What Happens in a Loan Modification?

By
Real Estate Agent with Long & Foster REALTORS®, Manassas, VA VA License # 0225089470

As a Northern Virginia short sale listing agent, I meet many sellers who really seem confused on what happens in a loan modification.  There seems to be a general misconception that loan modification means a portion of your principal loan balance will be forgiven and reflect more of the market value of your home.  While this may happen in RARE instances, it is not how mortgage lenders will do business 99.9% of the time.

Loan modification is actually a temporary reduction in interest rate to help you through a financial rough patch.  When you signed your loan documents, you promised to repay the amount of money you borrowed.  Why would the bank modify that?  It is the amount you borrowed. What banks can do is adjust the interest on your loan, but only temporarily, usually for one year.

If you need a longer term adjustment of interest rate, you may want to look into a refinance.  Under new guidelines, you may be able to refinance up to 105% of the value of your home.  Until you talk to you mortgage lender, you won't know exactly what your options are.

When you are facing difficulty paying your mortgage, the first step is talking to you mortgage holder to see what modification they may be able to perform on your mortgage.   Just make sure you go into that conversation with realistic expectations.

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Lending / Financial
Location:
Virginia Prince William County
Tags:
loan modification
short sale
short sale realtor
gainesville short sale realtor

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Rainer
44,402
Nancy Williams
Coldwell Banker Homestead Group Select Professionals - Harrisburg, PA

Hey, Chris Ann,

I wasn't at all aware that loan modifications were temporary.  Is that typical?

Nov 09, 2009 12:14 PM #1
Ambassador
1,972,927
Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Nancy:  Most of my clients are finding they are. And therefore, most banks are finding that the loan modificationees are defaulting a year later.

Nov 09, 2009 12:23 PM #2
Ambassador
1,824,249
Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

Chris Ann-I read some interesting statistics yesterday regarding the percentage of loan modifications that banks were or make that aren't doing.  It is dismissal!

Nov 09, 2009 12:57 PM #3
Ambassador
1,972,927
Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Cindy:  I know they aren't doing many.  Maybe it's because such a huge number of the mods they do end up defaulting within twelve month anyway. 

Nov 09, 2009 04:05 PM #4
Ambassador
2,441,289
Patricia Kennedy
Evers & Company Real Estate, Inc. - Washington, DC
For Your Home in the Capital

Chris Ann, rats!  I thought maybe I could sweet talk Bank of America into reducing my loan balance because it would be much nicer to pay off a lower note.  But all kidding aside, I think there is a tremendous amount of confusion over loan modifications and what the banks will or will not do.  And it seems like in many cases it would actually make business sense for the bank to lower the principle instead of doing a short sale or foreclosure where they are also getting less money that the amount of the note.

Nov 10, 2009 04:45 PM #5
Ambassador
1,972,927
Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Pat:  I can completely understand why they don't.  Sets a terrible precident.  Who gets it?  Who doesn't?

Nov 10, 2009 05:32 PM #6
Rainmaker
262,180
Michael Bergin
Coldwell Banker Residential Brokerage - ABR - SRES - Alexandria, VA
Northern Virginia Real Estate

Chris Ann -

I wasn't aware that the modifications were temporary either.  Thanks for the heads up.  I need to learn more.

Michael

Nov 15, 2009 08:21 PM #7
Rainmaker
514,675
Russell Lewis
Realty Austin, Austin Texas Real Estate - Austin, TX
Broker,CLHMS,GRI

Hi Chris Ann, I found your post in the week in review, great work (as always) and congrats on making the list again!

Nov 15, 2009 08:35 PM #8
Rainmaker
191,250
Joyce Thomas
REMAX Home Expert Realty - Florence, AZ
Anthem Merrill Ranch AZ Real Estate

Thanks for the explanation.  Unfortunately sellers doing modifications don't usually understand it is a temporary situation and extends their loan term by the 5 years. 

Nov 16, 2009 08:37 AM #9
Ambassador
1,972,927
Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Michael:  That's why there is such a huge default rate.  Doesn't really solve the problem.  Some people just can not afford their homes.

Russell:  Thanks. 

Joyce:  And most of the late charges and missed payments are tacked onto the principal.

Nov 16, 2009 08:42 AM #10
Ambassador
799,822
Hannah Williams
Re/Max Eastern inc. - Philadelphia, PA
Expertise in NE Philadelphia & Bucks County

Chris..It's a wonderful program and can save many homeowners from financial disaster...The extra years are tacked onto the back of their mortgage and can help them through a difficult time until they can get back on their feet again..This program has helped several folks out of temporary hardships..and saved their homes for them..Thanks

Nov 16, 2009 12:04 PM #11
Ambassador
1,972,927
Chris Ann Cleland
Long & Foster REALTORS®, Manassas, VA - Bristow, VA
Associate Broker, Northern VA

Hannah:  When folks are in a temporary hardship, this is a great solution.

Nov 16, 2009 12:10 PM #12
Post a Comment
Spam prevention
Show All Comments
Ambassador
1,972,927

Chris Ann Cleland

Associate Broker, Northern VA
Email Me For a Free CMA of Your Home's Value
*
*
*
Spam prevention