Loan Restructuring v. Loan Modification: What’s the Difference?

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Mortgages and foreclosures, never popular topics, are dominating the news lately. Gradually, we are learning ways to halt or at least slow this onslaught of foreclosures ravaging neighborhoods and ruining lives.  One stop-loss method is loan modification. Typically, loan mods are for homeowners who are behind in their payments and are facing  foreclosure. In fact, I’ve even done a previous post about Loan Mod Myths.

Yet, loan mods do work. Here’s who will benefit from a loan mod:

Loan Modification Eligibility

  • Minimum of 12 months elapsed since loan origination date.

  • The mortgagor [homeowner]  most be delinquent (3 full payments due and unpaid) or more.

  • Default due to a verifiable loss of income or increase in living expenses.

  • The Loan Modification mortgage must remain in the first lien position.

  • Loan may not be in foreclosure when executed.

  • Owner occupant, committed to occupy property as primary residence.

  • Mortgagor has stabilized surplus income sufficient to support the Loan Modification mortgage.

  • Does not have another FHAinsured mortgage.

In some cases, the banks today will modify loans for those who are less than three months late. And, banks will modify investor-owned or non-owner occupied. Banks do require financial information, such as pay stubs and tax returns, but credit scores are not an issue.

What this all means is that you must have enough income to support the new payment. Banks will not modify your loan if you cannot show you have the income to sustain the new, lower, payment.

If you can’t show the income, then the best option for you is probably a short sale which will do less damage to your credit than a foreclosure and allow you to purchase another home within 2 years, provided, of course, you’ve paid your debts during these years and you can qualify for a loan.

What about those who are not behind in their payments?

For those current in their payments, Loan Restructuring , may be the answer. If you have not missed payments or perhaps find yourself owing more than your home is worth, you may be able to  redo your  loans without having to bear the cost of refinancing.

How is this possible?  Who is eligible for loan restructuring? Essentially, if you do not fall into any of the loan mod categories, then you may be eligible for a loan restructuring.

Loan Restructuring Criteria

  • Homeowner may be current in mortgage payments or  have missed a payment or two
  • Mortgagor does not have to reside in the property; investment property qualifies.
  • Mortgagor may receive a reduction in principal, interest and a cash refund.
  • No “Hardship” letter is required.
  • Existing income, debt, credit scores  do not matter.

A loan restructuring may enable you to reduce your principal, especially in areas where property values have fallen drastically and many owners are thinking of “walking away.” How exactly can this happen?

In seeking to restructure a loan, the homeowner re-examines the loan at the point when it was originated.  Attorneys or real estate brokers, like myself, working with attorneys search the documentation of the loan to see if it was  predatory in nature or, if not, if it  did not fully comply with federal Real Estate Settlement Procedures Act [RESPA] requirements. If a flaw is found,  the original loan is voided and restructured (not modified). This allows the homeowner or his representative  to negotiate with the lender from a position of strength. If the loan was “bad” from the beginning, why modify a loan to the advantage of the lender? Restructuring is clearly the best option for the homeowner.

If the loan is found to be predatory or in violation of RESPA, the homeowner may also be eligible for a refund of all or part of the original closing costs.

As we have all heard, banks packaged our mortgage loans into so-called “exotic” financial instruments and sold them all over the world. It’s these mortgage-backed securities and credit default swaps which are the original cause of our Current Recession. In their bottomless greed, banks sold and resold mortgages, slicing and dicing them into parts which they cannot now put back together. It is these mortgages which are great candidates for restructuring.

If you think you might qualify for a restructuring, call or email me and for a small fee we can find out. If your loan is not eligible for restructuring, the fee will be returned.

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36 thoughts on “Loan Restructuring v. Loan Modification: What’s the Difference?

  1. Hi, I am trying to refinance my home mortgage, I had a loan modification 4 years ago with the “make home affordable plan” but now the bank is asking for paperwork regarding this, saying they need to know if it was a modification or a re-structure. Why would this matter to them?
    thank you!

  2. We have a home in NC. Can you tell me who I can contact here about restructuring our mortgage. We have re-financed about 3 times over the past 10 yrs or so, with the last one being about 2 yrs ago. Each time, we get killed with the closing costs at the last minute, always being more than what was “estimated”. Is there a central agency that we can contact about possible predatory lending? Our loan is a Freddie Mac.

    • If any homeowners are interested in restructuring their loan and also being legally protected from foreclosure please give me a call, My name is Michelle and I work with Practical Solutions Group. My number is 877 388 1938 and my extension is 2220. For more information and a free case analysis please give me a call immediately. Also check out our website We have been helping thousands of homeowners save their homes and lower their payments!

  3. My daughter is in dire need (approaching foreclosure) of getting her loan restructured or modified. Since I, as her father, will be heavily involved in any arrangement that allows her to keep the house, I will be glad to pay a nominal fee for advice. Her loan is for 160k, issued in August of ’07, and she is delinquent in some payments. Housing values in her neighborhood have depreciated about 20% since she bought the house. Her present interest rate is 7.25% with escrow accounts, etc., kicking it up to an effective rate of 8.408%. To me, this is predatory; what do you think? And, what options does she have?

  4. Your information is very valuable and helpful. What kind of the loan meet definition of predatory loan? Is there any specific name of their loan? Thx.

    • I think predatory loans are those taking advantage of borrowers either by high rates, confusing terms or adjustable “bombs” which explode
      down the road. Almost any adjustable loan which can negatively amortize is a predatory loan. During the “bubble” ending in 2007, huge
      numbers of these loans were underwritten causing the housing collapse and all the foreclosures we see today.

  5. hello, i am mediating with my mortgage company/bank on thursday to negotiate a way to keep in my house and not be foreclosed upon. i am aware of restructuring, modification, HAMP, HARP, HUD…i understand you are out west but have you expanded your territory to Connecticut possibly? or can you steer me to a credible connecticut source for free advice? Being in this foreclosure predicament, i can not afford
    any extraneous money for attorney fees for cousel.

    • The Obama plan is operational; the banks simply won’t implement it. Those same banks may be nearing a legal run-in with their own shenanigans which will cost them dearly. If only individual homeowners could benefit…Call me. Maybe there is a solution for you.

  6. Pingback: 2010 in review « Diane’s Blog

  7. Hello, im facing a auction sale date soon. id like to know if i qualify for your restructure plan please email me and then i can give you my phone num. thank u.


  8. Great information and insight on the difference between the two options struggling home owners may have available to them author!
    home owners need to take advantage of these options now as interest rates are at an all time low & if they are able to refinance they can get great deals through agents as it is a very competitive market now days…

  9. Can you work with me? I have an investment property in Santa Clara County which may be eligible for loan restructuring.

  10. I am interseeted in finding out if I qualify for a restructuring. Can you help someone in the State of nevada, or possibly refer me to someone who can?

    • So far, I can work only with properties in CA. However, we are working on expanding the program to other states.
      In the meantime, why not try a loan mod? Rules seem to be changing there making them more homeowner-friendly, the banks kicking and screaming the whole way. Apparently, the Obama administration is determined to make these work better. Call me if you are interested in a loan mod.

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