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Sunday, 30 December 2012

Loan Modification Is A Contract Entered By And In Between The Loan Company And The Debtor

By Daren Star

Loan modification is the method where the conditions of home loan are being revised past the primary conditions of the agreed contract concerning the lender and the debtor. In the standard procedure of the home loan, the payments of principal and interest are completed until the mortgage loan is fully paid off. More often than not, the provider gets hold of the lien until the mortgage is paid completely. If the borrower sells the property before the mortgage is totally paid off, the balance of the unpaid home loan will be given to the lender. After the total payment of the balance the lending company will release the lien.

Talking in general, any adjustments to the conditions of the mortgage is a loan modification. More often than not the phrase is used as any kind of modification in terms based on either the borrower is unable to be current on the mortgage payments as stated in the mortgage loan contract, or more specifically the mandate of the government to lenders. Loan modification will normally address to the changes in the monthly payment of loans, the alteration in the rate of interest or the change of terms in the mortgage loan principal.

There are several types of loan modification being applied in mortgage loans. These loans are being modified to help the borrower in one or many ways. These adjustments can be in the following means: The reduction of interest rate. This changes the interest from floating rate to a fixed rate or the computation of the floating rate. Change can also be done in the reduction of the principal. There could also be changes in the reduction of late fees or other penalties. The length of the loan term can also be changed from short-term to long-term. They can also adjust the limit of the monthly payment depending on the percentage of the household income. The mortgage forbearance program can also be applied.

The Home Affordable Modification Program (HAMP) is a government initiative which is being promoted to lenders to encourage them to permit loan modification to decrease the mortgage payments for borrowers that are financially troubled. This is being operated through the Treasury Department and HUD, but borrowers who are interested to avail of the HAMP loan modification can apply through their mortgage servicer. During the application of loan modification the borrower can be current, late in default or in foreclosure. The available programs can vary accordingly. There could be loan modification made depending on the option of the lender. The lender can offer a lower payment to the borrower knowing that they may be able to afford it; additionally, that a current loan will be more valuable than the amount that will be obtained from a foreclosure sale.

The state and the federal government may arrange a mortgage loan modification program as a voluntary act by the the loan originator. They could offer incentives to the lender so that they will participate. A mandatory mortgage loan modification program will require the loan originator to modify the mortgages that meet the criteria as regards to the debtor, the property, and the history of the loan payment.

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