Yes and no… It depends on whether you are trying to get your lender to negotiate a loan modification or trying to get the lenders to modify your loan yourself. That said, it is important to note that they do want to modify your loan if you are able to prove that you are missing payments and in danger of defaulting on them. They would like to avoid foreclosure even if it means modifying the loan to a situation where they get less money for the house than they originally loaned for.
Here is how your bank will look at your loan default situation: If you are missing payments (and I mean multiple payments) your next option is usually setting up a loan modification. In a loan modification your loan is fully reinstated and you get to keep your house. The down side is that you will have to start back at square one without any of the equity that you have built up over the years. There are many other solutions to losing your home besides a loan modification as options.
Here is another perspective: Your bank does not want to foreclose on your home if they can avoid it.
Here is the scenario where the bank sees a loan modification as the best option: Let’s say that you have an $80,000 loan (your original loan) and you are two months behind. After looking at all of the alternatives and they conclude that a loan modification is their best option. In this case, you will need to decide if you want to find a new job or make do with a smaller, less expensive house.
Here is what you can expect to happen: They will start the modification process to find a new formula that is going to allow you to make the payments. That formula is the new note rate that they are looking for (which is usually based on an index like the Treasury Bill or The Federal Funds Index) multiplied by the amount of money you still owe on the loan (the dollar amount). In our previous example, let’s say the current note rate was 7% and you had 36 months remaining and you asked your lender to take 5% off the top of your loan. This would give you $200.00 saved each month.
If your bank will not convinced to take this, hopefully, you can find an investor who will. Investors like to work with loans, foreclosures, and short sales. They can take a property worth $130,000 and turn it into $150,000 in just a few days. You will pay a fee to have the investor find you a new lender but the fee will still be less than a loan modification.
As you can see, your options for getting out of default or modifying your loan will depend on your lender and your circumstances. The first thing you need to do is call your lender and find out their policies for loan modification or loss mitigation. Once you know what the process is, you need to find an investor and let them know the situation you are in, the amount you owe, and the amount of money you owe. Ask your investor to tell the lender what you are looking for and what you can sell your house for (i.e take $100,000 less from the loan). That represents your best option. If your lender will not work with you or the investor can’t help, then start looking for a new lender or just accept the fact that there is no way out of default or foreclosure.