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Loan Modification Demystified

With an estimated 12 million homeowners now affected by the foreclosure bug due to owning more on their homes than what their home is worth-a group that now includes prime borrower with top-notch credit. Many homeowners must face the daunting task of figuring out which loan modification is right for them. The problem is that most homeowners have very little bargaining power and fear losing their home; therefore, they take the first modification offered to them. In general, a loan modification should be in the best interest of the borrower; however, bear in mind that a loan modification that helps the borrower generally hurts the investor. The following is a list of the major types of modifications, presented in the order of their worth to the borrower and cost to the investor:

  1. Capitalization of arrears: This is where the institution punishes the borrower with past due payment, late fees, and charges associated with the delinquency rolled back into the loan. A new payment is calculated which is normally higher than the prior payment.
    2. This modification is the most common due to the low cost to the investor. While this modification will give a borrower, who is suffering from a temporary financial setback, a fresh start. This type of loan modification is not for someone looking for a lower payment. Lastly, the re-default rate is highest among this method.
  2. Extension of the Term: A term extension is a loan modification method where the payment is reduced through extension of the loan. A payment method works best for homeowners who have live in their homes at least 10 years and this method have the least cost to the investor.
  3. Reducing the Interest Rate: Reducing the interest rate method is the most efficient way to reduce your payment as it adjusts to each borrowers need. This method could reduce your payment by 30%, where as extending the term of your loan generally results in an 8% drop. The bad news is this method, in some case, is only temporary, more costly than an extension in terms, and presumes the borrower will be able to afford the payment.
  4. Freeze the Interest rate: This method works best on adjustable-rate-mortgages that are close to resetting, where the new payment and interest is well above what the borrower can afford. This method will freeze your current method and payment at its current level.
  5. Reduction in loan balance: This method is the method of last resort. This method is the most advantageous to the borrower and the most costly to the investor. The good news is, unlike interest rate cuts, a cut in your balance cannot be temporary, and they reduce a borrower’s negative equity. In addition, your mortgage payment declines in line with your balance. (I.e. 25% reduction in your balance is a 25% reduction in your payment.)

The bad news is that balance reduction decisions are made by servicing agents, who are contacted by the investors. The agent’s fees are generally tied to the balance of the loan, thus making a balance reduction a last resort. Furthermore, the initial cost of balance reductions is higher than that on an interest rate deduction, which must be justified to the investor.


At this time loan modifications are more widely accepted by lenders. If you believe that, a loan modification is right for you, Click Here.

Short Refinance

The short refinance (short-refi) or short-payoff is a mortgage solution that has been around for quite some time. The issue has been exposure. The mortgage industry has decided to let this be one of its best keep secrets until now. While many of us have never heard of lien holders willing to accept less than the full amount owed on a loan, and allowing the borrower to keep his property and refinance with a new lender. Well, this is exactly what some lien holders and a properly negotiated short-refi offer. They allow the homeowner to retain ownership of the property, while refinancing with a new lender. Moreover, with a short-refi the homeowner does not have to be behind on their payments Short-refi’s give property owners an alternative to bankruptcy, short-sales, foreclosure, and help property owners who are upside down or who have an Adjustable Rate Mortgage (ARM) that is about to reset. The process usually takes 6 to 8 weeks, with some exceptions taking longer. While not all lien holders will accept a short-refi offer, roughly 70% of loans are successfully negotiated. If you are wondering what a short-refi can do for you, here is a list:

Home Repossession

If you want to keep your home, but do not have enough equity to get into a foreclosure bailout loan, a short refinance is your answer. By negotiating a short refinance with your current lender, you can pay off your current mortgage for less than amount owed, and refinance your home with a new lender.
Click here to start today.