A loan modification is when a homeowner and a lender
change the terms of the mortgage agreement to new terms that both parties are bound by. There are many different ways that a homeowner can modify their mortgage. Some common terms that homeowners often modify are interest rates, principal balance owed, changing rates to a fixed rate, forgiveness of defaults/fees, or any combination of these terms.

When Should You Modify A Loan?

When you can make your regular monthly payment but can’t afford to catch up on the past due amount. Loan modification is an excellent alternative to having your home foreclosed. Lenders do not wish to foreclose on your home because they would make more money by modifying your loan agreement so that you can continue to pay them. Foreclosure is usually the last option for both you and the lender. These services also seem to benefit individuals who possess a sub-prime mortgage or are victims of predatory lending.

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Take a deep breath. The market recovered from terrorist attacks, the falls of Enron, WorldCom and Arthur Andersen, soaring oil prices and one very expensive war. Can this sub-prime crisis really hold the market back? To answer this query, the cause must be examined.
Sub-prime loans are generally offered by lenders to customers with either no credit or a poor credit history. In most cases, these loans include adjustable interest rates. During the initial years of the loan, the interest rate will be low (as compared to fixed rate loans for the same customer) and fixed, effectively lulling the payer into a false sense of security. After this initial period, the rates generally revert to the prime rate plus a specified margin. The prime rate varies directly with the Federal Funds Rate set by the Federal Reserve. For example, for the first two years, the lender may offer the loan for 8.9 percent, and then the rate for the remaining years becomes the prime rate plus 6.5 percent. If the prime rate is 5.5 percent for year three of the loan, the payer is stung with a twelve percent interest rate. (more…)