Loan modification and Foreclosure site

The biggest new “rule” that the government has come out with lately dealing with loan modifications is the 31 percent rule.

It states that the monthly mortgage payments of a loan that is in the process of being modified cannot exceed 31 percent of the homeowners monthly income.

That means if the homeowner is bringing in 3,000 dollars a month, their monthly mortgage payment cannot exceed 910 dollars theoretically.

That is great news for homeowners on the surface, but is it really beneficial?
In the end I see the new 31 percent rule as a stumbling block for getting loan modifications done in the first place. Banks/lenders will be much more hesitant to give out loan modifications if they can only charge a maximum of 31 percent of the homeowners income each month as a mortgage payment. If less loan modifications get done, there will be more foreclosures, which is a bad thing.

That is the number one question nowadays. With everyone and there brother in trouble financially because of the economy, loan modifications start to become more and more appealing.

Loan modifications work like this: Fred from Minnesota lost his job, he was a good guy who made good financial decisions for the most part, he certainly did not do anything irresponsible. However because he is getting barely any income each month, he has fallen behind on his mortgage payments and is facing foreclosure.

Fred wants to avoid foreclosure and hears about loan modifications.

He does his research, and finds out that a loan modification is perfect for him!

Fred then talks with his lender [usually a bank] and finds a loan modification attorney to represent him.

After 90 or so days of hard work and negotiation by everyone involved, a loan modification on the mortgage is finalized! Fred is paying roughly 50% of what he used to each month until he gets a job and is able to make his normal monthly payments again.

It is tough to sit here and talk about general loan modification laws, because each individual state is different to tell you the truth.

What is acceptable in South Carolina might not be acceptable in Wisconsin or vica-versa.

The main differences between states is the amount of regulation that goes on. Regulation can be a good thing and a bad thing at the same time.

Sometimes regulating who can work in a loan modification dealing and what type of loans can be modified can stop common loan modification scams and heartbreak from occuring.

Other times,  loan modification laws that are very regulated can cause there to be excess hassle in the process and the regulation can just get in the way of the dealing in general.

The best way to find out loan modification laws in your area is to talk to someone in the financial field that have had experience with loan modifications  in the past. It might not be cheap, but the guidance your partner will give you should be worth it in the end.

Knowing your debt to income ratio is extremely important if you are planning on embarking on a loan modification.

A bank does not want to go through the hassle of modifying a loan for someone that will probably not be able to pay it back anyways, so they definitely like to know as much about the homeowner’s finances as possible this includes the debt to income ratio.

President Obama has set 31 percent as the most that a loan can be modified for payments each month. That means that if you bring home 4,000 dollars a month theoretically, you cannot have more than a roughly 1,200 dollar mortgage payment each month. That is obviously great news for homeowners going through a loan modification and bad news for a bank.

For example, what if the homeowner is unemployed and hardly taking any income home each month? Does the 31 percent rule still stand? Yes it does, and that can be devastating to the chances that a loan modification deal will actually end up going through.

A loan modification is a modification of a loan, usually a mortgage to make it more affordable for the home owner.

A home equity loan is where the homeowner takes all or some of the equity out of their home in order to have a lump sum of cash. Home equity loans are common with senior citizens. On one hand, you get a lump sum of cash and you do not directly lose anything. On another, you don’t really actually own any of your home anymore. It all depends on what situation you are in whether a home equity loan is worth it for you or not.

Loan modifications and home equity loans can sometimes blend together in rare cases. It is important to make sure that you know what you are getting into before embarking on either a loan modification, home equity loan, or both at the same time.