How to Restructure or Modify an Existing Loan

With the rate of foreclosures and homeowners defaulting on their mortgages, most lenders are willing to help consumers keep their current home loan by modifying the existing loan to a new interest rate.

By modifying an existing loan, the homeowner is able to stay in the home with a new, lower payment than what the adjustable rate loan was offering. Modifying an existing loan requires time on the part of the consumer but is often much less expensive than refinancing and in cases where a refinance is not possible due to loan to value ratio, loan modification may be the only option besides a foreclosure or short sale.

Here are tips on getting an existing loan modified:

1. Call the customer service department of the loan company, not the billing department. The billing department is interested only in collecting money, the customer service department will probably be more courteous.

2. Explain to the representative that you are current on your payments but you won’t be able to stay in the house at the current rate. You want to stay in it but you’ll need to give the house back. Then let them talk. They should offer to qualify you for a loan restructure or modification.

3. If they do offer you a loan modification you will be sent to the loss mitigation or loan retention department. You will be set up with a representative and will be asked to send in financial information. They want to make sure that you can actually afford the house and that you didn’t get into a house that was just way over your head. When they determine that you can actually afford the house then they will draw up new loan documents.

4. Now at this time you may need to be the squeaky wheel. If you aren’t getting a response back from them on the approval of a loan modification you should call at least once a week. Time is of the essence for you.

5. Loan modifications typically take 45-60 days. Even if the loan company is overloaded with restructuring loans it should still be handled in a timely manner, that is why phone calls must be made to check the progress of your account.

6. When you receive the loan documents you will probably be asked to pay some legal fees and have the documents notarized. You then send them back and hope everything goes smoothly. Once again, keep in contact with the loan company because they are dealing with thousands of accounts, yours is just another number.

7. Sometimes mathematical errors are caught when the modified loan goes through underwriting. This will slow the process and possibly cause them to ask you to get more papers notarized. In most cases this won’t be necessary if it is a document without a signature. Ask them if they can just send that one or two pieces of paperwork and you will sign them so you don’t have to get the entire stack notarized again.

8. Be sure to really go over the math with your new loan. Often times the loan company will tell you that they will take care of one months payment for you but they just roll it into the value of the loan. You may or may not want that.

9. Make sure you ask questions. You may think they are doing you a favor but they really want to modify your loan just as bad as you want to stay in your house. Ask what kind of loan they will be proposing, will it be a 30-year fixed rate, will it go back to the interest rate before the last increase, or will they give you a new rate for two years and then adjust it again.

Loan modification or restructuring is a better option for most homeowners than foreclosure. It keeps your credit looking good and allows you to keep your family in your home.