When Does a Mortgage Modification Make Sense?

Olivia Clifford |

In the current economic climate, mortgage modification has become thea necessity for many Americans. With President Obama’s Homeowner Affordability and Stability Plan, which was announced in February of 2009, the U.S. Treasury Department allotted $75 Billion in an effort to help avoid the foreclosures of 9 million homeowners. The plan that was mainly funded by the Housing and Economic Recovery Act was broken down into two parts.

The first was that Home Affordable Refinance had a goal of making refinancing much easier for those Americans whose mortgages were owned by Fannie Mae and Freddie Mac. The second half of the plan was to open it to all Americans in need of mortgage modification. The Home Affordable Modification was put in place to reduce the mortgage by reducing the payments individuals had to make on their loans regardless of who their mortgage was owned by.

In general, mortgage modification is a change in your loan agreement. Mortgage modifications are useful in that they make oan payments more affordable so that homeowners don’t default on their loans. This approach is not only in the best interest of the clients, but the banks as well in that it is cheaper for banks to work with you as opposed to go after you. Mortgage modification agreements can be permanent or temporary depending. The downside to changes in a loan agreement is the possibility of added interest. If the cost is worth not defaulting on your loan, many people chose mortgage modification over foreclosure.

Mortgage Modification Options

  1. Refinance the loan
  2. Skipping payments:Skip payments until you can get your finances under control. The missed payments are then added to the end of your loan.
  3. Forgive Principle: This is when the bank agrees to reduce the total amount of your loan.
  4. APR:The bank agrees to reduce the interest rate on the loan.
  5. Extend the Loan Term

Overall, mortgage modification is a way for Americans to keep themselves afloat and avoid bankruptcy when needed. By calling and inquiring about changes that can be made to your loan agreement foreclosure can be avoided for many Americans. There are cases where mortgage modification is denied. If an individual’s post-modification cash flow is still going to be in the negative, those candidates will be denied as they still won’t be able to pay their mortgage. Those who demonstrate a positive post modification cash flow are strong applicants.

 

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