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Loan Modification Truths and Myths

Although various options for a loan modification have been offered for years, many myths still circulate regarding this type of service, as well as the lenders that provide modification loans. As with any loan, consumers should take time to conduct research so the truth is revealed, allowing those people to make educated decisions. Although a loan such as this is not for everyone, this is certainly a great solution for people with certain circumstances.

For starters, one of the rumors going around about a loan modification program is that the only way a person would be approved is if the mortgage were seriously delinquent. The truth is that being behind on payments certainly opens more doors of opportunity regarding the number of lenders that would be interested in helping and the number of solutions possible, but homeowners do not have to be past due on the mortgage to qualify.

Another myth involving a loan modification is that all lenders have the best interest of the homeowner in mind. While reputable lenders do have concern over the homeowner’s situation and want to do all they can to help salvage ownership, not all do. Again, the time and effort involved in finding the right lender for a loan modification program would be a great investment that could be the difference between success and failure.

Next, rumor has it that a loan modification is offered by lenders and companies with programs by reducing the amount of the mortgage balance in situations when the debt is greater than the value of the home. In this case, some lenders do offer help but it would involve the homeowner having a first and second mortgage and a situation where the second mortgage had gone through negotiations to bring the balance down. Obviously, the decision for a loan modification in a situation such as this would be based on a consumer-by-consumer basis in that many factors are considered.

Probably one of the most discouraging of all loan modification myths is that lenders and companies with programs are doing all they can to help people out of a tough financial situation associated with mortgage. The truth is that lenders are struggling too and while they might want to help everyone that comes to them for help, the numbers are simply too great. This means some people would get assistance with a loan modification program but many more would not.

In fact, most people believe that mortgage lenders and bankers call all the shots relating to mortgage but the financial institution is merely a tool. The organization behind mortgage loans and loan modification programs is the government resource known as HUD or the Housing of Urban Development. Therefore, one of the best decisions a person could make in trying to save a home from going into foreclosure would be to start by looking at the various programs and services offered through HUD. Regarding actual loan modification programs, these come in a variety of options to include:

  • Forbearance This type of program puts all mortgage payments on hold but only temporarily. Typically, a loan modification program such as this would be offered to people who have been laid off from work or perhaps had a financial setback due to an illness or death in the family. In other words, forbearance is a temporary solution to help a person get back on his or her feet.
  • Repayment Another option for loan modification is setting up the money in arrears as payments that would be made over a set amount of time. The downside is that the homeowner’s monthly payments are higher but the good news is that they do not lose the home.
  • Modification A complete loan modification is one in which the terms of the loan are changed to benefit the homeowner. This might involve securing a lower interest rate or pushing past due payments to the rear of the loan.
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