What is a Loan Modification?

A loan modification is a re-negotiated agreement between a borrower and a loan servicer that establishes lasting relief in the borrower’s mortgage loan. Made in response to a borrower’s inability to repay the loan, it contains mutual benefits conferred on the borrower and loan servicer alike.

As a constantly evolving form of relief, the loan modification process has been utilized in greatly increasing numbers in response to the recent economic crisis. The process consists of restructuring the terms of an existing contract between the borrower and the loan servicer without refinancing the loan. As the record number of foreclosures continues to mount, loan servicers are increasingly willing to renegotiate the terms of a potentially non-performing asset into an asset that performs. Unlike in the past, loan servicers are now far more willing to modify loans, even approving modifications that substantially affect the income they derive from the loan. Simply put, it is cheaper and less time intrusive for a loan servicer to pare down the income on a particular note than it is to go through the foreclosure process; especially when the real estate market is in steep decline. If a loan modification is structured in such a way that the new loan terms are economically feasible, we face a win – win situation: the borrower keeps their home and the bank has an asset that performs.

How Does a Loan Modification Work?

Though a modification can take many forms, there are three main ways that a loan is modified today:

1. a reduction in the principle or balance of the loan to fair market value
2. a lowering of the current interest rate (subject to a floor of 2%)
3. an extension of the loan’s term

These forms are not mutually exclusive; many times two or even all three are employed to make the terms affordable and make the asset performing. In addition, loan servicers have the ability to restructure the immediate loan terms (e.g. extend a fixed period on an adjustable loan an additional number of years) or even implement a different type of loan (e.g. from adjustable to fixed), greatly increasing the ability to come to a mutually agreeable situation with borrower.

However, it is important to point out that loan modifications are case specific. With so many options available, a successful loan modification requires an intricate understanding of each specific loan servicer, the borrower, and all of the options and various programs that are available to come to a true, long term solution.

The Law Office of Todd P. Ausherman has the understanding and expertise that can help you in this time of need. We are not a loan modification company consisting of former subprime loan brokers who employ the “throw it at the wall and see what sticks” method. When you are represented by the Law Office of Todd P. Ausherman you are truly receiving an attorney’s representation. You will speak directly with your attorney who will guide you step by step throughout the process. We are able to verify at an early stage in the representation as to whether or not you have a legitimate case for a loan modification that the bank will accept and you can afford. We only execute loan modifications that we believe will correct your situation and keep you in your home for years to come. If we determine that your case has little chance for success, we will not represent you.

If you feel that you may be eligible for a loan modification and you would like the guidance of an attorney who will see to it that your best interests are adhered to and protected, call us today at (858) 876-0570.