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Loan modification, Forbearance Agreement, or Repayment Plan?

GeorgetteMillerLaw.com > Practice Areas  > Loan Modification Lawyers > Loan modification, Forbearance Agreement, or Repayment Plan?

People who are facing possible foreclosures of their homes have several different options to avoid them. Repayment plans, forbearance agreements and loan modifications may all be possible and might be able to help when people are having difficulties making their mortgage payments.

Loan Modifications

In a loan modification, the mortgage is permanently restructured and the terms are changed in such a way that the payments are more affordable. With this option, a lender might agree to do any of the following:

  • Give a lower interest rate
  • Extend the length of the loan
  • Change a variable interest rate to one that is fixed

Eligibility for loan modifications depends on several factors, and they are not automatically granted. People must be able to show that they are unable to make their mortgage payments because they are undergoing financial hardships. They must also go through a trial period to show the lender that they can afford to pay the new monthly payment. Finally, people will need to submit all of the documents that the lender requires to evaluate the loan modification request. The documents that may be required include income proof, financial statements, the most recent tax returns, hardship letters and bank statements.

Available loan modification programs include in-house modification programs and the Home Affordable Modification Program, or HAMP. HAMP is a federal initiative that is a part of the Making Home Affordable program. It helps borrowers with modifying their first mortgages in order to lower the payments. Loan modifications may be a good option for struggling homeowners who are in danger of foreclosure.

Forbearance Agreements

Unlike loan modifications, forbearance agreements offer short-term relief to borrowers. With these, lenders agree to suspend or reduce the mortgage payments temporarily. During that period, the lender agrees not to begin foreclosure proceedings. At the end of the forbearance, the borrower agrees that he or she will resume his or her regular payments along with an additional amount to catch up on the amount he or she is behind.

A forbearance agreement may be a good option if a person undergoes a financial hardship that is not expected to last. An agreement may help the person to avoid having his or her home foreclosed upon until his or her financial situation improves. At the end of the forbearance, lenders may sometimes agree to extend the forbearance if the hardship is still ongoing. With forbearance agreements, lenders agree ahead of time for people to suspend their payments or to pay reduced amounts for a specified time period.

Repayment Plans

Repayment plans are another way to catch up on missed mortgage payments caused by temporary financial hardships. In a repayment plan, the lender and the borrower agree that the past due amount that is owed will be spread out over a set time period as follows:

  • The overdue amount is divided up into portions to be repaid over a set number of months
  • A portion of the arrearage is added to the regular monthly payment
  • When they repayment plan is over, the person will be current and will continue making their regular mortgage payments

Repayment plans allow borrowers to pay the delinquent amounts over time. The length of time for the repayment plan will depend on how much is past due as well as how much the borrower can afford to pay each month. Typically, repayment plans last from 3 to 6 months.

Contact An Attorney

To learn more about the options you might have, schedule your free appointment today by calling us at 1-866-964-6529.