American Legal Network

The recession is taking its toll. It’s affecting people from all walks of life and it doesn’t discriminate. This is evident in the foreclosure crisis being experienced in the real estate industry. Lenders and borrowers alike are being hit in every direction by the impact of the crisis. The recession makes it tougher for people to pay their mortgages, and the continuous drop of home prices have left many borrowers ‘underwater’, putting them in the position of owing more than the value of their properties, unable to sell or refinance their way out of trouble.

A lot of homeowners with mortgages are now behind in mortgage payments, even some are facing foreclosure. The government under President Obama is doing its part to curb the crisis with the $75 Billion “Foreclosure Bailout Plan” which aims to help millions of homeowners who are about to lose their homes refinance their mortgages. The mortgage bailout plan will allow 4 to 5 million homeowners refinance their homes. The $75 billion the President allocated will fund the reduction of monthly payments of home owners.

It is estimated that 2.2 million homes will be foreclosed this 2009 alone and not all of which will qualify for the plan because in order to qualify for Obama’s new refinance plan, your loan to value (LTV), cannot be any higher than 105%. So, if the value of your home is $500,000, your loan cannot be any higher than $525,000 (5% higher than the current market value). So that eliminates pretty much everyone who bought a home in 2004 – 2008.

For those who will not qualify for the plan, the options would either be to short sell, foreclose, or apply for a modification with their lenders. If you chose to short sell or foreclose, either way you would incur losses. The best way is to get a modification on your loan so that you may be able to save your house, update your mortgage payments, regain financial stability, and most of all get relief from the impact of the crisis the recession is causing.

Apply for a loan modification with the help of professionals who knows more about the system and can negotiate effectively with lenders on your behalf. Remember, it’s better to get rid of the problem before it’s too late. Act now! Call us.

1. Interest Rate Reduction:

   This is a more effective way to get the payment down. Cutting the interest rate on a 30-year loan from 6 percent to 3 percent will reduce the payment by about 30 percent, whereas extending the term to 40 years reduces it by only 8 percent. Rate reductions are flexible, since they can be adjusted to the needs of each individual borrower. They are more costly to the investor than a term extension, and correspondingly they are more valuable to the borrower.

   To minimize the cost, rate reductions in some cases are made temporary. The modification may call for the original rate to be phased back over, say, five years. This presumes that the borrower’s payment capacity will grow over the same period.

2. Capitalization of Arrears:

   The past due payments — and perhaps late fees and other charges arising out of past delinquencies — are added to the loan balance. A new payment, which will be a little higher than the previous payment, is then calculated.

   This is the most common type of modification because it has very little cost to the investor. It’s only value to the borrower is that it provides a new start by making him current. It works for a borrower who has hit a temporary rough patch and is now back on track, but not for a borrower who needs a lower payment.

3. Extension of the term:

   A term extension is the payment reduction modification that is least costly to the investor. However, if a loan was originally for 30 or 40 years and is now only a few years old, the payment can’t be reduced very much this way. If the loan was originally for 10 or 15 years, a term extension to 30 years will reduce the payment materially, but 10- and 15-year loans make up a very small share of loans in distress.

4. Freeze of interest Rate:

   On adjustable-rate mortgages that are close to a rate reset date, where the new rate and payment will be well above the one the borrower is now paying, a modification can freeze the rate and payment at the current level. Many subprime loans have been modified in this way because they carried margins of 5 percent to 7 percent, which, when added to the current value of the rate index, would have resulted in substantial increases in rates and payments.

5. Reduction of Loan Balance (Principal Balance Reduction):

   The mortgage payment declines in tandem with the balance. A 20 percent drop in the balance, for example, results in a 20 percent drop in the payment. Unlike a cut in the interest rate, however, a cut in the balance can’t be temporary, which makes it the most costly modification for investors and the best modification for borrowers.

   Balance reductions do have one major advantage for investors: They reduce the borrower’s negative equity, which increases the borrower’s incentive to do everything possible to keep the house. It is very plausible that re-default rates on loans that are modified with a balance reduction are materially lower than on other types of modifications.

6. Step Interest Rate Reduction:

   A Step Interest Rate modification works by reducing the interest rate to a low rate that that client can afford for one or two years then the rate will be increased the following year usually by one percent then the following year by around one percent, then the following year by one percent and then may fix itself to that rate on the last year. This is common for clients that may be on a commission based structure and due to the economy, they are not making the money they were, but once the economy turns, then they will go back to making the money they were before.

7. Forbearance:

   Typically 30% of sub-prime lenders (with high interest rates) will only offer a workout program that requires you to immediately pay at least 20% or more of the total delinquencies including foreclosure fees, plus the balance of the delinquency will be added to their regular monthly payments over a period of 6 to 48 months.

   Forbearance plans do not remove a foreclosure action but simply stop it in place until the loan is current.

Call us to learn more about Loan Modification.

More and more people are talking about loan modification. Have you ever wondered why?

A lot of homeowners are suffering the effects of the current recession the economy is facing. Declining property values, constricting lenders guidelines, adjusting interest rates, financial hardship, and threat of foreclosures. These are just some of the reasons why there is currently a loan modification boom.

Loan modification is a process whereby a homeowner’s mortgage is modified and both lender and homeowner are bound by the new terms. The most common modifications are:

• lowering the interest rate
• reducing the principal balance
• ‘fixing’ adjustable interest rates
• increasing the loan term
• forgiveness of payment defaults & fees
• Or any combination of these.

Lenders would prefer to work with borrowers who are eyeing for a renegotiation on an existing loan. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default. That is why there are a lot of homeowners who are considering loan modification nowadays. There are lots of success stories behind loan modification that is why there is so much fuzz about it.

If you’re well behind on your mortgage payments, in threat of foreclosure, owning an ‘upside down’ property, currently on adjustable rate mortgage (ARM), experiencing a financial hardship, and thinking of selling-short, LOAN MODIFICATION is the right thing for you.

Let us tell you more about loan modification and how we can be of help.