How Does A Loan Modification Work- Do I Need A Professional?

The mortgage lending industry has been hit hard within the last 24 months. A drop in home equity combined with credit issues and stricter lending practices has made it hard for many to refinance. Fortunately, the government has stepped in and forced banks to offer some alternatives. The main option is called a mortgage loan modification.

A modification works by improving the current terms and rate that you already have on your mortgage. It's not a refinance because you are not paying off or satisfying your existing loan. As a result, there are no closing costs. The entire process is accomplished by negotiating with your bank. When completed, the results can be dramatic. Many borrowers will see payment reductions on their mortgage in excess of 30%. Other benefits include:

-Reduction in the interest rate/mortgage payment

-An adjustable mortgage can be converted into a fixed rate

-Principal reduction (the lender forgives a portion of your loan)

-Delinquent and late payments automatically brought current

The philosophy behind a loan modification is very simple. Your lender knows that if they can improve your situation, it is less likely that you will default. It's a small concession for them which can have tremendous benefits for you.

Negotiating a modification is not as hard as you may think. Recent changes in the law have improved half the battle as all banks are accepting the practice of modifications now (they weren't just 12 months ago). Today, getting a loan modification is merely a matter of qualifying for one. The procedure has now become standard.

If you can demonstrate a hardship and show your bank that you have some regular income which would allow you to make a reduced mortgage payment, your chances are good that a modification will work. You have nothing (but time) to lose by trying. The worst thing in the world that could happen is that they say no.

Your decision now should be to use a do it yourself loan modification guide or hire a professional. Professional services charge approximately $2000, sometimes more depending on the situation. Not long ago, hiring a professional might have made sense. Lenders were not prepared, there weren't any guidelines and they did not embrace the concept of modification. Things are much different now as the Government has stepped in and standardized qualifications and also mandated acceptance. Today, using a professional might be convenient if you don't have the time or desire to call your bank. However, don't expect the results to be any better than if you had done it yourself. Banks do not give preferential treatment to customers who have professional representation. In fact, many banks warn against it (Chase has a outgoing message regarding this)

In many cases you might get better results doing it yourself as you are able to communicate directly with the bank, you are in control and thus can "sell" yourself better. Professional services don't do this. It's all about the volume for them. For example, if you take your car to the car wash it will get cleaned quickly, but if you do it yourself and invest some time, you can clean it better. The same principle applies here too. Consider the fact that it is the bank that approves your modification, not the professional services.

A small amount of time invested can have dramatic affects if you are considering a lower mortgage payment