Many homeowners see loan modification as the best way to help them keep their homes. While it is a boon for many, it is not an easy way out of financial problems.
Before looking at loan modification as a cure all for a homeowner's financial woes, it must be understood that this is a two way transaction and any modification needs to protect the interests of the lender as much as the borrower. Loan modification is possible if the borrower feels it will help him and the lender feels that any such modification will result in enabling the homeowner to pay off his debt and so reduce the chances of the loan going into default and causing losses to the lender.
A loan, in its simplest form is a contract between a lender and a borrower under which the lender provides financing to the borrower under specified terms and conditions. This contract details the rights and duties of both parties.
In the case of a mortgage loan, the contract will spell out the amount of the loan, and the schedule of repayment that is required to keep the loan in good standing. The amount of interest payable on the loan is also specified. The recourse of the lender, if the borrower defaults, is also clearly given.
As circumstances that affect either party may occur during the pendency of the loan, the terms and conditions may be changed as long as both parties agree to it. No modification of the loan terms and conditions can be made by one party without the express consent of the other. If a modification is offered by one party and the other does not agree, no modification can take place.
Homeowners should not attempt to negotiate loan modification without expert assistance. It is a complex subject and very few home owners have the expertise to be able not only to negotiate the modification in their best interests, but may even subject themselves to unforeseen pitfalls in the future which could make their situation even worse.
The common elements of loan modification are a reduction of the loan amount, reduction of the interest rate, changes in the amortization terms or a combination of these conditions. A seemingly attractive change in one condition may be offset by a change in another so care must be taken to examine the totality of the consequences on any proposed loan modification.