Loan modification is becoming an increasingly popular fix for the mortgage crisis. This procecdure is part of the loss mitigation process that was introduced with both the federal government and the mortgage industry working concurrently towards the same goal: for the property owner to keep his/her property. This program was created to assist those property owners who could not make their monthly mortgage payments and, therefore, were facing foreclosure of their properties.

A loss mitigation process can be initiated by someone from the mortgagee’s side, or someone who works for the property owner; ideally, however, the person should be a third-party, professional counselor who can be brought in to work with both the homeowner and the mortgagee. This counselor’s purpose is to use every means necessary to avoid the loss of property for the homeowner. The counselor has several options by which to help the property owner, two of the main options are as follows: loan modification or repayment of the delinquent amount.

A loan modification is simply an adjustment to one or more conditions of a mortgager’s loan. This change enables the loan to be re-established into a more manageable payment schedule that the mortgagor can meet. This is a permanent change.

The mortgagor must maintain the property, for the mortgagee has every right to perform an inspection of the said property to ensure that there is no reason for the payments not to be made in accordance with the modified loan.

There are additional matters for the mortgagee: the mortgagee cannot include late charges in this modified loan, any incurred charges should be waived; the mortgagees are required to run an escrow analysis when finalizing the loan modification (this ensures that any late payments being capitalized show the escrow requirements necessary for those months capitalized).

If the counselor proceeds with the repayment plan, it is vital that the proposal is one that can be achieved by the homeowner. By setting unrealistic goals, the homeowner will once again find him/herself in the position of not being able to make payments.

The ultimate goal for any lender is to see that the homeowner is able to keep the property, and most importantly, keep up with the agreed upon payment schedule. Ultimately, if neither solution can be successfully attained, the only option is for the homeowner to get as much as possible from the home before it goes into foreclosure.