A loan modification is a change in the loan contract agreed to by the lender and the borrower to help the borrower catch up, or keep up with their payments.  Lenders are more willing than ever to renegotiate the loan terms to keep people in their homes.  They do not want to foreclose if they don’t have to. Homeowners faced with this prospect, whether they are delinquent or not, should request a modification. The stakes are very high: your house and your credit.

The decision on a modification is generally made by the firm that is 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. The servicing firm is 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.

The loan modification process can take 2 months or more to get it done, if you know what you are doing.  Homeowners can try to do the modification themselves, but the decision is far from cut and dried, and it can be materially affected by whether and how the borrower presents his case. In most instances it is better to hire a loan modification professional to guide you through the process.

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Jim Wagoner is an independent loss mitigation consultant.  He can be contacted through his web site www.westwoodproperties.net.