What Is Loan Modification?

Tuesday, 26 Oct 2010 12:04 PM

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When you take out a loan, you give a commitment to repay the money. However, if you fail to make the repayments according to the agreed upon schedule, you run the risk of becoming a defaulter. This is certainly not a good thing. Among other things, it affects your credit report and can spoil your chances of getting a new loan. A loan modification is a good option that borrowers can explore when they find it difficult to meet loan repayment obligations.
 
Consider the following for loan modification help:
 
· A loan modification is an agreement reached between the lender and the borrower, when the borrower is unable to meet the existing repayment obligations. Generally, a loan modification leads to a decrease in the interest rate which lowers the monthly repayment burden for the borrower. It can also increase the tenure of the loan repayment. The lender usually agrees to the loan modification as the costs involved are generally lower than the loss incurred in case of defaults.
 
· A loan modification can also involve giving a new loan to the borrower, the amount of which is generally higher than the outstanding amount on the existing loan. In such cases, the existing loan is paid off completely with the new loan and the borrower starts repayment of the new loan, which could have a lower interest rate.
 
· There are various kinds of loan modifications, such as home loan modification, mortgage loan modification, and other bank loan modification.
 
· Home loan modification and mortgage loan modifications have become relevant in the recent past, especially after the subprime crisis that led to many home owners defaulting on their mortgages. In July 2009, the U.S. Federal Government also announced guidelines for a “Home Affordable Modification Program,” which was backed with a $75 billion package that allows borrowers to cut down on their monthly mortgage payments after renegotiating the terms and conditions with their lenders, to save the home owners from foreclosures by the lenders.
 
· A recent type of loan modification is the Wells loan modification, which deals with changes in terms and conditions of loans availed from Wells Fargo. While the U.S. Government's “Home Affordable Modification Program” has existed for over a year now, the completion rate for such modifications has been among the lowest for any lender in the case of Wells Fargo. After Wells Fargo complained that the paperwork was too heavy and there were problems in submission of required documents by the borrowers, the government has cut down on documentation and has fixed a specific timeframe for adherence by the lender.
 
· If you need loan modification help, you should consult your bank or a lending institution. You can also contact a financial planner. At the same time, beware of fraudsters asking you to pay a fee in exchange for a counseling service or modification of a delinquent loan. These people generally target those facing difficulties making mortgage payments.

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