Loan modification agreements between lenders and homeowners come in different forms but often enough they involve the reduction of an existing mortgage's interest rate for a specified period of time. This is to give the homeowner a chance to continue making payments and still stay in the home. Some agreements also modify the amortization term to a longer period, such as changing it to a 40 year period rather than a 30 year payment plan. Reduction of the principal rarely happens but there have been cases where the lender actually reduced the principal amount that gave a welcome relief to beleaguered homeowners.
The original purpose of loan modification was to help homeowners whose mortgage payments turned delinquent due to loss of job, medical emergencies, or divorce proceedings. Now, it is also available to those who are suffering from the consequences of adjustable rate mortgages that have soared and thus raised the monthly payment out of reach of the homeowner. It is important to begin the process of obtaining a loan modification as soon as possible and not let the homeowner suffer damage to the budget and financial resources before doing so. Negotiating for a fixed rate as early as possible with the lender can greatly increase the odds of getting the most beneficial cut in interest rate payment and obtaining relief from a lower mortgage payment.
Lenders need to understand the situation plaguing homeowners today. They are facing a very real threat - foreclosure, and losing the home they are saving for and have come to love. They are in desperate need of all legal assistance so they can also understand the process of obtaining a loan modification and do the right thing. Lenders for their part must open up and learn to listen to the plight of homeowners so they can help find the best possible solution before homeowners start to lose their homes.