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Dec312010

Loan Modification in San Francisco, CA: A Guide

Home values in San Francisco, Calif., have decreased considerably over the last few years. This has placed many homeowners in a desperate situation: their monthly loan payment is not affordable and selling the house isn't a solution because its value is less than the mortgage.
 
If you're in this dilemma, you may have contemplated loan modification. Though loan mod is a possible solution for a few homeowners, a short sale in CA is often the better option for slashing debt and increasing personal net worth. Home Sales and Loan Modification in San Francisco, CAHome Sales and Loan Modification in San Francisco, CA
In this guide, I'll describe loan modification in San Francisco, debunk a number of prevalent myths and help you decide if short sale is the right choice for you. 

What is Loan Mod? 

A loan modification is a reconfiguration of the terms of the loan. This can include reducing the loan's interest rate or stretching out the term (number of payments) in to hopefully lessen the homeowner's payments. 
 
While many San Francisco lenders will extend a mortgage to 40 years, it’s important to note that the majority of interest rate reductions are short-lived. This is because the economy will ultimately get better, allowing the lenders to subsequently resume the payments at the once higher rate.

Myths and Realities of Loan Mod in San Francisco, Calif.

There are many myths about loan modification. In this section, I'll reveal a couple of the most common myths.
  • Myth: In loan mod, there is forgiveness of built up penalties, fees and interest on any missed payments. 
  • Reality: Banks are opting to incorporate the built up penalties, fees and interest from the missed payments into the loan debt. 
  • Myth: Payments will get lower with a loan mod.
  • Reality: In a significant percentage of San Francisco, California loan modification cases, payments actually go up because the accrued penalties, fees and interest on missed payments are added to the loan. To help the restructured payments appear helpful, lenders are extending the loan term to 40 years. A number may also provide slight discounts in the interest rate for two to five years. Yet, in over a third of loan modification cases, the payments will be higher than before the loan mod, as stated by the Fitch Bank Rating Agency.
  • Myth: The principal balance will be reduced in a loan modification.
  • Reality: Reductions to the principal balance result only in exceptional circumstances, particularly when complicated legal or financial matters are being negotiated or litigated with the bank. 
Taking into consideration the realities of loan mod, short sale is frequently the better option for San Francisco, Calif., homeowners looking to release themselves from debt and boost personal net worth.

Quick Tip

Loan mod is different from a forbearance agreement, which is a restructuring of the back payments owed without altering the original terms and conditions of the loan. Payments rise with forbearance agreements because the back payments are paid over time. 

How to Obtain a Loan Mod in San Francisco, CA

Some of the most common strategies for pursuing a loan mod in San Francisco include:
  1. Applying directly with the bank. This is the strategy preferred by lenders because most homeowners aren’t able to work out considerable decreases to the interest rate and debt.
  2. Working with a San Francisco loan modification company. These companies are typically attorney- or real estate broker-owned companies. Loan mod companies are very experienced and can have success in tackling legal challenges in order to secure preferred interest rates and debt reductions. However, realize that the effectiveness in this industry is largely unsatisfactory for most homeowners.
  3. Working with an expert California short sale real estate investor or negotiator. While this approach may sound unusual, it’s a very sound option, primarily if affordability is an issue. Because lenders often deduce that a short sale will result in greater losses than loan mod, the mere likelihood that a homeowner is giving up may cause them to make their top and final loan mod offer. This approach can be used up front, but is frequently employed when the borrower is stretched to the limits financially and powerless to get a satisfactory loan modification. 

Loan Mod Eligibility in San Francisco, Calif.

Officially, there is no qualification prerequisite for obtaining a mortgage loan modification in San Francisco, CA, though the bank and borrower must come to an agreement on the change to the loan.
 
In some situations a California lender will be more inclined to agree to a loan modification and others in which the lender is not as likely to grant approval. 
 
Typically, loan modification is likely to be granted when:
  1. The homeowner has a hardship that has been remedied or is resolvable before long.
  2. The approval of an indefinite loan mod is considered necessary to make the non-performing loan a permanently performing loan again.
A “trial” loan mod can be obtained in nearly all situations. To get a trial loan modification in San Francisco, lenders generally ask the borrower to make monthly payments at a set amount for at least three months before granting permanent approval. Regrettably, this results in a trap for some homeowners because the lender might never provide indefinite approval of the loan mod. 
 
Loan mod will probably be denied or not permanently approved when:
  1. The bank concludes that the borrower can't afford the home.
  2. The lender does not agree that a borrower's adversity is resolvable by loan mod.
  3. The lender concludes that the borrower might make the loan payments whether or not permanent approval is provided. For instance, if the mortgage company believes that the borrower desires to keep the property regardless, the loan provider lacks incentive to grant approval.

Most Loan Modifications are Destined to Fail

A standard loan mod payment is 64% of pre-tax earnings, according to the Fitch Bank Rating Agency. In contrast, lenders generally do not approve a new loan if the payments go over 35% of pre-tax income since they realize that for a loan to be a success and avoid becoming a non-performing loan, borrowers should be able to dedicate a sensible portion of their income to other household essentials. 
 
This extraordinarily high payment condition makes loan mod an unfeasible plan destined to fail, according to Fitch and others. In their evaluation, Fitch has been critical of the banks’ handling of loan mods, due to the low approval rate of indefinite loan modifications and the subsequently high failure rate of loan modifications after following permanent approval.
 
Unfortunately, federal and state laws have been powerless to force lenders to do more to help property owners avoid foreclosure, because of their inability to make banks into absorb more of the monetary losses that are resulting from the housing crisis.

Is Loan Modification Right for You?

Because of the drastic drop in home values, loan mods are not advisable for most of San Francisco property owners. If you're concerned with lowering your debts and expenses, a short sale can help you meet these goals while also boosting personal net worth.
 
Furthermore, if you want a loan modification in San Francisco, CA, yet possess little to no equity, a short sale can be a great strategy to encourage your bank to make an acceptable loan modification offer.
 
For additional information on California loan modification and short sale, download my free ebook, “Loan Mods, Why Short Sale May be a Better option for you,” or call me at 1-888-REHelp9.

References (1)

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    Response: loteria santander
    Loan Modification in San Francisco, CA: A Guide - Loan modification CA Cities - Prevent Mortgage Foreclosure -- Short Sale Strategies -- Free Help From California Pro

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