality for mortgage refinancing.
As a result, many lenders offer mortgage loan modification programs where they reduce the interest rate, sometime even reducing the interest rate more than the current going rate, or, in the case of an adjustable rate mortgage, converting it into a lower, fixed-rate mortgage loan. Substantial savings to the homeowner can be experienced by this form of mortgage loan modification.Step 4 Second, The Lender Can Extend The Term On Home Mortgage Loan. The most common mortgage term is the thirty year term. If you are like most homeowners, your goal is to pay off your mortgage loan as soon as possible. However, there is an ever-increasing mortgage loan modification program that involves extending the term for an even longer period of time. For example, say you have a thirty year fixed mortgage loan where you have fifteen years left to pay with a balance of $250,000. Your lender might agree to extend your mortgage for another thirty years so that you have an extra fifteen years to repay your balance of $250,000, thereby significantly reducing your monthly mortgage payment.
Now keep in mind that just because you are given an extra fifteen years to repay your loan does not mean you have to use that time. You can, assuming your new mortgage loan permits early repayment, pay more to your mortgage loan at any time during the new term. However, this mortgage loan modification alternative gives you the option of doing so when your finances permit.Step 5 Finally, Your Lender Can Temporarily Reduce The Principal Balance Of Your Mortgage Loan. Although there are several ways this mortgage loan modification option can work, two methods are worth discussing here. The first option, if available, takes advantage of the current administration's Making Home Affordable ("MHA") plan. Under this plan, lenders are able to seek recovery of a portion of their losses from the Treasury of the United States. Where MHA money is not available, however, the lender can reach a loan modification agreement with you wherein a portion of your mortgage debt is deferred by temporarily reducing the principal amount of the loan. For example, if a homeowner owes $250,000 on their home mortgage and its fair market value is only $200,000, the lender can recalculate the monthly mortgage payments using the $200,000 value. The balance of $50,000 will be repaid in the future when the homeowner sells or refinances the house. Maybe by then home prices will rebound!Losing your house to mortgage foreclosure is a bad thing. However, armed with the right information, and using some or all of the foregoing suggestions, hopefully you can save your house and prevent foreclosure.
Sign Up
Create
Get Paid
Culture
Geography
Health
History
Mathematics
People
Philosophy
Religion
Science
Society
Technology
InfoBarrel University
Article Feed