What is a Loan Modification?
A loan modification is a tool used to avoid a foreclosure case. When a borrower can no longer afford the payments due under the original loan, the borrower and lender may negotiate to modify the terms of the original loan. If the lender would incur a substantial loss should they proceed with a foreclosure, the lender may be willing to negotiate to modify the loan and sustain a small loss rather than the loss they would incur in the event of a foreclosure. Modification is especially common when the property which secures the loan has decreased in value below the amount that is owed on the mortgage and even after a foreclosure the lender would not recover the full amount owed. A modification is a permanent change in the terms of the loan and usually takes one of four forms:

• Reduction of the Interest Rate
The most common modification negotiated between lenders and borrowers is a reduction in the loans interest rate and/or a conversion of a variable rate loan into a fixed rate loan.

• Extension of the Loan Payment Period
Lenders may allow for a modification which will extend the period over which the principle is repaid in order to lower the monthly payments. Extending the loan payment period results in a total higher interest being paid over the life of the loan, as well as a slower accumulation of equity in the home.

• Re-amortization with Capitalization of Arrears
A lender may allow for missed payments to be added back to the principal amount of the loan. The loan will then be recalculated using the same interest rate and time period as before. This will cause a slight increase in payments, but it will cancel the arrears. If reamortization can be combined with any other forms of loan modification, payments can be reduced considerably.

• Reduction of the Principle Balance
If the loan amount is higher than the value of the property, due to reasons out of the borrower’s control, a lender may consider reducing the principal. They may also reduce the principal amount if they realize that the only other option is foreclosure in which they will obtain the current value of the property minus costs. If the principal is reduced, this will of course lower the payment. Some lenders will choose to lower the principal in the event that they are allowed to keep deferred junior mortgages in the amount of the reduction. This secures the lender in the event that the property goes up in value. These junior mortgages generally only require payment in the event that the property is sold.

At Yesner & Boss, P.L. we can help you modify your existing home mortgage with your current lender and we can also negotiate new terms on your behalf. Modifications are made when borrowers can no longer make their monthly mortgage payments due to financial hardship or an increase in the loan payment.. Based on your current financial situation and hardships we are able to facilitate the change of your interest rate, loan term and your loan payment enabling you to stay in your home, while bringing your loan current, and saving you money.

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