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When To Seek A Loan Modification And Who To Talk To


When it comes time to realign their finances, most people fall into two categories. One category is full of individuals who have established credit, a steady job, and know their credit report score. The other category is full of individuals who may have lost their jobs, are in a state of financial instability and are seeking loan modifications to help protect themselves from potential bankruptcy.

“A good candidate for a loan modification is someone who has found that the payments [of a loan] have become overwhelming…due to a loss of a job or a reduction in income that they have become unable to make that payment,” says Chris Gonzalez, president of Compass Home Mortgage in North Bellmore.

Regardless which category your finances fall, be wary of any companies requiring an up-front fee to help process loan modifications. Indira Khan, lending manager of Long Island-based Sperry Credit Union, says, “People should absolutely not go to a company when they say, ‘You have to pay me $500, $2,000 or whatever the fee is in order for me to get this done, or for me to get your bank to do this for you.’ There should never be any upfront fees.” Khan suggests this because third-party loan modifiers often have little or no relationship with the institution that had granted the loan, and are simply making profits off of customers’ financial unrest. “When [the customers] see people advertising for this, [they should] run in the other direction. Absolutely run,” warns Kahn. Gonzalez adds that recently, up-front fees have been made illegal.


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In fact, loan modifications should cost customers of both categories relatively little. “[The lender] has to run your credit reports; nothing where it would be thousands of thousands of dollars,” says Khan. The fees associated with loan modifications should cost the customer relatively little, and should mainly be associated with account maintenance. Costs are different customer to customer, because credit scores play a large role in the rates assigned to each person, but there should never be an initial fee associated with the process of modifying a loan.

Khan suggests communicating directly with the institution that initially granted the loan, this way outside companies won’t have the chance to force miscellaneous fees on you. Khan also mentions that higher credit scores are beneficial when looking to modify a loan. “If [the customer] feels they have established credit for a period of time—say three years—and they feel that they have a stable job, their credit profile—the credit score—weighs very heavily on what rate [they] qualify for,” she says.

Another benefit of cutting out any middle man is the no-hassle treatment you’ll likely receive from wherever the loan is from. “Usually financial institutions, banks, and credit unions have so many regulations of compliance that they have to keep up with that they absolutely do not do anything to affect the customer adversely,” says Khan.

It is important to realize that modifications of any kind can negatively impact your credit score. Gonzalez notes that, “It’s a default of the terms of your mortgage. You’re basically telling the bank, ‘I can’t make the payments the way we agreed on, so I need you to make the changes so I can pay it.’”

Although a loan modification is good for some candidates, it is not a good option for others. “There’s a lot of people taking modifications because they think, ‘Everybody else is doing it, and maybe I can get a break.’ Those are the people that should not be doing it and eventually will get rejected.” Taking advantage of a temporary payment relief can have a lasting impact on a customer’s credit report for upwards of five years or more. To find out if your situation qualifies it is best to talk with your bank directly.

More articles filed under Professionals Guide,Special Series

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