| There are many differences between loan | | | | There are Federal loan modification programs such as |
| modifications and refinancing. However the main | | | | the Home Affordable Modification Program ("HAMP"), |
| difference stems from the financial opportunity | | | | however, traditional loan modifications are conducted |
| provided; Refinancing relates to obtaining a whole new | | | | by the bank under no specific program. Each lender |
| mortgage, whereas a loan modification is simply | | | | has its own set of rules to determine whether a |
| changing the essential terms of the homeowner's | | | | consumer can qualify for a modification. Some lenders |
| present mortgage. When you refinance your | | | | will look at the homeowner's other outstanding bills; if |
| mortgage you are paying off your existing mortgage | | | | the homeowner is in financial distress and whether |
| with a new mortgage thereby change your payments | | | | there is equity in the home. Some lenders will look to |
| for the life of the new loan. The two largest facts that | | | | the amount of time the homeowner has gone without |
| come into play in determining if a homeowner will be | | | | making a mortgage payment. Sometimes the |
| approved to refinance is their credit rating and whether | | | | modification will be as simple as moving from an ARM |
| any equity exists in the home. | | | | loan to a fixed mortgage rate, or if there is a FHA loan |
| A loan modification generally is considered a | | | | involved, the homeowner could qualify for a partial |
| temporary solution to a homeowner's inability to | | | | claim. A partial claim, according to Brian Heaton, in the |
| comfortably pay the full mortgage, or to wait out an | | | | Indiana Law Review of 2005, is when the loan is |
| uncertain real estate market. According to Michael Hall | | | | brought current and a lien is placed on the property for |
| in the Practicing Law Institute Corporate Law and | | | | the outstanding balance until the property is sold or |
| Practice Course Handbook Series, March 2008, | | | | refinanced. |
| homeowners will be moved into a lower fixed interest | | | | The benefit to a homeowner of conducting a loan |
| rate, for five or more years. The most significant | | | | modification is rather obvious, in many cases a very |
| benefit of a loan modification is that credit scores do | | | | large reduction in monthly mortgage payments. |
| not come into play. Under many state laws, (for | | | | Additionally, under the HAMP program, should the |
| example M.G.L. c. 93A) if you want to get help | | | | monthly payment be reduced by 6% or more, |
| negotiating a loan workout or modification, an attorney | | | | homeowners are eligible to receive $1,000 per year for |
| must negotiate with the bank on the homeowner's | | | | up to five (5) years against their principal. |
| behalf based upon your hardship. There are no | | | | Should you wish to learn more about traditional loan |
| closings needed in a loan modification. As such, there | | | | modifications or those pursuant to the Federal |
| are no closing costs, no points being paid, no new title | | | | Govenment, you should contact a local bankrutpcy or |
| insurance fees, no application fees, or any other fees | | | | consumer debt lawyer in your area. |
| typically incurred in traditional mortgage transaction. | | | | |