The Simple Guide to Loan Modification

By: Sarah Carlye

There`s been a lot of talk lately -- and a heck of a lot of misinformation -- floating around about something called "Loan Modification."

It`s not hard to see why.

Thanks to a bunch of, shall we say, "crooks" in the mortgage industry (and I`m being kind), somewhere close to 50% of all homeowners in the U.S. are facing some kind of financial difficulty at the moment.

Normally that would be bad news. But here`s the real irony of this whole situation, and why it actually works in our favor for once.

In normal times, when there are just a handful of foreclosures every day, banks can absorb that. They can just write those off and go on about their merry way making billions.

But when times are bad -- or when times are REALLY bad like they are now -- not even the banks with their hoarded billions can ride it out.

Let that sink in for a second...

The banks can no longer afford to keep foreclosing on homes at the rate they are now. The simply CAN`T do it.

Imagine that. They need to talk to us. They need to work with us.

There`s that saying I`m sure you`re probably familiar with, which is that the Chinese symbol for crisis is really a combination of two things -- the symbol for "danger" and the symbol for "opportunity."

Make no mistake -- we`re in a crisis right now.

And up until maybe four months ago, we were focused squarely on the danger side of that equation.

But now, my friends, it`s time to take advantage of the "opportunity" this crisis is presenting to us.

And that opportunity is, for many, but NOT ALL, loan modification.

I`ve never been one to sit on my hands and keep silent when I see consumers and homeowners being steered in the wrong financial direction, so I decided to put together this simple guide on what loan modification is, how it works, and whether it`s an option that works for you.

These are the top three questions I`ve heard asked about loan modification. Hope this helps:

What is loan modification anyway?

Loan modification is exactly what it sounds like -- a way to modify the terms of your loan so that you wind up with payments you can afford.

It is NOT refinancing. This is something completely different. In loan modification, someone works with your bank to cut the interest rate, and sometimes even the principal, down to something that`s manageable.

These cuts are often dramatic -- 30%-50% in many cases.

Can I do a loan modification myself without hiring someone to do it for me?

Yep. You can also represent yourself at trial. And you know what they say about the lawyer who represents himself (he has a fool for a client).

I don`t mean to make a joke out of this question, because I know it`s a common one and I know a lot of people are confused about it.

Honestly, yes, of course you can try and represent yourself. But I`ll tell you from what I`ve heard on the grapevine, that even seasoned loan modification attorneys get told "NO" by the banks more often than not.

The difference is, when you`re working with a lawyer who knows what he or she is doing, they don`t stop there. They go back and ask again. And again.

And if the bank still won`t listen, well, then maybe they start hinting at the fact that they know where the bodies are buried in all those bad loans (if you get my drift).

Bottom line -- when the banks realize they`re dealing with someone who knows the real story about this mess, and their culpability in it, they tend to sit up a little bit straighter and be more receptive to working out a deal.

Okay, so assuming I want to hire someone to do this for me, what should I look for?

This is a pretty easy answer -- a guarantee.

There are a lot of shady loan modification outfits out there right now. An incredible demand coupled with a relative lack of supply basically guarantees you`re going to get a lot of novices joining the industry.

A lot of these companies rely on a "best effort" clause, which means, basically, that they`ll make an effort to get your bank to modify your loan.

As long as they do, they`ve done their job.

That`s TOTAL BS.

I mean think about it. Here`s how a company like this would satisfy their "best effort" deal.

Phony Loan Mod Rep: "Excuse me, Mr. Banker, will you modify Mr. Smith`s mortgage?"

Bank: "No."

Phony Loan Mod Rep: "Okay, thanks anyway."

Don`t fall for this nonsense.

If the company you`re looking at doesn`t offer a guarantee, then don`t go with them. Plain and simple.

One Final Thought

Loan modification has been in the news recently, and some reporters who quite honestly don`t know what they`re talking about have said it doesn`t work.

They base this assumption on the fact that some people who have gotten loan modification wound up back in trouble six months later.

What they don`t understand is that these loan modifications were done back when times weren`t so bad, and when the banks weren`t as willing to give as much as they are now.

When loan modification doesn`t work it`s generally because the bank just made a token reduction in the payment. They didn`t give any real relief, so of course it`s not going to do any good for the homeowner.

But now, with the banks desperate, and with experienced loan modification specialists out there, they`re becoming more and more successful every day.

I hope all this helps.

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