A loan modification can be defined as a reinstated agreement between the borrower and the lender that enforces long term financial relief and is a lender’s response to a borrower’s inability to repay a loan.

A loan modification is an evolving solution that the mortgage loan industry is devising in response to the economic crisis our country is facing in the recent years.  It is a process of restructuring the terms of an existing mortgage loan without refinancing the property at hand.  Right now, lenders are taking in record numbers of home foreclosures which have become static liabilities. The nations’ home sales remain at all time lows and foreclosure inventory continues to climb, notwithstanding various  governmental initiatives that have been implemented to encourage lenders to offer mortgage modification assistance to homeowners.  At today’s high default rate, lenders have become more amenable to working with borrowers who are facing financial hardship in order to establish new terms aimed at keeping borrowers in their homes.

Modifying an existing loan for repayment Loan modifications might involve restructuring the existing loan through (1) a reduction in the principal balance, (2) a change in interest rate or (3) extending of the term of the loan.  In some cases a different type of loan might be implemented or a restructuring involving any combination of the three methods could be executed. A lender might be amenable to modifying a loan because the cost of doing so is less than the cost of default or foreclosure. The modification sequence may involve first reducing the interest rate (subject to a rate floor of 2% in most cases) and/or reducing principal to reflect the current fair market value (subject to lender qualifying conditions), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal.

A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who are not able to keep with the existing payment structure.  Loan modification is a term unfamiliar to most homeowners, until recently.  What many homeowners are coming to realize is that losing their house to foreclosure is a possibility.  Home foreclosure in America was at an all time high in 2009 and appears to remain at such level for the foreseeable future, affecting many homeowners that never before envisioned losing their home to foreclosure.  Homeowners are experiencing the financial pressure of higher interest rates (from loans whose rates are resetting) and a continuing slow economy with high unemployment rates with a number of communities throughout the U.S.  A loan modification is one way for a homeowner to save the biggest investment of their life--their home.  Negotiating with a bank for a modification of a home loan can be overwhelming and frustrating for many homeowners, as many do not understand underwriting guidelines and documentation requirements established by many of the lenders.

Today’s nationwide real estate market is experiencing steep drops in property value coupled with tighter credit conditions.  The combination of the two trends makes a volatile environment for a borrower facing higher payments due to maturing of an adjustable rate mortgage (ARM) and a Pay Option ARM mortgage that resets and adjusts every so often.

While homeowners can elect to work with their lenders directly to secure a loan modification, an experienced professional with the right skill sets can, however, provide critical value-added services by assisting the homeowner in understanding and meeting various lending underwriting criteria and avoiding certain pitfalls to qualify for a modification, and it is our hope that with both of our real estate legal and business experience, the attorneys at Blue Capital Law Firm, P.C. will be able to offer these value-added services to homeowners who are in need to assistance and/or who lack the sophistication to deal with their lenders directly.

Many homeowners think refinancing a mortgage with a high interest rate is the best answer, if that is even possible given the recent dramatic decline in property value.  During vibrant economic times, refinancing at a lower interest rate would be a sound decision, although it may be costly to do so, due to the points, appraisal & title company costs and other fees associated with refinancing.  In today's market this formula may not the best solution or may not be a viable option altogether.  The attorneys at Blue Capital Law Firm will strive to work diligently to alter the terms in mortgages for those homeowners in need in order to create viable solutions between borrowers and lenders, subject, however, to  certain underwriting criteria that a particular lender or investor may impose on the underlying mortgage loan.

An ideal modification will allow homeowners to stay in the home when negotiation results in a payment package that is affordable for the long run.  Many new mortgage loan modifications are re-defaulting within six months of receiving their new modified terms.  This means that most modifications are not being modified to a degree that is affordable on an ongoing basis.  This may be due to a number of reasons: the homeowners are not well represented; they have not received sound advice from either their lender representatives or other third parties; they are unable to properly present their situation to their lenders in order to get an adequate loan modification; and/or they have not realized or thoroughly understood the lender’s underwriting guidelines, which of course, may change from time to time.  As such, the attorneys at Blue Capital Law Firm hope to bridge this gap by educating the average homeowners during the modification process and to assist such borrowers to navigate through what could be a lengthy  and frustrating process

In light of the recent enactment of California SB 94 on October 11, 2009, our firm will no longer require an advance retainer fee deposit for all new clients for loan modification / foreclosure assistance work that involves California residential properties (comprising of 1-4 units).

ADDITIONAL DISCLOSURE

All clients, existing or prospective, are hereby advised that there may be a number of existing non-profit loan modification counseling agencies that may offer you similar services, at no charge, that our firm is offering, although of course, the level of their services, experience, expertise and/or commitment to your case matter may vary from ours, as we are not certain if such agencies actually employ attorneys (with similar background and experience) to work on your case file. Nevertheless, operating in accordance with our ethical guidelines and principles, we fully provide this full disclosure to you now.