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Loan modification - FAQ

Information about a loan modification program can be very confusing for many debtors. If you’re planning to apply for loan modification, chances are you will be consulting your creditor regarding the loan details. Ideally the objective for entering a loan modification program is to avoid financial issues such as foreclosures and bankruptcy.

It’s important to do some “homework” and prepare yourself for the program before actually applying for it. You’ll need to get as much information as possible and then prepare your case in the best possible manner to get qualified for the loan modification program. The following questions will help you to understand how the process works and what you can expect from it:

1. What is a loan modification?
   A loan modification process consists of certain modifications to be incorporated in existing terms and conditions linked with your current loans, in a manner which reduces your net payable interest rate and help you to repay your monthly payment on a new revised schedule based upon your monthly cash inflow and paying capacity.
   
2. Can the lender include late charges in the Loan Modification?
   According to HUD, the incurred late charges should be ideally “eliminated” by the creditor at the time of loan re-negotiation However this actually varies depending upon the type of loan undertaken. You can request a complete breakdown and clarification of all late fees and penalties from your lender.
   
3. Can the bank order an interior inspection of your property and the property condition?
   Yes, your creditor can officially conduct any review(s) deemed necessary to verify that your property does not have physical conditions which might adversely impact the current market value of “what has been offered as a guarantee” for the loan.
   
   
4. How do I qualify for a loan modification program?
   The main criteria your creditor looks out for is your ability to make the modified monthly payments depending upon your current job status and monthly earnings. You have to provide your creditor proof regarding your income along with a detailed financial statement stating your income and expenses. You need to convince them that if given the loan modification , it’s possible for you to afford the new, reduced payment schedule.
   
   
5. Do I have to be currently “delinquent” on my payments to qualify for a loan modification?
   Majority of the creditors are now accepting applications from individuals who are NOT delinquent. However it’s necessary to prove that due to existing interest rates and market conditions, you won’t be able to pay your current loan for long. Contacting your creditor and having a frank discussion can clarify whether you should be “delinquent” or not.
   
   
6. Can a loan modification program help me stop the foreclosure?
   Yes, it’s very possible. The basic objective of loan modification is to prevent issues such as bankruptcy and foreclosures. For that you have to work with your creditor to find a loan “workout” solution and make sure your existing loan is “modified” with a new set of “terms and conditions”.
   
   
7. Can any “missed” or “defaulted” payments be added back into my new loan modification?
   Yes. Any “defaults” or financial liabilities or arrears CAN be added to your new loan amount and included for “repayment”.
   
   
8. Can I undertake the loan modification program myself or should I have someone to represent me?
   The option is yours. The answer is “yes” it’s possible for you to “do it on your own” if you possess the required financial knowledge and the expertise. There’s no law that says you “need” somebody to assist in the process. The decision depends upon your comfort level while dealing with your creditor and also understanding what options you have based upon your current financial situation and liabilities. The first thing to do is to learn all you can about the program as regards your legal rights, and what needs to be done to get your application approved.
   

A lot of information is available for loan modification programs. At times the “exact” information’s just not available, and if it is available – it’s difficult to comprehend it. Our effort is to answer a few of these questions in a simple and easy to understand manner so you can benefit.

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