Part of the reason for the collapse of the real estate and financial industries was the number of borrowers who applied for adjustable rate mortgages and couldn’t afford the increased interest payments as their loans matured. Lured in by low interest rates and equally low monthly payments, borrowers began do default as their banks demanded higher monthly payments as per the terms of their original mortgage contracts.
Ballooning and unpredictable monthly payment amounts are what make holders of adjustable rate mortgages the usual candidates for home loan modifications. The language of an adjustable rate mortgage contract allows for every monthly payment to be different after the introductory fixed rate term has expired. When a person can’t plan their monthly payments, they often begin to fall into default, which is perhaps the biggest flaw of adjustable rate mortgages. Many consumers think that just because their mortgage rate is fixed that they are not eligible for home loan modifications. This is not true. Holders of fixed rate mortgages can qualify for home loan modifications as long as they meet certain requirements established by law and / or their lenders.
The requirements that must be met will differ from lender to lender, so it is important for the borrower to understand the policies of their lender before submitting a request for a loan modification. Holders of government sponsored loans may be required to meet additional requirements, so it is important for borrowers to understand what laws apply to their loan. Contact a local bankruptcy or real estate attorney for more tailored guidance on the steps to requesting a loan modification from a particular lender in a particular jurisdiction. Some states have laws that may affect the loan modification process.
In many cases, the holders of fixed rate mortgages can be approved for home loan modifications if they can provide evidence of a financial hardship that threatens their financial security. The loss of a job, presence of a medical emergency, etc. are examples of hardships that could make it difficult for lenders to stay on top of their monthly mortgage payments.
A person with a fixed rate mortgage is able to plan for their monthly payments better than a person with an adjustable rate mortgage, which makes the presence of an unplanned hardship a necessity in most situations to get a loan modification approved. Some lenders will even require their borrowers to be in default before they will entertain the idea of a loan modification.
Home loan modifications are designed for borrowers who need assistance from their lenders to keep from losing their homes. They are not designed for borrowers who just want to pay less every month. Borrowers who are not facing hardship should not apply for home loan modifications because this just slows down the process for everybody else. Borrowers who just want to save a couple hundred bucks a month should start clipping coupons and cutting down on their daily gourmet coffee intake, not applying for loan modifications they really don’t need.