Loan Modification: An Aid to Homeowners Facing Foreclosure

Loan modification is just one of the ways troubled homeowners could use once they cannot afford their mortgage payments anymore. However, this process is quite complicated and is not offered to everyone since qualifications are set by the lenders.

What loan modification does is to make the payments more affordable-most common of which is about 38 percent of the borrower's gross income. Lenders such as Chase, CitiMortgage, IndyMac Federal bank, etc. have loan modification programs, which come up with affordable payments for qualified borrowers and collect all payments, even if just as much as the principal. However, offers vary among lenders. The most common offers are interest rate reduction (temporary/permanent), extended payback period, and deferral of principal.

These loan modification programs aim to prevent unnecessary foreclosure properties. It is not an easy process but it is something troubled borrowers can do to prevent unnecessary foreclosures.

Some lenders send out offers to borrowers whom they think are qualified. Whether or not you receive such offers, you better call your lender and inquire. Do not just assume that you are not qualified, a conversation with your lender is still the best first step you can do. But remember, lying about your finances and other information is no help.

The length of the entire process depends on how fast your lender processes applications and how quickly you surrender requirements.

Also, lenders need proof of the bad situation you have gone through such as divorce, death in the family and disability. This is expressed in the hardship letter you have to submit as you avail the program.

Consulting an HUD-approved nonprofit mortgage counseling agency is an alternative if you feel uneasy contacting your lender. Just beware of the foreclosure rescue scammers who take advantage of such a situation.

Hopefully, loan modification programs can have a significantly reduce the number of foreclosure homes now that the housing economy is in a tough situation.