Loan Modification - What is It? by Sean Yost

Early in 2008 we began to hear rumblings of a coming recession in the United States. We were told the main culprit causing this recession would be a major fall in the housing market. Citizens were warned they were in for a double whammy if the recession did indeed take hold. Hit number one was if they bought at the top of the market without putting 10-20% down their homes would be worth less than their mortgage loan. The second is as the economy has grown steadily worse many have lost their jobs making any mortgage payment difficult. Many programs have been instituted by the U.S government to help reduce the effects of this economic recession. Designing the "make home affordable" loan modification plan is one such effort. This was just one part of a broad economic stimulus plan enacted in early 2009. Lenders were offered incentives within these plans to make it attractive to re-modify mortgages and reduce foreclosures. This was aimed at keeping people in their homes and keeping the banking industry solvent. The incentives provided allow lenders to modify loans for qualified borrowers without losing money on modification, or at least not as much as they would if they allowed the home go into foreclosure. These loan modification programs first identify if the applying borrower is qualified for the program, then restructure the existing home loan to make it affordable. Avoiding foreclosure is the win/win in this scenario. Stricter rules are enforced regarding debt to income ratios for applicants in the program. This used to be a standard ratio but sensible credit practices all but disappeared in the recent housing boom. Once the loan modification application is approved, the borrower will save on their monthly payments by enjoying a reduced interest rate, possibly dropping as much as 2% as well as the term of the loan being extended as much as 40%. The program hopes to provide a safety net to homeowners who took a bad loan or lost their job as well as support the banking industry in hopes of shortening the recession. If a new mortgage is in your future be sure to check out Fixed Rate Mortgage Quotes Today