Falling behind on loan payments? Can't pay off the debt? You are not alone. Millions of Americans have lost their homes during these tough economic times.
Even if you cannot pay off your loans, filing for bankruptcy does not have to be an option. In fact, banks and loan companies really do not want you to file for bankruptcy. Banks will be losing hundreds and thousands of dollars from taking a house that has lost its value rather than negotiating a plan to have your loan paid back in its entirety over a longer period of time. Therefore, you should consider modifying your loan before filing for bankruptcy.
What exactly is a loan modification? A loan modification is a negotiation between you and your bank to modify your loan to a level where you can consistently make your payment and pay your other bills. This amount is decided upon by completing an "income versus expenses worksheet". Your total modified monthly mortgage payment is derived from the difference between your total income subtracted by your expenses.
Banks can either modify your loan by lowering your interest rate, extending the length of amortization, or reducing your principal balance. A reduction in interest rate is usually the most common modification because the bank will still receive your principal balance. Banks rarely offer a principle balance reduction because they will be losing money by "forgiving" your debt. Usually banks encourage people to opt for an amortization extension. This is a win-win situation for both you and the bank because it extends the interest owed over a longer period of time; which allows banks to profit from your interest payments while giving you more time to pay off your loan.
The negotiation process of obtaining a loan modification is as follows:
1. Analyze your financial situation. Calculate your income vs. expenses. Figure out how much you make, how much you comfortably need to spend to maintain a standard quality of life and then calculate how much money you have left over to pay off the loan. Also consider pressing medical expenses, and other loans such as student and car loans. If you subtract your current mortgage payment from your overall income will you have a negative income? If so then you need to modify your loan. Consider visiting www.datamortgage.com/calculators to calculate rates and payments.
2. Once you have assessed your financial situation, contact the loss mitigation department of your lender. Tell them your tight economic situation and ask for help. Be nice. They did not put you into debt and yelling at them will put them in a sour mood. These people are your key to securing your loan modification.
3. Once you secure an agent, find out exactly what they want. Give them all the information they need. Some will require some documentation of your income, expenses etc. Be patient and persistent. Call them every day if needed. Remember these guys are the single most important people in the loan modification process.
4. If your negotiations are unsuccessful consider re-negotiating. Don't give up.
5. If the bank still rejected your loan modification then this is the time to contact a loan modification attorney. An attorney can give you legal power that you previously did not have.
6. Once you finally negotiated a favorable modification then accept the offer and sign the document. Make sure you double check all figures and make sure that the numbers settle well with you before you go to bed.
There you have it. Six steps to obtaining a loan modification. I'm going to warn you- this is going to take a lot of time and patience however the benefits clearly outweigh the costs. Don't lose your home because you cannot pay off your loans. Remember that banks want to negotiate an affordable plan with you. Consider a loan modification and keep your house!
This article is written by Timothy McFarlin - an experienced loan modification attorney. Tim has many years of loan modification and bankruptcy experience and has helped many corporations and people with securing a better life. You can visit his website at McFarlin and Geurths LPP Law
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