Foreclosure Alternatives – Loan Modification

A Loan Modification is a change to the original terms of a mortgage. When a borrower purchases property secured by a mortgage, the Lender will specify the terms of the loan. These terms include Interest Rate, Amount of the Loan, Term of the Loan (number of years until the loan is paid off), Monthly Payment, and Amortization Schedule. If the Borrower is unable to make the scheduled payments, then the Lender/Bank has some tough choices. The Lender may decide to Foreclose, accept a Deed in Lieu of Title or Short Sale or engage in a Loan Modification. All of these choices force the Borrower out of his home except Loan Modification. If the Borrower can prove to the Lender that he has the ability to repay the loan if the Lender agrees to alter some of the terms, the Lender may agree to “Modify” the loan.

Foreclosure alternatives are being pushed by the federal government through the HAMP I, HAMP II, and HARP programs.  Internal bank policies may allow for modification of loan terms if the borrow does not quite meet the qualifications under HAMP I or HAMP II.