Crisis Finance

Where in the hell has loan modification been?  Sorry to express some rage, but if loan modification had been more widely used, or even known about, perhaps the financial crisis wouldn’t have happened, as all those people who eventually foreclosed on their homes would have had an out.  The domino effect of foreclosures might not have affected nearly every wing of the financial industry.

So what is loan modification?  It’s the process of changing the terms on a loan to keep yourself in a home.  Consider as a kind of refinancing plan for people who are dangerously close to foreclosing – and it’s only an option to borrowers who have fallen on hard times.  It’s a form of mortgage negotiation to lower payments and interest.  Imagine if more people had done this years ago: it would have stabilized the economy.  But loan modifications are now being utilized after the fact: the 700 billion dollar bailout provides incentives for loan modification to stem the tide of foreclosure.  It took a collapse for these measures to be instigated.

Loan Modification Guide

Loan Modification is very much like refinancing or negotiating debt.  Here are the steps to take of you do it yourself, rather than work through a loan modification service.

1. Determine your budget.  In order to have negotiating power, you need to first determine what you can afford.
2. Take the resulting monthly allowance for your mortgage payments to your lender.
3. Provide proof of future income.  How are you going to pay the loan off?  Could you potentially see more income in the future?  If you’re facing short-term financial strain, you can apply for a postponement of your mortgage payments.
4. It’s helpful to get your credit in order.  However, because loan modification usually results after delinquency, this is usually not possible.  The good news is that loan modification can actually improve your credit rating, as opposed to dinging it, as is the case with debt settlement, because you’ve lowered your overall debt burden and will be seen as less of a risk.

Important information: there is a misconception that loan modification is only for people who have already defaulted and are under extreme duress.  In truth, it’s better to go through a loan modification if you anticipate defaulting, as your credit rating won’t yet take a hit.  If you fear being unable to pay your mortgage then you should begin the modification process.

More important information: Avoid loan modification firms that charge fees upfront for negotiating a modification, as this is illegal.  A solid loan modification company will be able to provide a free consultation about your situation.

All in all, loan modification seems too good to be true: it’s basically free money for those who need it most. Given that the government is desperate to keep the economy from tanking any further, incentives for programs like this are growing.  But it would have been nice if the powers that be had some foresight and loan modification was more widely used before we ever reached this point.