Get A Loan Modification To Save Your Home!

Thanks to Obama’s new Homeowner Stability and Affordability Plan, which is throwing (in the form of loan modifications) those who are drowning in debt and are about to foreclose on their homes a lifesaver (note: the banks aren’t too happy about this)!

But before you run out and beg a lender for one, you’d better know this: not all loans can (or should, in my opinion) be modified! I don’t know if you read this anywhere or not, but the true goal of this mortgage modification plan is to reduce the burden of one’s payment to around 33% of the borrower’s gross income. If you are already below that level, then your mortgage payments are not really the source of your financial suffering. Maybe it’s other debts (student loan, car payments, or credit card payments)? If so, then you should work directly with those creditors to get out from under those burdens as well! Now, back to the qualifying part …

The one thing that is stopping a lot of struggling families from qualifying is that both the lender and borrower must agree to all of the terms. Since a loan modification request typically results in a lot less generated interest, most lenders (if not all of the sleeze-balls) have no real incentive to just say yes without a borrower twisting their arms with the new laws put into place by President Obama. However, there is some good news: as the concept of loan modifying catches on (it’s spreading like wildfire, as you read this) these same stingy lenders are really stuck with no other choice but to agree to them!

Why would any smart lender accept a loan modification in this tough economy, you ask? Well, maybe it’s because it at least continues the loan and the stream of interest and servicing revenue it represents. Also, if they don’t accept your modification, these lenders know that you’re probably just going to have it refinanced elsewhere anyway (so most of them will bite the bullet once they wise up). Borrowers, however, have different motivations, and since a fixed-rate loan agreement can be put into play (which is very favorable to them) in a market like we’re in, consumers have no real reason to accept the higher rates of their old loans (unless, of course, a lender can offer some extra incentives to stay [hint, hint, lenders!]).

On a serious note: due to a serious greed factor gene, most lenders would prefer to offer a refinance over a loan modification! Why, you ask (man, you’re filled with questions today! LOL)? Well, the simple answer is that by replacing an existing loan with a new mortgage, you will more than likely be impacting the lender’s risk substantially. For example, if you go out and buy a home with a new loan, your financing is generally considered a purchase money mortgage. What this means: if you’re foreclosed or go bankrupt, the lender gets back the house but cannot sue you for any shortfall (note: a loan modification is an extension of that first loan, so you would be in this boat). However, if you refinance you’ll no longer have a purchase money mortgage, and a lender can then seek a deficiency judgment if you’re foreclosed on. This hidden agenda is probably the only thing stopping you from getting a loan modification, but guess what? That’s right … your lender is not the only one in the game, so call around and find one that will give you more options!

Remember this always: the goal of the lender is to sell more loans and generate more income for himself and all of his cronies. On the flip-side of this battle: the goal of the borrower is to have less debt with less cost. Now both of you go to your corners and come out swinging — DING, DING, DING!!