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Unfortunately, in recent years due to the situation in the housing market in the USA, more and more homeowners are facing crucial problems with making their monthly mortgage payments and risking to be kicked out of their homes. One of the ways to help homeowners to solve their mortgage problems without having to leave their houses is the equity modification program that has been widely developing since February 2009. During the procedure of the loan modification the lender and the borrower renegotiate their mortgage agreement lowering monthly loan payments and making the loan terms more comfortable for the homeowner. The forms of the loan modification can be different and vary from case to case. Usually the first step is the interest rate reduction; it can be lowered to as low as 2 percent and sometimes even less. The loan term can also be increased considerably.
To apply for a modification, the borrower should satisfy a number of rigid requirements, the most important of them are verified financial difficulties that are caused by such valid reasons as health problems, job loss, loss in income and some others. At the same time, the borrower also has to prove his financial capacity to serve the loan in case it is modified.
To find out whether your loan meets the requirements for a loan modification, you should contact your lender and fill a loan modification application. Next, you will be required to describe in detail your financial situation and prove it by official documents. During the loan modification process you should be ready to do a considerable paper work and prepare a great number of written documents. The lender will inspect the description of all your assets, the information on all sources of the household income (before taxes), the last tax returns, the information about the second mortgage on the house if any, the balances on all your credit cards and debts, the application for the equity modification describing all the reasons that led to your financial hardships and proving the necessity of the loan modification.
In each case of loan modification the lender conducts a special test, also called a modification net value test in order to determine whether it's gainfully to perform a particular loan modification. The lender takes into consideration the expected cash flows that can be received in case of the loan modification (taking into account the new interest rate, the new loan term and other changed essentials). After that, the test compares the resulting sum of these cash inflows to the potential earnings in the case of loan foreclosure. In this instance, the lender should include in the potential costs calculation such expenditures as the costs of home repairs, real estate agent fees, legal fees for sales registration, discounts to sell the house in case of further price decline in real estate market and so on. In the end, if the calculated sum of the potential cash flows after the loan modification exceeds the returns from foreclosure, the lender gets profit from restructuring the at-risk loan and performing the mortgage modification.
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