RE-NEGOTIATE YOUR MORTGAGE / LOAN MODIFICATION

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Can You Re-Negotiate Your Mortgage in a Reasonable Time?

In 2008 and 2010, millions of homes were foreclosed, and millions more are moving into foreclosure in 2010. Can you work with your lender to prevent a foreclosure by re-negotiating your mortgage?

A simple answer is yes, you certainly can. All you have to do is ask. However, it is really up to your lender whether they want to enter into negotiations and rework an existing mortgage. Though it may seem contradictory based upon the foreclosure figures above, mortgage companies do not like to foreclose on their mortgage investments. It is simply too expensive for the lender, and nine times out of ten foreclosed homes do not bring a profit for them. Rather than enter into an expensive foreclosure, a mortgage company should be willing to talk to you about a mortgage modification if you are having trouble paying your mortgage.

Start by Discussing the Situation with Your Financial Institution

Your first step is to contact your mortgage servicer. A servicer may not be the lender, but rather a third-party company that is practiced at keeping mortgage portfolios current. In any case, you should contact them first to discuss your financial difficulty and options to lower your mortgage payment. The servicer will contact the lender and get instructions as to what documentation they need if they are willing to re-negotiate.

Prove Your Financial Wherewithal

In order to make a loan modification, you will need to go through another underwriting process. Your lender will ask for income verification, tax returns, and a credit report to analyze your situation. Also, your home will probably need an official appraisal to determine that the value is still within range of their investment objectives. Be ready to provide this documentation, and be prepared to provide further information as requested by the underwriter assigned to your case. When the underwriter has all the required paperwork, he or she will be able to make a quicker decision.

What the Underwriter Will Consider

The main issues the underwriter will evaluate are your debt to income ratio and what maximum mortgage payment you can afford each month. Based on that figure and the appraisal, he or she can determine whether a lower interest rate that is still within the lender’s guidelines might help make your payment affordable. Remember, lenders have investment objectives and a baseline of interest that they are not willing to cross. If they cannot rework your mortgage with an interest that works for you but not for them, expect that your request for re-negotiation will be denied. Even though avoiding foreclosure should be a priority, many lenders are regulated and cannot change their interest parameters.

The Options to Lowering Your Mortgage Payment

If the lender is agreeable to a loan modification, you could secure a lower interest rate to help lower payments. A lower rate could reduce monthly payments by hundreds of dollars. Another possibility is an extension on your term. If you’ve paid more than five years on your mortgage, a new 30-year term with a smaller interest could further reduce your monthly payment.

Your lender may also be agreeable to a limited forbearance. That means you would not have to pay your mortgage for a limited time, usually three to six months. Understand, however, that with a forbearance, interest on your loan continues to accrue and will be added to your total principal balance.

The Timeline for the Entire Process

A decision on a loan modification doesn't’t have to take long. A final decision could be reached in a matter of days, or maybe weeks, depending on the workload of the lender and the underwriter in specific. Once a decision is made, a closing date is set where new documents are drawn up, signed, and possibly recorded with the County Recorder. If you have delays in underwriting, or need further house inspections, etc., it may be a few months before your new loan terms are approved and set into action.

This article is intended for general information. Always seek sound financial and legal advice before making any financial decision.

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