By Wendy Clay on November 15, 2011
.jpg.aspx) Loan modifications are changes to the original terms of a loan that make it easier for the borrower to repay the loan. In recent times this term has normally been associated with homeowner’s loans as it represents an alternative to foreclosure that is highly favorable for both the homeowner and the lender, but it is possible to modify a variety of personal and business loans.
In order to qualify for a loan modification, most lenders require the borrower to give evidence of some sort of financial hardship, such as a decrease or loss of income or a divorce or separation, in a formal letter. They also ask the borrower to submit a few other financial documents including the borrower’s most recent mortgage statement, bank statements for up to four prior months, W2 forms and tax returns from the past two years, and an income/expense statement. Upon receiving these documents, the lender will then review them before beginning negotiations. Normally this review takes anywhere from thirty to forty-five days to complete, but once the borrower has been approved for a loan modification the negotiations can begin. When negotiating there are three different ways in which the loan can be modified: the interest rates can be lowered, the amount of time the borrower is given to repay the loan can be increased, or a portion of the unpaid loan amount can be forgiven (this reduction of the principal to be repaid is the least likely modification to occur).
In total, the entire modification process can take between thirty to sixty days to complete and cause a decent amount of stress. Fortunately, organizations exist to help moderate these negotiations for borrowers, but it is important to confirm the credibility of these loan modification companies as there are many scammers preying upon those in financial distress. As a general rule, when searching for a loan modifier to aid in the modification process be wary of those that ask you to relinquish the title of the loan (as this gives the modifier possession of your property) or request that you make your loan payments to an organization other than your financial institution. Also, avoid agencies that charge high fees and require them to be paid before they actually aid in the loan modification process.
In closing, loan modifications can improve the affordability of repaying your loans, but be sure to research which modification will work best for your situation and choose your help carefully.
Sources:
A Typical Bank Loan Modification Process. CDLOANMOD.com, 2010-2011. Web. 18 Oct. 2011
<http://www.cdloanmod.com/loan-modification-process/>.
Beware the Loan Modification Merry-go-round. msnbc.com, 6 Mar. 2009. Web. 14 Oct. 2011
<http://redtape.msnbc.msn.com/_news/2009/03/06/6345778-beware-the-loan-modification-merry-go-round>.
What Is a Loan Modification? 2011. 18 Oct. 2011 <http://www.whatisaloanmodification.net/>. |