Mortgage Modifications range from deferral of payments, extending loan maturities, converting adjustable rate mortgages into fixed
rate mortgages or full indexed rates, fully amortizing adjustable rate mortgages, capitalizing delinquent amounts. The best scenario
for the lender and yourself is a solution that will provide a long term resolution to the problem. Other strategies include reducing or
forgiving your principal. In the past, this resulted in the homeowner paying taxes on the reduced amount. However, recent legislation
has temporarily suspended this tax burden. At First Liberty Law Group, PLLC, we will take an application income/profit questioner.
We want to provide the lender with the best information possible to represent your case properly.
In most cases, the decision on a modification is not made by the firm that owns the loan. It is made by a firm servicing the loan under
contract to the owner. The owner could be a single lender, or it could be a group of investors who own pieces of a mortgage-backed
security collateralized by a pool of loans.
Whoever owns the loan, the servicing firm is contractually obligated to find the solution to payment problems that will minimize loss
to the owner. If the lowest-cost solution is a contract modification, that's great -- everyone involved prefers a modification instead of
a foreclosure. But if a foreclosure would generate lower costs for the owner, the decision will be to foreclose. The cost of
foreclosure to the borrower does not enter the decision.
Yet the decision is far from cut and dried, and it can be materially affected by whether and how the borrower’s case is presented
Equity: Perhaps the most important factor affecting the modification decision is the amount of equity the borrower has in the
property. If the borrower has enough equity in the property to pay any deferred interest plus foreclosure expenses, foreclosure is
almost bound to be the lower-cost solution.
Equity depends on property value, which the borrower is much better positioned to know than the servicer. The borrower knows or
can easily find out how many houses in the neighborhood are for sale and what the trend has been in recent sale prices. In a
weakening market, it is easy for the lender to overestimate value, and the borrower must prevent that.
Moral hazard: Servicers fear that if they are liberal in granting modifications, borrowers who don't need a modification will seek one
anyway. They protect themselves against this by entertaining modification proposals on a case-by-case basis, while placing the
burden of proof on the borrower.
Borrowers must accept the burden of proof. In addition to the data on property value, they need to document that they cannot
afford the payment increase that is pending, and they must document what they can afford.
To do so, we calculate their total debt ratio: the sum of mortgage payment, other debt payments, property taxes and homeowner's
insurance as a percent of their gross (before tax) income.
This number should be calculated as it stands now and as it would be after the modification.
Servicing cost: Servicers have an interest in minimizing modifications because they add to costs. They try to keep costs down by
computerizing the servicing process to the greatest degree possible and standardizing customer support procedures so that low-
paid and easily trained employees can perform them.
rate mortgages or full indexed rates, fully amortizing adjustable rate mortgages, capitalizing delinquent amounts. The best scenario
for the lender and yourself is a solution that will provide a long term resolution to the problem. Other strategies include reducing or
forgiving your principal. In the past, this resulted in the homeowner paying taxes on the reduced amount. However, recent legislation
has temporarily suspended this tax burden. At First Liberty Law Group, PLLC, we will take an application income/profit questioner.
We want to provide the lender with the best information possible to represent your case properly.
In most cases, the decision on a modification is not made by the firm that owns the loan. It is made by a firm servicing the loan under
contract to the owner. The owner could be a single lender, or it could be a group of investors who own pieces of a mortgage-backed
security collateralized by a pool of loans.
Whoever owns the loan, the servicing firm is contractually obligated to find the solution to payment problems that will minimize loss
to the owner. If the lowest-cost solution is a contract modification, that's great -- everyone involved prefers a modification instead of
a foreclosure. But if a foreclosure would generate lower costs for the owner, the decision will be to foreclose. The cost of
foreclosure to the borrower does not enter the decision.
Yet the decision is far from cut and dried, and it can be materially affected by whether and how the borrower’s case is presented
Equity: Perhaps the most important factor affecting the modification decision is the amount of equity the borrower has in the
property. If the borrower has enough equity in the property to pay any deferred interest plus foreclosure expenses, foreclosure is
almost bound to be the lower-cost solution.
Equity depends on property value, which the borrower is much better positioned to know than the servicer. The borrower knows or
can easily find out how many houses in the neighborhood are for sale and what the trend has been in recent sale prices. In a
weakening market, it is easy for the lender to overestimate value, and the borrower must prevent that.
Moral hazard: Servicers fear that if they are liberal in granting modifications, borrowers who don't need a modification will seek one
anyway. They protect themselves against this by entertaining modification proposals on a case-by-case basis, while placing the
burden of proof on the borrower.
Borrowers must accept the burden of proof. In addition to the data on property value, they need to document that they cannot
afford the payment increase that is pending, and they must document what they can afford.
To do so, we calculate their total debt ratio: the sum of mortgage payment, other debt payments, property taxes and homeowner's
insurance as a percent of their gross (before tax) income.
This number should be calculated as it stands now and as it would be after the modification.
Servicing cost: Servicers have an interest in minimizing modifications because they add to costs. They try to keep costs down by
computerizing the servicing process to the greatest degree possible and standardizing customer support procedures so that low-
paid and easily trained employees can perform them.
What is a Loan Modification
A loan modification is a change in the loan contract agreed to by the lender and the borrower. The modifications getting attention now
are those designed to reduce the payment burden on borrowers faced with impending interest rate increases that will make monthly
payments unaffordable to them.
Homeowners faced with this prospect, whether they are delinquent or not, should request a modification through our law firm. You are
unlikely to get such a change if you don't have legal and or financial representation, and you should make the investment required to
make the case. The stakes are very high: your house and your credit.
are those designed to reduce the payment burden on borrowers faced with impending interest rate increases that will make monthly
payments unaffordable to them.
Homeowners faced with this prospect, whether they are delinquent or not, should request a modification through our law firm. You are
unlikely to get such a change if you don't have legal and or financial representation, and you should make the investment required to
make the case. The stakes are very high: your house and your credit.
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