When to Apply for the Obama Loan Modification Program
Added: (Thu Mar 04 2010)
Pressbox (Press Release) -
Loan modification is one of the most viable options for homeowners who are unable to keep up with their mortgage. First introduced by small lending firms and later picked up by major banks, loan modification has now become a national trend and the solution of choice for troubled homeowners. Last year, the government launched a national loan modification program which has since helped thousands of people stay in their homes.
A loan modification is basically an agreement between a lender and a borrower to change the terms of the mortgage to make it more affordable for the latter. This may involve a lower interest rate, writing off part of the principal, or an extension of the loan terms, among other options. The government's Making Home Affordable program gives lenders incentives to modify delinquent loans for borrowers who fell behind for valid reasons.
One of the most commonly asked questions on the Obama loan modification is when it's best to apply. However, there's no such thing as a good or bad time--the only thing to remember is that one has to act fast. As soon as one falls behind or gets a notice of default, they can immediately call their lender and ask about their choices. While some banks set limits on how far behind one must be, it's better to act too soon than too late.
Standards vary from one lender to the other, but generally, a borrower has to be 60 to 90 days behind on his mortgage to qualify for loan modification. But this does not mean one has to wait that long before taking action. As soon as circumstances change--for example, if one spouse loses his job or falls ill--the other can start looking into loss mitigation, ask the bank about their loan modification program, and perhaps start gathering documents.
Many homeowners are advised to file for bankruptcy to improve their chances of qualifying for the Obama loan modification plan, or simply to avoid foreclosure. But that simply doesn't work--besides lowering one's credit score, bankruptcy does not count for much in the lender's evaluation. Also, a report from the American Bar Association shows that 96% of homeowners who file for bankruptcy will still face foreclosure later on.
The time frame of a loan modification can also vary depending on specifics of the case, such as the reason for default and how far behind the borrower was. The process can take anywhere from 30 to 90 days, but may be longer if there is a large volume of applications. With recent changes in the Obama loan modification program, most of the paperwork will now be required upfront, so the application and processing should be much quicker.
One way to speed up the process is to work with a loan modification attorney. A good attorney can help borrowers negotiate more directly with the lender and better understand the bank's loan modification program, as well as make more educated decisions. Most lawyers will also have connections within the industry, so one can get in touch with the right department at once rather than be passed around from one agent to another.
Finally, homeowners should choose their loan modification companies carefully. It's important to talk to the bank before hiring a third party, and to work only with qualified lawyers who have relevant experience. With a good attorney, one can take full advantage of the bank's loan modification program, steer clear of foreclosure, and get back on track in no time.