You the borrower find this program more suitable as it makes loan repayment more affordable. This also stops you from filing foreclosure. This is important because if you file for bankruptcy, your credit score is severely damaged and that negative impact remains on your credit report for nearly a decade. Moreover, if you file for foreclosure, your chances of obtaining a new loan with favorable terms and conditions are also severely damaged. Given all these negative effects if foreclosure, it makes great sense to opt for home loan modification program. Again, if you file for foreclosure, your lenders are at the losing side. On the other hand, if you opt for home loan modification program, loss to your lender is relatively less than in case you file for foreclosure. Anyways, here we discuss about the benefits of loan modification program.

Reduction in monthly payment amount

The main aim of loan modification program is to make the mortgage loan more affordable to you. This is done by lowering down the rate of interest. The lower rate of interest reduces the monthly mortgage payment amount. This in turn makes the mortgage payment more affordable to you.

Expands loan term

Sometimes, through mortgage modification program, term of the mortgage loan is extended. This is however done at the cost of reduction in the monthly mortgage payment amount. Though it eases the pressure of mortgage repayment, but sometimes in total, you end up paying more over the life of the mortgage.

Your home ownership is protected

With this program, you are able to protect your ownership. This makes repayment of mortgage loan more affordable. Chances of default are also substantially reduced. Ownership of your home is ensued through mortgage loan modification program.

Due to the above mentioned benefits, it makes great sense to opt for home loan medication program. Moreover, this is a far better option than filing for foreclosure.

Tip 1: Know exactly what you have coming in each week or month. Without a true understanding of what you have coming in, you cannot create a budget that meets your needs and reduces the drains on your finances.

Tip 2: Is the total opposite of tip one. You need to create a list of every debt and bill that you have to pay. This includes utilities, rent and/or mortgage and credit cards. Do not forget those non monthly bills such as car tags, license renewal and school supplies.

Tip 3: Reduce your non essential expenses. This is a hard one for many families. If you do not need it, do not buy it. Luxury purchases have to be totally removed from your life until you are out of debt.

Tip 4: Start reducing credit card debt. This is where most people get into trouble. People often try to pay the minimum on every credit card and expect to get out of debt. It takes many years to pay off a maxed out credit card by paying the minimum amount due. Pay off the smallest limit credit card first and then start working on the next. Every cent that you can squeeze out of your budget will go toward the target credit card to reduce the balance

Tip 5: Do not, under any circumstances, add any new debt to the problem. Put all credit cards out of commission until the family finances are under control. Adding any balance to existing cards will defeat your attempts to get out of debt.

Tip 6: Cut back on trips to the grocery store or any other store that you go to on a regular basis. One trip per week to shop is all that you need. The more often you shop, the more likely you are to give in to impulse purchases.

Tip 7: Drive as seldom as possible. Filling up the gas tank every week costs a lot of money that you can use for getting rid of your bills. With gas prices as high as they are, drive only when you have to.

Bonus Tip – Make additional income on the side. This income on the side could be in the form of a side business cutting grass or a higher risk business like trading currency.

If you cannot do it yourself, think enrolling in one of the many debt relief programs available. A professional can often see where your problems are when you cannot. Debt relief programs do not work unless you follow the recommendations offered.

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Taking out a second mortgage loan is another way of dealing with your high interest unsecured debts. A second mortgage loan is also known as home equity loan and consolidating your credit card debts with a home equity loan can offer you more than one benefits. Tapping the home equity that you’ve accumulated in your home is a wise way of repaying your high interest creditors and also going for home improvements. Have a look at some benefits that you may reap if you take out a home equity loan.

Drastically low interest rates
As the home equity loan is a secured loan and you pledge your home as collateral, the lenders will charge you with low interest rates as they have the option of seizing your home in case you default on the loan. Therefore, if you get lower rates than a personal debt consolidation loan, it makes sense. Your ultimate aim would be to save enough money in the long run while being debt free.

Longer repayment plan
You can even grab an extended repayment plan as the home equity loan is a secured loan. Since secured loans involve a large amount of money, they usually have long repayment terms so that the borrower doesn’t go through any kind of financial difficulties while repaying it. If you consolidate your high interest debts through this loan, you can easily repay your debts in easy monthly installments.

Tax benefits
As home equity loan is considered to be a good debt, the interest rate that you pay on such loans is tax-deductible and thereby you save a lump sum of your dollars while consolidating your debts.

The only pitfall to taking out a second mortgage loan for consolidation is the consequence of falling behind on the monthly payments. If you default on the monthly mortgage payments, you may run the risk of losing your home to a forced foreclosure. Thus, it is always wise to be sure about your repayment ability before resorting to this option.

For more information please visit http://www.debtconsolidationcare.com/

Loan Modification:

A change to an existing loan made by a lender in response to a borrower’s long-term inability to repay the loan. Loan modifications usually involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might modify a loan because the cost of doing so is less than the cost of foreclosure.

A.R.M:

Short for adjustable-rate mortgage

Teaser Rate:

The initial rate on an adjustable-rate mortgage (ARM). This rate will typically be below the going market rate, and is used by lenders to entice borrowers to choose ARMs over traditional mortgages. The teaser rate will be in effect for only a few months, at which point the rate will gradually climb until it reaches the full indexed rate.

Pre-payment Penalty:

A clause in a mortgage contract that says if the mortgage is prepaid within a certain time period, a penalty will be assessed. This can be a certain monetary figure or a percentage of the loan.

Principle:

The base amount of the loan – not including interest.

Loan Servicer:

A loan servicer is a public or private entity that handles. Collecting, monitoring and reporting loan payments, handling property tax, handling insurance escrows, or closing defaulted loans, handling late payments and other delinquencies, remitting payments. A servicer earns a servicing fee in return for performing the administration functions described above, typically a percentage of the loan’s Unpaid Principal Balance.

loan-servicer

Debt to Income Ratio:

A ratio that indicates what portion of a person’s monthly income goes toward paying debts. Total monthly debt includes expenses such as mortgage payments, taxes and insurance, credit-card payments, child support and other loan payments.

The main reason is that no lender will agree to anything without both a signed workout agreement (usually notarized), along with certified funds for some type of down payment, good faith payment, or borrower contribution.

The Lender wants to be sure that you’re taking this seriously and that you’re willing to make some sort of payment along with your work out agreement. This payment has to be made via cashier’s check. No personal checks are accepted. How much will you need to pay? It may be necessary to pay 35 to 50 percent of the arrears. If you negotiate, you may be able to get this percentage lowered to between 15 to 30 percent. This is because the lender wants to get the loan current as quickly as possible, as well as to make sure you have “skin in the game.” Saving the monthly payment is a good way to keep the chips on your side, and can be used as a bargaining tool.

As stated earlier, these negotiations are really simple. Just don’t agree to something you know you can’t afford. Don’t get bullied into accepting something just because you think that’s all you can do.

Stopped Foreclosure!

When you’re satisfied you have the best compromise for your situation, you’ll ask the lender to draw up the paperwork and send it to you via mail or Fax.

Confirm the Terms

Once your lender agrees to your terms, and sends you their Modification Agreement, you’ve successfully performed your loan modification. The only thing left to do is sign and return, and all is done.

However, you have to then look deep into yourself and ask yourself some tough questions. You’ve accomplished your goal, but is this the right solution for you at this time?

Now is the time to really answer that question, before you dig yourself deeper in the hole. This is a personal decision, and should not be taken lightly.

So, now’s the time to decide if you’re going to stick it out, or if it’s time for you to BAIL!…

You’ve decided to stick it out? Good choice! There’s no shame had you decided otherwise. You have to do what’s best for you and your family.

So let’s move on…

Once you receive the agreement, you should first confirm that this is what was agreed to by you and the lender. If not, you’ll need to get on the phone to find out why the agreement on paper is different than what you agreed to over the phone. Upon satisfaction, this agreement will have to be signed and notarized and then will have to be sent back to the lender via an overnight service.

Next Steps

Remember, your good faith payment will also have to be sent with the document. You can send it by certified check or by using a money order. Or, you can wire the funds to the Lender. And if you’re going to wire the money, don’t forget to ask the bank for their wiring instructions.

Remember the good faith payment is an important step; one that lets the lender know you’re willing to work this out

Congratulations

You have successfully saved your house! Be proud of the place you’ve kept for your family. Keep up with the new terms and enjoy your life with reduced stress.

It’s important for you to put some effort into writing this explanation. Below are a few simple guidelines you might want to follow:

In your hardship letter, be sure you:

• Include the lender’s name and address, your loan number, your name, and the address of the property in question.
• Open your letter by explaining that you bought the property or you refinanced the property.
• Briefly recount your past payment history. For example, “I’ve always paid on time in the past and haven’t been late.”
• Give details for the reason of your present hardship. Include what happened, when it happened, and the impact the situation is having on your finances.
• Then, explain how you have, or will, resolve the problem. For Example: “I have now found a new job that is paying a higher salary with more job security. I can make regular payments but need help to stay current and pay the arrears.”

Close by explaining that you would be grateful if the lender… (Did whatever you want the lender to do). Be specific about this.

Each borrower must sign the bottom of the letter and the Income and Expense Statement

Stopped-Foreclosure

Hardship Letter Sample:

Bank name

Bank Address

Sate

Your Name

Your address

State

Date

Loan Number:

Re: Mortgage Modification

To Whom It May Concern:

Due to the recent adjustment in the mortgage I currently have with your company, I’m finding it very difficult to afford the new payment. I have a (fill in year) fixed rate which is now adjustable and is scheduled to adjust again in (fill in date). Considering my current income, there will be no way I can afford the increased payments when the mortgage adjusts. Hopefully, there’s a way to renegotiate the terms of my current mortgage to avoid default or foreclosure on my home.

Is it possible to have my current adjustable rate mortgage converted to a fixed rate? Any other solutions you could provide would be greatly appreciated. I have made consistent payments over the past (fill in) years and I do not want that to change.

I thought maybe I’d be able to refinance my loan, but due to the downturn of the housing and mortgage industry, I’ve found this is not a possibility. The main problem is that my property is now worth about 5-10% less than what I paid for it; preventing me from being able to refinance. I was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct. 4th 2006) regarding the servicing of Conventional Mortgage Modifications. I believe this addresses the situation in which I currently find myself, along with many other homeowners. Attached are recent pay stubs showing my current income, as well as my W-2′s for the past two years. Please let me know what other information I can provide you with that would help you come to a decision in my favor.

Thank you for your time and consideration.

Yours truly,

Your Name

The Major Parts of a Good Loan Modification Application:

loan-modification-application

Primary Documents:

A Hardship Letter – This lets the lender know why you’re in this situation, and what you plan on doing about it.

An Income and Expense Statement – Usually, this document will be supplied by the lender, but we’ve included a statement you can use if necessary.

Supporting Documents:

Pay stubs – One month’s worth of pay stubs is sufficient.

W-2’s for the past two years.

Tax returns for the past 2 years.

Financial statements, if self employed.

• Always come prepared and write EVERYTHING down.

• Start by calling the number on your statement.

• Be prepared to be transferred, A LOT.

• Your goal during this process is simply to speak to a human being.

• Always ask for the “loss mitigation department,” sometimes referred to as the “Workout    Department”.

• Be prepared to provide all your information and be prepared to provide it several times.

• Don’t get frustrated or upset over anything.

• Don’t lose your temper.

• Be patient; remember you are looking for a resolution here.

• You need something from them not the other way around.

• Once you get through to the loss mitigation department tell the representative that you would like to speak to someone who has authority to do a workout agreement.

• Make sure you’re speaking to the right person. Always have a pen and paper ready by the phone and take detailed notes of the name and ID number of everyone you speak to, including times and dates. Remember write down:

• The date and time of the call.
• The name of the person who took the call.
• This person’s phone number and extension.
• The supplied contact log is a great tool for keeping track of this information

• Before you’re transferred anywhere, ask for the direct number of the person you need to reach just in case you become disconnected.

• Your work isn’t done until you get the loan modification you need.

• Always keep following up. Your file is most important to you, not to anyone else. Remember these banks have hundreds or even thousands of files. Call as often as necessary, but don’t be impolite, impatient, or demanding.

• Along with all of your notes, keep a file of all your documentation together with all the faxes that you’ve sent. This way, when you speak to people everything is in one place and you’re not scratching around for things. Be organized and professional.

• Once you’ve faxed your documents, call your lender to make sure they received all of them. Even if someone tells you that it takes a certain amount of time to get into the system, confirm that all the documents you sent were received. Then, you can call back in the time frame stated to make sure the documents have been put in the system.

What to Say During the Initial Contact with Your Lender:

Not How To Communicate With Your Lender

When you finally get to speak to someone, it’s understandable that you might be nervous. Just remember that you’re speaking to a person at the other end of the line. Don’t be overly aggressive or rude. Be very polite, even if the person at the other end of the phone seems to be rude.

Sometimes you’ll get lucky and the person you speak with will explain their loan modification process to you and will also advise you of the next step Sometimes though, you won’t be so lucky.

The person may say “they don’t modify loans”.

To which you should reply, “I know it’s not normally part of your procedure, but I was wondering if it was possible to ……..”

Or, “I know you don’t normally do loan modifications, but I need to speak to someone about a possible workout agreement. Who should I speak with?”

It’s important to keep this initial contact very short and to the point.

Here are the only things you’re trying to accomplish on your initial phone call:

Make contact with the right department.

You want to let them know that you’re not running away from your obligations.

You’d like to request a “work-out package.”

If there’s no formal package, then to which department should you send your information?

These are the only things you’re trying to accomplish on your first call.

Mortgage Lender Contact Script

You:

“My name is ________________”

“My account number is ______________”

“My address is _________________”

“Can I please speak with someone regarding a loan modification”

Rep:

“I can help you with that”

You:

“Excellent, I would like one of your Loan Modification Packages”

If its that simple great but if you meet resistance…

“I know that you don’t normally do this but I need to speak to someone about a possible workout agreement. Who would that be?”

Have You Have Suffered Some Sort Of Hardship?

Here’s a list of hardships that get approved:

• Marital Difficulties
• Property Problems
• Reduction of Income
• Excessive Obligations
• Employment Transfer
• Unemployment
• Death/Illness of Mortgagor
• Death of a Family Member
• Inability to Rent
• Inability to Sell
• Military Service
• Business Failure
• Reduction of Income
• Fraud
• Payment Adjustment
• Payment Dispute

Any one, or a combination, of these hardships will satisfy the second part of the qualification process for becoming a good candidate for a Loan Modification.

stop-foreclosure-now

Your Debt to Income Ratio

When lenders make a decision as to whether or not they’ll offer you a loan modification, they look at your “Debt-To-Income Ratio.” To find this amount, take the amount of your total debt and housing expenses and divide it by your gross Income (if your spouse works, you add both incomes). Then, multiply this answer by 100.

In your total debt, include minimum payments on credit cards, car payments, store credit cards, your mortgage payment, property taxes and insurance. Do not include bills for such things as utilities, groceries, cable TV and telephone. Use the forms that have been included in the package to help you.

Debt to income ratio = Total Monthly Debt Expense / Gross Monthly Income x 100

If you arrive at a figure which is above 50%, then you’ve met the third part of the qualification process.

The last part of the qualification is to replace your old payment, with your desired payment, and recalculate your Debt to income ratio. If this figure is at or below 50%, then you should meet the lender’s last criteria for a Loan Modification. Before the lender agrees on a loan modification, they need to make sure you can honor the agreement.

You must demonstrate that all your monthly debt payments, including the proposed mortgage payment you’re requesting, the property tax and insurance, are each at a level you can still afford.

Lenders hate completing a whole loan modification exercise only to discover that the borrower will default, because the new payment is still too high. So, if your new calculations end up above 50%, you’ll need to rethink your figures or you may not qualify for a loan modification after all.

But don’t panic! There are some other resources you may be able to use:

• maybe you have a 401K you could tap into

• use an existing line of credit

• ask a family member for a loan

Discuss any of these three options with an accountant or lawyer.