What is loan modification?

A Loan Modification is when you ask the bank to modify or change the terms of your loan. The most common practice is to apply to the banks for a reduction in the interest rate on a temporary basis for 2-5 years.
As a result of massive internet advertising and a variety of confusing news stories, many borrowers have a mistaken belief that a loan modification also is likely to include a big reduction in the amount you owe. This does happen in isolated cases. It is not common practice.
Generally, we expect loan mods to become more commonplace. Maybe there will be some reduction in total debt owed. Definitely there are options in reducing the interest rates. The rate reductions are temporary. And, the principal reductions require that you pay the lender back should you sell the home.

Loan Modification for Southwest Florida Homeowners in Distress

A lot of buyers, sellers, real estate agents and even seasoned loan officers - in Southwest Florida and across the country - are flying in the dark when it comes to the $700 Billion bailout and what it means for short sales and foreclosures -- and how this affects the homeowners in trouble.
The bailout will make the banks more likely to beef up short sale and workout departments and streamline the process of recovering their investments.
But at the end of the day it is not really likely to impact the day-to-day short sale business, other than stimulating the recognition that banks need to look more closely than ever at requests for short sales and loan modifications. There is a new breath of fresh air as far as loan modifications are concerned.The big hitch in loan modification, however, is that you have to prove up front that you have the income to cover the debt.
With that in mind, let's look at the DIY Loan Modification.
*** NOTE: If you are facing imminent foreclosure, you might need professional assistance to stop the clock in time. **
If at some point you had a foreclosure date, you might need to make sure that the left hand tells the right hand to cancel it while the loan modification is in review.
THE FIRST STEP: Call me ask for the Loan Modification package

Keep your requests simple and kill them with kindness.
THE SECOND STEP: Once you've received the Loan Modification package, READ and RE-READ it. Never assume that what you get in the mail is what you were promised.
THE THIRD STEP: Complete the package thoroughly.

Focus on this issue: WHAT CAN YOU AFFORD? The bank will judge what they think. If you cannot afford their basic bottom line, then you are wasting their time and yours. The bank looks at debt to income (DTI) ratio -- 80% of your net income (after taxes) divided by gross expenses, including monthly housing payment. That is THE trick: you must be able to afford what the modification might be OR you could burn a bridge. Will any loan modification also include reducing the principal balance? A quick email from a senior vice president at Washington Mutual (WaMu) tells me that she is not aware of any real balance write-downs. A similar comment came to me from an associate at Countrywide's Office of the President. If you still choose to follow the route of a DIY Loan Modification, keep in mind that you will basically be paying on one loan while the other balance sits frozen until you sell the property. If you eventually decide to sell, you still have to pay the lender back. Let's say that you sell your home two years from now. If the value of your property has not gone up, you are back to square one looking at a short sale. And, two years from now, the climate for short sale approvals and the IRS policy on forgiven mortgage debt may not be so friendly.

THE FOURTH STEP: Before you submit the package, make a copy for yourself and make sure that the pages are in order.
THE FIFTH STEP: Cookie-cutter guidelines are issued that allow low-level employees to approve certain packages. However, you need to take action and follow up on your case throughout the process. If you are asked to submit anything else in writing, do so within 48 hours to keep the file moving. Follow up with your point of contact every 10 business days. If you have not received a final decision after 30 days, escalate your case to the next level.
THE FINAL STEP: Once you've received an approval for your loan modification, you should receive initial paperwork. All should be well within 90 days. If not, something is wrong. Call the bank.
You can check online to see if you may be eligible for mortgage relief under the new Making Home Affordable (MHA) program. Fill out the form on Mortgage Relief Online and submit your request for a review of your mortgage.