subject: To Stop Foreclosure Work On Loan Modification [print this page] Foreclosure problem arises due to bad lending practices at the beginning of the lending process. There was a time when people considering buying a home had to show a significant down payment, as well as one year of work pay stubs and other proof of income and asset. This helped people know about financial resources and would likely keep up with loan payments over the long term.
Many banks started offering loans to people who could not afford to pay them back under the banner of diversity. In addition, loan originators were getting large commissions, based on the size of the loan. Due to these two factors it became easy to get a loan, as borrowers did not have to prove their financial situations and large loans were given out to people who could not afford them. This type of loan is called liar loans.
Many new homeowners were not informed on what they were signing when getting their loans. They ended up paying adjustable rate mortgages, usually with interest only introductory periods, even when they were informed before the closing that they were going to be put into a fixed rate mortgage. When rates were adjusted or interest period ran out their housing bill would triple and many homeowners could not make the payments.
To get out of this problem, one of the best ways is loan modification. In loan modification plan, you can get various terms of your loan changed. Direct lending has dried up among consumers due to recession, modifying existing loans is becoming more popular.
If you notice most of the mortgage loans are based on interest rate and time period. Interest rate is the percentage of the remaining balance that the bank takes as a profit on each payment. As interest rate is high many homeowners find that they end up paying more to the bank than the house is worth. Most interest rates are compound interest, as well as, and over the lifetime of most mortgages, that can add up to a very large amount.
In loan modification, interest rate is either reduced or repayment period of the loan is increased. If a homeowner wants loan modification, he has to prove to the bank that they are facing financial hardship and difficulties that have lowered their montly income significantly.
Borrowers may need help of loan modification specialist to do negotiation with the lender. Loan modification specialist can get a modification approved quickly because these people work with banks all the time and bank employees know them very well and will speak to them and get a plan worked out more efficiently. In a foreclosure situation, homeowners may not be waiting for the lender to get approval for loan mod, while they may work on selling the home through a sheriff sale.
