Last month there were more foreclosures then ever before, which means they are increasing not decreasing, as some might say.  Obviously homeowners want to avoid foreclosure as do the banks.  Lenders do not want foreclosures written on there books, because it runs the risk of the bank failing.  Homeowners usually do not want to lose their homes.  This means if the two work together early enough, a solution should present itself.

Most of the foreclosures are due to bad lending practices at the start of the lending process.  Not too long ago, people considering buying a home had to show a 30 percent down payment, as well as one year of work pay stubs; this proved that they did have cash, were good at money management and would likely keep up with loan payments.

Equal opportunity in lending laws meant that this was a discriminatory action.  At the same time loan originators were getting paid large commissions, based on the value of the loan.  So with those two items combined, it was much easier to get a loan, you didn’t have to prove as much and large loans were given out to people that could not afford them.  These loans were commonly referred to as “liar loans.”  Most of the bank failures today have come from banks leveraging mortgage driven securities that were run into the ground because of these bad loans.

Millions of new homeowners were not totally informed on what they were signing when getting their loans.  They ended up getting adjustable rate mortgages, usually with interest only introductory periods.  When the rates adjusted or the interest only period ran out their housing bill usually would triple and most homeowners could not keep up with the payments.

©nami 1979 - flickr

©nami 1979 – flickr

If you’re a homeowner and find yourself in this situation a loan modification may be your answer.  A loan modification is a negotiation technique, were you can get various terms of your loan modified.  Think of it as a refinance option, were you can start affording the payments on your home again.

Most mortgage loans are built around two items, the interest rate and the time period over which the loan has to be paid off.  The interest rate is the percentage of the remaining balance that the bank takes as a profit on each payment, if your interest rate is to high, you will find that you end up paying much more than your house is worth.  Most interest rates are compound interest as well and over the lifetime of most mortgages, that can add up to a very large amount.

Loan modifications will either help reduce your interest rate or extend the terms of the loan.  To get a loan modification package you will have to prove to the bank that you have run into financial hardship and difficulties, that have lowered your monthly income significantly, which has kept you, or will keep you from making your monthly payments.

You will want to get help from a loan modification specialist to do the negotiating with your lender.  Especially these days, when the banks are so overwhelmed with people calling in for help, they usually just tell victims that they are “working” on the file, or it’s in “processing” and they are waiting for an answer. When you are in foreclosure, when the lender doesn’t help you immediately, you need to find help elsewhere.

Working with a loan modification specialist can help the process speed up because these people work with the banks all the time, the bank employees know them and will speak to them and get a plan worked out for you.  You don’t want to be stuck sitting around waiting for your lender to “approve” a loan mod, while they are secretly planning on selling the home out from under you. Having a professional negotiator in your corner is the way to go, if you want to get a loan modification before your home sells at auction.

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