What is Loan Modification?
Loan modification or mortgage modification is the process of changing the original terms of your mortgage loan. The lender re-calculates your monthly mortgage payment based on the modified terms of your mortgage note.
Lenders set various requirements and conditions for a loan modification. You may be required to complete a loan modification package and submit detailed documentation regarding your financial situation, including income verification for the past year and copies of your tax return. You are not guaranteed a loan modification even though you may complete the modification process, including paying any fees for loan modification.
What Would My Mortgage Company Agree to Modify My Mortgage?
Most mortgage companies do not want to be in the real estate business. They do not want your home. They want your money. Therefore, a mortgage company may agree to a loan modification if the modification is in the mortgage company’s best interest.
In some cases, the mortgage company decides that it will benefit over the life of your loan to modify the terms of the loan now. By modifying the terms of the loan, the mortgage company continues receiving payments instead of going through the process of foreclosing and selling your home to recoup the debt.
Mortgage terms that the company may modify under a loan modification include, but are not limited to:
- Reduce the principal amount you owe on your loan;
- Reduce your interest rate;
- Extend the term of your loan;
- Switch from adjustable-rate to fixed-rate interest;
- Temporarily suspend mortgage payments (forbearance agreement); and,
- Add the past due mortgage payments to the end of the loan.
Mortgage companies usually lose money if they foreclose on a home or agree to a short sale. A mortgage modification may be the best way for the mortgage company to settle your past-due mortgage payments.
You may also have other options available to you for a loan modification, depending on the type of loan you have, such as a VA mortgage or FHA mortgage.
Filing Bankruptcy Instead of a Loan Modification
If you do not qualify to modify your mortgage, you may want to consider hiring a Phoenix Chapter 13 bankruptcy attorney to save your home. While you cannot modify the terms of your mortgage through a Chapter 13 bankruptcy, you can catch up past due mortgage payments in your Chapter 13 plan. This option may allow you to keep your home and avoid foreclosure.
If you are behind on your second mortgage, you might be able to value the second mortgage at zero if the value of your home is less than you owe on your first mortgage. For some homeowners, valuing a second mortgage in Chapter 13 could save thousands of dollars and make it affordable to keep a home.
Contact Our Arizona Bankruptcy Attorneys for Help
If you are in the process of loan modification or have questions about bankruptcy and mortgage modifications, we can help. Call 602-562-1000 to schedule a free consultation with a Phoenix bankruptcy attorney with Allegiant Law Group.