Lenders have no obligation to modify a loan. However, they may do so if, under the circumstances, it is best for them. Likewise, the borrower should determine if a loan modification is what is needed. To determine that, borrowers should look at the following factors:
1. Loan Terms: Are the terms of the loan any different today than when the loan was taken out? If the loan is a fixed rate for the term of the loan and the interest rate is within the range of the current interest rate, then what’s the problem with the loan? If on the other hand, the interest rate is too high because it has adjusted, them maybe a loan modification can be justified.
2. Borrowers Circumstances: Even if a loan modification can be justified because of the current terms of the loan, can this borrower afford the loan even if modified? If the answer is no, then the lender will not modify. To determine if a borrower can pay a modified loan, lenders use specific formulas. If the borrower does not earn enough money to pay a modified loan payment and all other outstanding debt, the lender is not likely to offer a modification.
Many borrowers erroneously believe that because their property is upside down in value, that they are entitled to a loan modification. That’s not usually a consideration for loan modification, although many loan modification companies claim it is. (Note: Many of these companies are under investigation by state and local law enforcement for making false claims.)
A home loan modification should only be attempted after careful consideration of the overall financial picture. In some instances, the outstanding credit card debt may be an obstacle to the loan modification and therefore should be taken care of first.
For more information on these and other debt related issues, please call Susana B. Tolchard at 661-287-9986.