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If your mortgage lender sent you a letter demanding that you pay all of your payments, plus all late fees, penalties and legal fees to get current, the process they are working with is This is called reinstatement of your loan. Your lender views the outstanding amount as a default on the terms of your home loan. For this they need to demand to hold you or they should beat you up and take you home. Can home loan modification avoid this process and update you without paying you this huge amount? If the answer is yes then why is it true? You may ask what is the difference between reinstatement and modification of a home loan?
The demand for the promissory note received by the borrower is based on the terms of the loan. It allows you to make payments only as described in your loan documents. If you are late with your payments, you will still be bound by the terms of your agreement with the lender. There is no language in your loan to allow for changes. Hence the lender has no other option but to collect or foreclose. You have fallen into default and the only contractual way to become operational is to pay all past due amounts. Your loan is then “reinstated” and you can keep your home as long as you continue to make your payments on time. This process is called resettlement.
But, the problem with the reinstatement process is that if you’re too far behind, you won’t be able to get enough cash to catch up with everyone at once. The language of your loan, then, triggers a foreclosure that you are unable to prevent.
Unless… you are able to come to an agreement with your lender to “change” the language and terms of your loan. This type of situation would call for “modifying” your loan. You modify the terms to make it possible for you to continue to own your home and make payments. This will include interest reduction to lower your monthly payment and taking your unpaid payments and putting them back into your loan. The new terms will have the effect of creating a new monthly payment, which will be affordable to you. Your monthly payment will now fit into your monthly budget.
Why would the lender do this? Because, your lender loses a lot of money every time they foreclose on a home. It’s complicated, but costs your lender will have to pay may include:
1. The cost of the foreclosure process through the court system.
2. Your home will probably sell for less today than it did a few years ago because of the economy. If your lender receives less than what you owe, they lose this money.
3. Take care of your home during the selling process. This includes large realtor commissions, utility bills, and maintenance.
4. The lender borrowed money from an even bigger lender to lend you the money you used to buy your home. Your lender has to pay it back.
5. While your home is in foreclosure or being sold, your lender cannot use it as an asset on the bank balance sheet. They are then criticized by government regulators.
Well what does your lender want? First, the lender wants you to catch up on your payments on your own and get a reinstatement. You. The lender wants you to show what was wrong; What’s different today; And how much amount you can afford. Then they have to see if they can make your plan work from their perspective.
If you can agree on terms that work for both of you, you can change the terms or conditions of your loan to include the new agreement. You will not get a new loan or refinance loan. You’ll do a “home loan modification,” which simply changes some of the terms of the loan so that it now includes your new agreement.
Due to the current housing crisis, home loan modifications are done thousands of times per day. You can do it yourself if you are familiar with the process. However, this can be tricky. I will be interviewing several home loan modification process experts. Find out what they promise, what they charge and if they will take payment. See my resource box below for my recommendation.
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