Loan modifications have become popular tools to use for homeowners who have little or no equity in their property or are unable to make their monthly payments. Successful loan modifications typically result in a change to the loan’s monthly payment, interest rate, loan term or outstanding principal due.
Loan modifications vary by lender. When your loan is modified, the change could include temporary or permanent modification to the mortgage rate, term, or monthly payment of the loan. Any arrearage could be rolled into the loan, and the new balance re-configured so that the homeowner can afford the new payments.
Loan modification guidelines for lenders are frequently being updated and changed. For example, servicers dealing with loans guaranteed or owned by Fannie Mae and Freddie Mac will soon be required to offer eligible borrowers who are having trouble paying their mortgage ways to lower their monthly payments if the homeowner shows a willingness and ability to make three on-time trial payments. For those who qualify, the idea is to encourage servicers to handle delinquencies earlier, minimizing losses to taxpayers, and cutting back on some of the red tape that slows down the traditional approval process. Previously required document collection practices and extensive evaluations are no longer required, giving servicers the ability to execute the trial periods faster.