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Dec312010

Loan Modification in Sacramento, CA: A Guide

In Sacramento, Calif., home values have declined significantly over the past several years. This has put many homeowners in an impossible scenario: their monthly loan payment is no longer affordable and selling the home is not an option because its value is less than the mortgage.
 
If you’re in this unfortunate position, you may have thought about loan modification. While loan mod is a workable solution for some homeowners, a short sale in California is frequently the best solution for slashing debt and increasing personal net worth. Home Sales and Loan Modification in Sacramento, CAHome Sales and Loan Modification in Sacramento, CA
In this guide, I’ll discuss loan modification in Sacramento, expose some common myths and help you conclude whether short sale is the better choice for you. 

What is Loan Modification?

The terms of the note are restructured in a loan mod. This can include a reduction in the loan’s interest rate or an extension of the term (number of payments) to in an effort to lessen the homeowner’s monthly payments.
  
While most Sacramento lenders are open to extending the loan to 40 years, be aware that the majority of interest rate reductions are only short-term. The logic around this is that the economy will improve in the future, permitting the lender to later continue the payments at the previously higher rate.

Myths and Realities of Loan Modification in Sacramento, Calif.

There are numerous myths about loan mod. In this section, I’ll debunk three very common myths.
  • Myth: Forgiveness of built up penalties, fees and interest on any missed payments will be granted in a loan mod. 
  • Reality: Lenders are adding the accrued penalties, fees and interest from the missed payments to the loan balance. 
  • Myth: A loan modification reduces payments.
  • Reality: In most California loan modification cases, payments rise due to the addition of accrued penalties, fees and interest, plus any missed payments. To make the restructured loan payments seem beneficial, banks are extending the loan term to 40 years and may slightly lower the interest rate for two to five years. Though in more than one third of cases, payments go up after loan modification, according to the Fitch Bank Rating Agency.
  • Myth: The principal balance will be lowered in a loan modification.
  • Reality: The principal balance in lowered in extremely rare situations. These reductions happen most frequently when complex legal or financial matters are being negotiated or litigated with the bank. 
Taking into account the realities of loan modification, short sale is frequently a better option for Sacramento homeowners seeking to free themselves from debt and increase personal net worth.

Quick Tip

Loan modification is not identical to a forbearance agreement. With forbearance agreements, the back payments are restructured without making any changes to the original terms and conditions of the loan. As a consequence, payments will go up with forbearance agreements because the back payments are being paid off over time.  

How to Pursue a Loan Modification in Sacramento, CA

Common ways to pursue a loan modification in Sacramento include:
  1. Partnering with a Sacramento loan mod company, which is usually attorney- or real estate broker-owned. Loan modification companies are highly talented and sometimes have success in tackling legal issues in order to get favorable interest rates and debt reductions. However, take note that the success rate in this industry is objectionable overall for most homeowners.
  2. Applying directly with the lender. Lenders prefer this method since most homeowners cannot negotiate significant decreases to the interest rate and debt.
  3. Working with a capable California short sale investor or negotiator. Though this approach may sound odd or contradictory, it’s very sound, especially if affordability is of concern. Because lenders often realize that a short sale will create greater losses than loan modification, the probability that a homeowner is calling it quits may cause them to make their ultimate and final loan modification proposal. This tactic can be used initially, but is often employed when the homeowner is at their limit financially and unable to get a satisfactory loan mod. 

Loan Modification Eligibility

Loan modification in Sacramento, CA, needs no official eligibility requirements, although the lender and homeowner must reach a compromise on the change to the loan.
 
There are some circumstances in which a Sacramento lender will be financially driven to approve a loan modification and others in which the lender not likely to give approval.  
 
Usually, loan modification will be approved when:
  1. The borrower has a difficulty that has been rectified or will be soon.
  2. A permanent loan modification is needed to make the non-performing loan become a permanently performing loan in the future.
 A “trial” loan modification can be acquired in nearly all cases. To take part in a trial loan modification in Sacramento, lenders generally demand that the borrower makes monthly payments at a set amount for a minimum of three months prior to granting permanent approval. Regrettably, this causes a trap for many borrowers because the lender may not provide permanent approval of the loan modification.  
 
Loan mod is likely to be refused or not permanently approved when:
  1. The lender decides that the borrower does not have the funds for the property.
  2. The lender doesn’t believe that a borrower's misfortune is resolvable by loan modification.
  3. The lender concludes that the homeowner might make the loan payments even if permanent approval is not granted. For example, if the lender thinks that the borrower will do whatever it takes to keep the property, the lender has no reason to provide permanent approval.

Most Loan Mods are Destined to Fail

Commonly, loan modification payments are 64% of pre-tax income, as stated by the Fitch Bank Rating Agency. In contrast, lenders in general will not approve a new loan if the payments go over 35% of pre-tax income because they know that for a loan to be successful and not become a non-performing loan, homeowners need to be able to dedicate a reasonable portion of their income for other household expenses.
 
This particularly high payment requirement makes loan modification an impractical program destined to fail, according to Fitch and others. In its assessment, Fitch has condemned the banks’ handling of loan modifications, due to the unfavorable approval rate of permanent loan mods and the high failure rate of loan modifications receiving permanent approval.
 
Unfortunately, federal and state laws and government regulations have been unable to do anything to make banks put more effort into helping homeowners prevent foreclosure, due to their lack of power to pressure banks into taking on more of the monetary losses that have resulted from the housing crisis.

Is Loan Modification Right for You?

Considering the significant drop in housing values, loan modifications are not financially sensible for the vast majority of Sacramento homeowners. If you are interested in reducing your debts and expenses, a short sale can significantly reduce your debt and improve personal net worth at the same time.
 
Additionally, if you want a loan modification in Sacramento, CA, yet have little or no equity, a short sale can help you encourage your lender to make a reasonable loan modification proposal.
 
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.

References (22)

References allow you to track sources for this article, as well as articles that were written in response to this article.
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: Frank Dellaglio
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: USHUD
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: USHUD
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: USHUD
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: USHUD
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: USHUD
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Response: USHUD
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro
  • Response
    Loan Modification in Sacramento, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro

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