Lately I have been hearing a lot about loan modifications? The term seems to pop up everywhere these days. But, what really is a loan modification, and who can qualify for one? A loan modification is an agreement that is negotiated with your lender that changes the terms of your current loan. Although, now it looks like the courts will be doing loan modifications. It can alter the characteristics of the loan term, rate, balance, and penalties. Lenders can be willing to negotiate when you are facing financial difficulties and can not find other financing alternatives. You must be able to show your lender why it would be in their best interest to agree to a modification.

A lender may be willing to reduce the interest rate, monthly payment or change other terms. Generally, most lenders will reduce the loan payments for 6 months or so. It is important to understand that a loan modification is not reported to the credit agencies and will not have an adverse impact on your credit scores. Today lets take a look at what characteristics the banks are looking for when reviewing your loss mitigation case with the lender. Every lender is different, thus, there is no exact science to determine if you truly qualify for a loan modifcation. In other words, it depends on the lender and the amount of the loan. Based on information that I have seen, I can provide you with a list of potential reasons why the lenders will allow a loan modification.

They are:

Someone who no longer qualifies for a refinance

Someone currently in an adjustable rate mortgage (ARM)

Someone who is behind on their mortgage at least 2 months

Someone whose mortgage payments have become high

Someone who has experienced a hardship, such as a lost of income

Someone who is self employed during tough economic times

Someone who has no equity in their home or is "upside down" - someone you has generally purchased ral estate within the past 5 years

Someone who is about to go into foreclosure

Do you fit in any of the above categories? The more of these categories that apply to you the better. The government is forcing the lenders to negotiate and modify many of these loans, so they are picking and choosing who gets a modification, and who doesn’t. So why are the lenders doing this? With the housing market in total disarray, the lenders loosing money, and the economy on a huge downturn, the banks would rather modify your loan terms then take on another foreclosure. Equity in homes has all but disappeared and in many parts of the country has become negative, leaving homeowners upside down on their loans. Banks would therefore rather reduce the payments and/or balance than foreclose on another property. The banks and lenders are not in the real-estate business, and they don’t want to start now. The fact that banks are willing to negotiate lower payments brings about this part of the real estate cycle know as "The Modification Period".

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