Background on loan modifications in the recent years

The recent and continued loss of homes in the United States in the face of economic difficulties is perhaps the biggest tragedy associated with the current financial crisis. Plummeting home values have made it incredibly difficult for millions of Americans to hold on to their homes. Lower home values mean that the selling and refinancing of homes becomes increasingly hard to accomplish.

That said, many homeowners have faced and made the very painful decision to walk away from their homes, rather than continue to fight what feels like a completely futile battle in trying to keep them. Sometimes walking away (short selling) just seems to make the most financial sense. Simultaneously, there are many people who have refused to forfeit their homes and who have committed themselves to doing whatever is necessary to ensure that they do not have to do so. These people tend to have more long term goals when it comes to investing in a home. If you're one of these people, your reasons may be varied, and they are almost certainly legitimate.

For those who are intent on keeping their homes, loan modification programs have become one of the primary means of accomplishing it. Loan modifications are aimed at creating more affordable mortgage payments, but these programs can often be very difficult to qualify for due to an incredibly complicated application process.

How Banks Handle Loan Modifications

One of the problems is that banks often make the application process overly complex. In fact, research shows that it was actually easier for most if not all people to qualify for mortgages in the first place than it is for them to qualify for loan modification. There is something wrong with that picture. Many experts believe that banks simply do not have the infrastructure required to handle the high volume of loan modification applications. Then, of course, there is always the possibility that banks are deliberately giving people the run-around.

Mistakes to Avoid When Applying for A Loan Modification

The other issue is that many people apply for loan modification without a proper understanding of what the process entails, and what will be required of them. This can delay a positive response to an application for many months, or even make it impossible to receive for many people. The reality is that those who are not pre-qualified will not receive the approval they are hoping for. Here are almost two critical criteria for qualification:

(1)     The homeowner needs to demonstrate to investors and lenders that modifying their existing loan is more cost-effective than foreclosure. To help with this, the FDIC has put in place a Net Present Value (NPV) analysis of a loan modification.

(2)     They also need to demonstrate their ability to cope with their new mortgage payments. Simple English: if the borrower is not able to make the new lowered mortgage payment, he/she won't receive the modification.

Having advanced knowledge of whether or not you qualify for loan modification is therefore key. For those who are not pre-qualified, taking responsible measures to fine-tune their budgets could improve their chances of being approved, granted this is their goal. The more informed a consumer is, the more empowered he or she is to make the correct decision.

If you're considering applying for loan modification, it's important that you evaluate and receive guidance with the following criteria:

• Your DTI ratio must be above 31% of your gross income prior to the modification.

• Your house target payment, also known as PITIA (principal, interest, taxes, insurance, and association dues), needs to be lowered to between 31%-38% of your gross income after the modification. First, your target PITIA is reached by lowering the interest rate to no more than 2%, with a 30 year loan term. Second, if the target PITIA is not reached, the loan term is extended from 30 years up to 40 years. Third,  your loan may be offered  a forbearance or a balance reduction if the target PITIA is not reached in step one and step two.  Please bear in mind that very few loan modifications received a balance reduction. In terms of the forbearance option, it is considered on a case by case basis.

I wouldn't blame you if you are starting to feel like you need a degree in Mathematics or Finance in order to figure out all the ratios and calculations involved in a loan modification. If you're trying to do this on your own, you certainly do need some pretty strong math skills.

The alternate, easier solution is to benefit from unbiased, conflict-free analysis in order to assess your loan modification potential. What is an unbiased and conflict-free analysis? Well, that is for you to decide.

Caal loan modification software is designed to simplify the process and increase the chances of success of your loan modification.

For more information on how to best qualify for a loan modification, please visit  www.mycaal.com