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By Author: Mark MrBPO
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Loan modifications are a real buzz word these days in the News media and the Internet. Thousands of people are upside with their mortgage, the economy is sluggish and folks are losing their jobs, being pressured to move, and actually take pay cuts in order to stay employed. A storm is a brewing!

Just what is loan modification?

A loan modification is a process whereby the original terms of your mortgage are altered to let you afford your monthly house payment and remain in your home.

The mortgage can be modified to have the interest rate lowered, either for a set amount of time, or permanently.

If you purchased your home with one of those "intro rates", say 1% or 2%, your lender may be willing to extend this low interest rate for an extended period of time.

Your loan can also have the amount of years extended, which would lower your payment. For those who have a 30 year loan, your lender might consider extending your loan to 35 or even 40 years.

Surprisingly, in special circumstances, your lender might even consider reducing your principle loan amount. While this ...
... is rare, it does happen.

Remember that some lenders are restricted to how much they can lower your rate of interest, or consider a principle reduction, based on their investor's criteria, which brings us to our next section.

I hate my lender, they won't help me at all!

Many people get mad at their lender(s) but few realize that most likely, their lender is nothing more than the servicer for the loan.

Even though you went to a large lending institution for your home loan, there's a good chance an un-named person, company, or group, were the actual cash provider for your mortgage.

Your lender then has "investor rules" which they must stringently adhere to. The policies will show them exactly how low these people can decrease the interest rate and if the investor permits a principle decrease in selected situations.

There is an exception to this rule. On occasion an "investors guidelines" might forbid a mortgage mod and state that either the debtor short sells the property or they will foreclose.

Do lenders really want to do this?

The short answer is yes! The very last thing a lender wants to do is to foreclose on your home! Whether your loan is actually with your bank or with an investor and your bank is only the servicer, your lender wants to do the loan modification.

The Federal Reserve requires lenders to maintain $8.00 in reserve funds for every $1.00 tied up in an bank owned homes. So, for every million dollars in bank owned homes inventory, the bank cannot lend $8,000,000 in new loans. No brand new loans means no new earnings.

Education is the key!

Education and planning is key - An informed homeowner is a powerful homeowner.