FDIC – Home Loan Modification Help

Homeowners are missing their mortgage payments and looking into refinancing if possible or just foreclosing on their home.  But there is another option available and at this point, not many are taking full advantage of it.  This is doing a home loan modification.

Homeowners are slowing realizing that a loan modification can help lower a monthly mortgage to a more affordable payment.  Not all loans can be modified.  Both the lender and the borrower have to agree.  Until last week lenders did have the incentive to do a loan modification.  However, last week the FDIC announced a program that gives lenders the incentive they need to begin evaluating all loans and determining which would be a candidate for a loan modification.

Some homeowners want to use a loan modification as an opportunity to increase their loan amount.  This will not work in a loan modification scenario.  When a loan is processed there is usually an amount that is taxed.  After a loan modification, the interest rate, the monthly principal, and term length can change which then leaves nothing to be taxed.  Conversely, if the loan amount increases, then the government will recognize that there is something to tax.

Another reason why increasing a loan amount through a loan modification will not work is because it may impact a second or third lender.  Many homeowners have a first loan but also a second loan used as a home equity loan.  If the amount of the first loan increases, the risk of the lender of the second loan increases as well.  If the homeowner forecloses the first lender will be paid first, and whatever monies is left over goes to any subsequent lenders.  If the amount of the loan is higher, there may be little to no money left for other lenders.

Overall, a homeowner is better off choosing to do a loan modification in oppose to a refinance of their home loan.  Homeowners are often told that there will be no closing costs in doing a refinance of their loan, so think this is a better, cheaper option than doing a loan modification.  “No closing costs” can simply means that the lender is going through a different route to make their money i.e. a higher rate, higher loan amount, prepayment penalty or all three.

A homeowner has every right to deal directly with the lender for a loan modification.  However, a homeowner is much more likely to see better results after consulting with an attorney. San Diego Law Firm Kerry Steigerwalt’s Pacific Law Center will be helping with home loan modifications in San Diego, CA