Who qualifies for a loan modification?

Answer 1

This is really a case by case basis. It depends on the tyoe of loan, the personal situation and desired outcome.

There are basically 2 paths to modification- the financial approach (the lender will make more $$ modifying than foreclosing), or the legal approach where the amount of lender violations will dictate how much the loan will be modified.

In my opinion the days of the "vanilla" loan mod purely based on financial, hardship, net present value (how much the loan is worth to the lender) and income/expense criteria will fade away.

This is due to lender unwillingness to modify when it makes perfect sense to. There are still firms taking this approach and the qualification criteria is that you need some type of hardship, you cannot afford the current payment based on your income/expenses and you have little or no equity.

That;'s not to say that people with equity or that are current won't get modified. But it's like triage in an emergency room. The most critical patients get first priority (i.e. close to foreclosure)

If you take the legal approach it doesn't really matter if you have a hardship, what your income/expenses are, etc. Since you are going after all the violations the lender committed (which is especially true in high profit loans like Option ARM's) then you can take the gloves off and force the lender to modify not only the rate/term but also the balance reduction as well.

The legal approach is more effective but the loan needs to qualify more than the borrower. The most egregious are those with pre-payment penalties, negatively amortizing loans, ARM's and some others like stated income or "liar loans" as they are referred to.

So, each situation is different since the borrower and the loan both have to be taken into consideration to determine what the most effective plan of action will be.

hope that is helpful.