How do loan modifications work?

[chasqui]

anyone who could help me understand how loan modifications work, would be appreciated...thx.
I am having a little trouble understanding the whole concept of loan modifications. I have read that lenders can and are writing off 2nd mortgages? is that true? is it a 100% write off? or do you have to pay 10% of the whole amount? so if it is a 20k 2nd loan do I have to pay a $2,000 dollars?
On the first loan I've also read that in some cases they are reducing the principal value. Lets say that the principal value is 150k and it is modified to $100. In the event the house is sold a few years from now and if there is a profit on the sale of the house, lets say it sells at 200k, then would we have to pay the bank back the 50K that they reduced? and would we have to pay back the 2nd lender for the portion that they wrote off?

[Dan Bailey]

Chasqui,
Glad you found the forum.
Loan modifiation is a process of getting the lender to reduce your rates to a more affordable monthly payment.

There have been no instances of "principle reduction" Investors are not doing it. What you "hear " from "mod companies", etc... well, lets just say take everything you hear with a grain of salt..in some cases a salt mines worth.

There have been some instances of slight reductions in seconds....very very slight.

There are instances of principle forbearance....which is a reduction of the principle PAYMENT for a period-then a baloon payment due after a certain time.

[baileys dad]

Hello Chasqui,
From what I understand, lenders are not writing down the principle balance very often. The second mortgage question might depend upon your state. If your second mortgage is in a recourse state, they would have no incentive to write off your loan because they can come after you after you default. In a non-recourse state, such as Ca., if the second mortgage was for purchase purposes, they have no other avenue to collect money other than foreclosure.

[Dan Bailey]

If you go to the HOME page of the forum, you will find sections and areas devoted to the nomenclature of the loan modification process, along with tips on how to start the process, etc...

[chasqui]

we are in FL. ok, so in the instance of a foreberance that means basically we'll have to pay the reduced amount later in time. So what is exactly the help you get from lenders, just maybe an interest reduction? but what if that is not enough to be able to make the payments? we are self employed so we have experience 50% reduction in income in the past year, is foreclosure the only option? this is too confusing...thanks Dan, I will take a look at that.

[Dan Bailey]

chasqui,
If you want to stay in your home-reducing the monthly payments is about the only way. "just an interest reduction" makes your monthly payment affordable, giving you the ability to make the payment and stay in the home.

Other options are short sale (which, depening on what state youre in -you may still owe the balance)

Deed in lieu

Accepting foreclosure and walking away.