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Dec312010

Loan Modification in Roseville, CA: A Guide

Home values in Roseville, Calif., have declined considerably over the past several years. This has put many homeowners in a difficult situation: their monthly loan payment is no longer affordable and selling the home is not an alternative because its value is less than the mortgage.

If you’re in this situation, you may have thought about loan modification. While loan modification is a viable solution for some homeowners, a short sale is often the best way to reduce debt and increase personal net worth. Home Sales and Loan Modification in Roseville, CAHome Sales and Loan Modification in Roseville, CA
In this guide, I’ll describe loan modification in Roseville, debunk some widespread myths and help you determine if short sale is the superior choice for you. 

What is Loan Mod?

In a loan modification, the terms of the note are restructured, which can include lowering the loan’s interest rate or lengthening the term (number of payments) to hopefully shrink the homeowner’s monthly payments.  
 
Thought most Roseville lenders are willing to lengthen the loan to 40 years, understand that most interest rate reductions are only short-term. The reasoning behind this is that the economy will ultimately improve, permitting the lender to resume the payments to the formerly higher rate.

Myths and Realities of Loan Mod in Roseville, Calif.

There are several myths about loan modification. In this section, I’ll expose three of the most common myths.
  • Myth: Loan modification will allow forgiveness of accumulated penalties, fees and interest on any missed payments. 
  • Reality: Lenders are opting to add the accumulated penalties, fees and interest from the missed payments to the balance of the loan. 
  • Myth: Payments will be reduced with a loan modification.
  • Reality: In a very large amount of California loan modification cases, payments increase due to the addition of accumulated penalties, fees and interest on missed payments. To create the illusion that the restructured loan payments are beneficial, lenders are lengthening the loan term to 40 years and may offer small reductions in the interest rate for two to five years. Nevertheless, in over one third of cases, loan modification payments go up, according to the Fitch Bank Rating Agency. 
  • Myth: The principal balance will lowers in a loan modification.
  • Reality: Reductions to the principal balance come about only in rare situations. These reductions are most likely to transpire when complicated legal or financial issues are being worked out or litigated with the lender. 
Considering the realities of loan modification, short sale is often a more beneficial option for Roseville homeowners looking to ride themselves of debt and increase personal net worth.

Quick Tip

Loan modification and forbearance agreements are not identical. Forbearance agreements are a structuring of the back payments owed, although the original terms and conditions of the loan remain the same. As a result, payments will go up with forbearance agreements since the back payments are being paid off with time.  

How to Pursue a Loan Modification in Roseville, CA

Some common methods for going after a loan modification in Roseville include:
  1. Working directly with the lender. This is the method favored by the lender because most borrowers are unable to negotiate considerable reductions to the interest rate and debt.
  2. Working with a Roseville loan modification company. These companies are usually attorney- or real estate broker-owned, are very skilled and sometimes have success in working out legal issues in order to secure favorable interest rates and debt reductions. However, the success rate in this industry is not acceptable overall for most borrowers.
  3. Working with a proficient California short sale investor or negotiator. Though it may sound odd or contradictory, this strategy is actually very solid, especially if affordability is a concern. However, lenders often conclude that a short sale will produce greater losses than loan modification, the possibility that a homeowner is calling it quits may motivate them to make their best and last loan modification offer. This strategy can be used up front, but is most often used later on, when the borrower over extended financially and unable to get an acceptable loan mod. 

Loan Modification Eligibility

There is no eligibility prerequisite for obtaining a loan modification in Roseville, CA, although the lender and borrower must come to an agreement on the change to the loan.
 
In some circumstances, a Roseville lender will be financially motivated to allow a loan modification and others in which the lender is not as likely to grant approval.
  
Loan modification is more liable to be approved when:
  1. The borrower has a hardship that has been rectified or is resolvable soon.
  2. The authorization of a permanent loan modification is a necessity to make the non-performing loan turn into a permanently performing loan once again.
In nearly all cases, a “trial” loan modification can be obtained. To take part in a trial loan modification in Roseville, lenders usually require the borrower to make monthly payments at a specific amount for at least three months before giving permanent approval. Unfortunately, this results in a trap for many borrowers, as the lender might never give permanent approval of the loan mod.
  
Loan modification is likely to be denied or not permanently approved when:
  1. The lender decides that the homeowner can’t afford the home.
  2. The lender concludes that a borrower's hardship will not be resolved through loan modification.
  3. The lender determines that the borrower will continue the loan payments even if permanent approval is not provided. If the lender thinks that borrower wishes to keep the home at any cost, the lender has zero incentive to provide permanent approval.

Most Loan Mods are Destined to Fail

As stated by the Fitch Bank Rating Agency, the typical loan modification payment is 64% of pre-tax income, though lenders generally will not approve a new loan if the payments are over 35% of pre-tax income. The reasoning behind this is that in order for a loan to be successful and not turn into a non-performing loan, borrowers must to be able to allocate a realistic portion of their income for other household basics.
 
According to Fitch and others, this overly high payment requirement makes loan modification an impracticable program destined to fail. In its assessment, Fitch has disapproved of the banks’ handling of loan modifications, because of the low approval rate of permanent loan mods and the excessive failure rate of loan modifications following permanent approval.
 
Regrettably, federal and state laws and government regulations haven’t forced banks to commit more resources to help homeowners avoid foreclosure, due to their inability to push banks into absorbing more of the financial losses that have come about from the housing crisis.

Is Loan Modification Right for You?

Considering the significant drop in housing values, loan mods are not a good choice for the vast majority of Roseville homeowners. If you are hoping to reduce your debts and expenses, a short sale can considerably reduce your debt and improve personal net worth at the same time.
 
Additionally, if you wish for a loan modification in Roseville, CA, yet have modest or no equity, a short sale can be used as a tactic to get your bank to offer reasonable loan modification.
 
For more information on California loan modification and short sale, download my free book, “Loan Mods, Why Short Sale May Be A Better Option For You,” or call me at 1-888-REHelp9.

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