What is a Loan Modification ?

Loan Modification Definition:  A Loan Modification is a negotiated legal alteration of the terms and conditions of your existing mortgage loan, in order to obtain lower mortgage payments or reduce the loan balance, or both. In today's declining real estate market in California, refinancing is available to only a select few. Getting approved for a traditional refinance is extremely difficult.

The goal of a loan modification is to change the amount of payment to a level where the borrower can consistently make their mortgage payment as well as pay other bills.

Why Would a Homeowner want a Loan Modification ?   The need for a Loan Modification (sometimes called a Loan Mod) is usually caused by a borrowers inability to make payments in the agreed upon time-frame or because the property is worth less than the borrower owes. If the Homeowner has a little bit of equity in the home or is slightly upside down on the mortgage, and if the Homeowners current income is about 5% greater then their total current expenses, then one should consider a Loan Modification.

On the other hand, if the Homeowner is upside down on the mortgage by 10% or more, or if the Homeowners income is 10% less then their current expenses, then they should seriously consider a Short Sale.

Why Would a Banks Accept a Loan Modification ? - Mortgage Banks would much rather settle for a Loan Modification then  foreclose and take your home back.  On average, Banks stand to lose over 50% if they foreclose, and therefore would rather collect lower payments then none at all.  Banks do not want a mortgage to consume an entire monthly budget. They will take the homeowners entire budget into consideration ie; car payments, cell phone, utilities, credit cards payments, etc.

Who Typically Qualifies for a Loan Modification ?  There are 3 basic criteria that most Mortgage Banks consider for the approval of a loan Modification.  1.)  The Homeowner should have very little or No equity in their home.  2.) The Homeowner is expected to have a Total Income approximatley equal too, or no more than 10% of the Homeowner total Expenses.  3.)  The Homeowner's liquid Savings should be no more then about 8 mortgage payments.