Loan Modification – A Good Solution?

Is a Loan Mod Right for You?

Maybe you’ve heard about new rules requiring major lending institutions to help homeowners keep their homes. Many people believe that a loan modification is the only solution that lets them keep their homes.

Unfortunately, widespread misinformation has caused false hope for a lot of homeowners in need of rescue.

Loan mods can be very good in certain circumstances, but most homeowners who find themselves faced with foreclosure are in financial distress too deeply to be saved by a loan modification. Sometimes, the loan mod can even make things worse.

Consider these facts:

  • According to the US Department of Housing and Urban Development, 50% of people who receive a loan modification are again at least 30 days late on their payment within 6 months.
  • One third of people who receive a loan modification find themselves at least 60 days late on their payment within six months.
  • 72% of loan mods issued from 2009-2010 resulted in a higher balance than the original loan amount, according to the 2011 Joint Center of Housing Studies report from Harvard University.

Loan Modification or Short Sale?

Many people think the a loan modification is the same thing as principal forgiveness. That is not the case at all. A loan modification simply reorganizes the loan to provide temporary financial relief.

The short sale, however, provides a permanent solution to an underwater mortgage. You might not think a bank would agree to a short sale, but in today’s market, banks will gladly accept a short sale as an alternative to foreclosure.

Why Would a Bank Accept a Short Sale?

Here are 3 reasons a bank will accept a short sale–and be glad they have it!

1. The Bank Never Owns the Home

This ranks as the top reason the bank prefers a short sale. Having to take back the home and then sell it at auction is a major undertaking, not to mention extremely expensive. In a short sale, there is already a buyer in place who wants to own the home.

2. The Home is in Better Condition

You’ve heard the stories of angry homeowners who wreak havoc on the home they are losing to foreclosure. Short of that extreme, good people begin to distance themselves emotionally from the home in order to cope with losing it. They stop repairing things that break, and even stop even simple maintenance. In a short sale, the seller usually wants to do right by the person buying the property, so they take better care of it.

3. The Bank Gets More Money in a Short Sale

Ultimately, this is the bottom line. Even though the bank is not getting the full amount of the loan, the amount of the average short sale is almost always significantly more than what they will receive if it goes all the way through the auction process.

Is a Loan Mod the Right Solution for You?

Before you decide your best course of action, download this month’s special report, “Loan Modification Myths” to find out the 5 questions you should ask yourself before seeking a loan modification.

Each month we publish a special report just for distressed homeowners. You can always see the current report by visiting and see all the archives at the Resources tab. We’re here to help.

One of the Most Important Things to Know

The sooner help is sought, the more options are available, and the greater chance of success.

CDPE - Certified Distressed Property ExpertAs a real estate professional who has earned the Certified Distressed Property Expert (CDPE) designation, my mission is to provide financially strapped homeowners with alternatives to foreclosure, help them steer clear of scams, and assist them in finding the solution that best meets their needs.

These are tough times, but more help is available than ever before. If you or someone you care about needs freedom from the frustration of a mortgage they can’t pay, contact me today and let’s get started.

Always obtain legal and tax advice before making a decision about your financial future.

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