Loan Modification Glossary
10 December 2009
You know what a mortgage is, how it works, and what to watch out for. But when you go asking for mortgage assistance, your lender’s words make about as much sense as alien banter. That’s what makes the Loan Modification process so confusing for many homeowners—and why many of them simply give up.
But you don’t have to be a financial expert to make sound decisions. A working knowledge of the lending and loan modification industry can help you better understand your situation, and know exactly what your lenders mean. Below is a list of terms you’re likely encounter in a loan modification, and what they mean for you.
Amortization: The repayment of a loan (usually a mortgage) through regular installments. The payments are determined by the term of the loan, the principal balance, and the interest rate.
Annual Percentage Rate (APR): The total cost of the loan, including the interest, mortgage insurance, points, and other associated fees.
Adjustable-Rate Mortgage (ARM): A type of mortgage in which the interest rate changes according to market conditions. This means your payments may increase or decrease from month to month. Most ARMs have a payment cap that keeps the amount from rising beyond certain levels.
Debt-to-income ratio (DTI): The ratio of the amount you pay on the loan to your total income. Lenders use this to determine whether or not you can comfortably pay the loan. According to the Federal Housing Administration (FHA), the mortgage payments should not exceed 29% of your monthly income before taxes, and your total debt (including credit cards and other loans) should not go over 41%.
Deed-in-lieu: A deed that passes interest in your property to your lender as settlement for your debt. It doesn’t let you keep your home, but it helps you avoid the foreclosure proceedings and associated costs.
Equity: The amount of financial interest you have in your own property. This is calculated by subtracting the amount you still owe from your home’s fair market value.
Fair market value (FMV): A theoretical price given to your home considering the current market conditions. The FMV assumes that the buyer and seller are acting freely and have all the pertinent information for the deal.
Fixed-rate mortgage: A type of mortgage that uses a fixed interest rate throughout the term of the loan. This gives you more stability as a borrower, as your payments will remain the same regardless of the market figures.
Foreclosure: A process wherein your property is sold off and the proceeds go to your lender, allowing them to recover their losses when you default on the loan.
Forbearance: An agreement in which your lender revises your payment plan to help you get current and avoid foreclosure. This may involve lowering your monthly payments or suspending them for a given period. Unlike loan modification, this is usually temporary and is often used as a loss mitigation option.
Good faith estimate (GFE): An estimate of the total cost of the loan, including all the closing fees, lender charges, and insurance costs. All lenders are required to give you a GFE within three days after you apply for a loan.
Interest: A percentage of the principal added to your monthly fees, as a way of paying your lender for the use of money.
Interest Only: A loan structure in which you only pay interest for the life of the loan, and pay the principal only after a given period.
Lien: A claim held by your lender against your property as a form of security in case you default on the loan.
Loan-to-value ratio (LTV): The ratio of the total amount you pay on the loan to the actual price of your home. The higher the LTV, the less you have to put out as down payment.
Loss mitigation: A process that helps borrowers to avoid foreclosure and lenders to minimize their losses on delinquent borrowers. When you fall behind or apply for a loan modification, your lender’s Loss Mitigation office will handle your case and make the decisions.
Mortgage banker: A firm that resells loans to secondary lenders, such as Fannie Mae and Freddie Mac.
Mortgage broker: A person or company that serves as a mediator between agents, buyers, sellers, and mortgage lenders. Brokers are paid by a percentage of the amount earned by the lender or seller. Lenders are required by law to disclose all fees paid to brokers and other parties, so you can be sure they’re not making kickbacks at your expense.
Mortgage insurance: An insurance policy that helps minimize losses for your lender in case you fail to keep up with payments. This is usually required for borrowers who make a down payment lower than 20% of the purchase price.
Principal Balance Reduction: A type of loan modification in which your lender reduces your principal balance to lower your monthly payments. Lenders usually grant this only to people from heavily depreciated areas, or when the amount they write off is still lower than the cost of foreclosing on your home.
Refinancing: A process wherein you take out one loan to pay off another. This allows you to enjoy better loan terms, such as a lower interest rate or a more stable structure.
RESPA: Real Estate Settlement Procedures Act. This is a law that requires all lenders to give you a Good Faith Estimate (GFE) of the loan and disclose all the fees involved. It also gives you the right to dispute any fees or even cancel the loan within a reasonable time frame.
Short sale: A common alternative to foreclosure. In a short sale, you sell the home for less than its fair market value, and give the proceeds to your lender as payment for the home. Although it won’t let you keep your home, it’s less damaging to your credit than a foreclosure.
Teaser Rate: An introductory interest rate offered on many mortgages to draw in borrowers. After the introductory period, the interest reverts to normal rates, increasing your monthly payments for the rest of the loan.
Teaser Rate: A temporary rate reduction at the inset of a loan.
TILA: Truth in Lending Act, also known as the National Consumer Credit Protection Act. This law requires lenders to give you complete information about the terms and total cost of the loan.
Video about loan
Default: The Student Loan Documentary is a feature-length documentary chronicling the stories of borrowers from different backgrounds affected by the private student lending industry and their struggles to change the system. In 2005 private student loans were exempted of ALL consumer protections. No matter when their loans were taken, many borrowers now find themselves in a paralyzing predicament of repaying two, three or multiple times the original amount borrowed, with no bankruptcy protection, no cap on fees and penalties and no recourse to the law. The consequences are dire, with stories of borrowers in financial and emotional ruin. www.defaultmovie.com A film by Serge Bakalian and Aurora Meneghello
Question about loan
What loan companies will give you a loan for a motorcycle if your credit is really bad?I helped an ex get a motorcycle and now need him to repay me. He needs to take out a loan and repay me or buy the bike from me. His credit is horrible but there has to be places that will still give you a loan. Please help me with advice!
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Tags: loan modification attorney, Loss Mitigation, Loss Mitigation Services, mortgage Loss Mitigation, Short SaleCategory : Business
When your federal educational loans are in default, you have several options:
You can repay the loan in full.
You can negotiate a new payment plan with your lender.
You can "rehabilitate" your loan.
You can consolidate your loan.
Obviously option one is rarely attractive or possible for defaulted borrowers.
Option two (renegotiate) should be investigated fully – most borrowers skip this step, but it's probably the best option for most people. Call your lender and ask to speak to someone in the "Workout" Department. Explain your situation to them (there's nothing unusual about it) and ask what options are available to you for switching to a graduated, extended or income-sensitive repayment plan. If your lender will agree to change your repayment plan, a few regular payments will get your default status removed, and the new plan may be easier for you to keep up with.
Option three (rehabilitation) is really a specific form of a workout agreement. It probably won't help you much in your situation, because it requires an agreement between you and the lender that will allow you to make 9 consecutive on-time payments of some agreed-upon amount.
Option four is everyone's favorite, but you must absolutely understand what a consolidation loan will do. To keep this utterly simple – a consolidation loan is a brand new loan that will pay off your old, defaulted loan. A consolidation loan MAY lower your monthly payments, but understand how this works. A consolidation loan never lowers your payments by wiping away some of your debt – a consolidation loan lowers your payments by stretching out the length of your loan. If you pay less every month, you'll make many additional monthly payments, and – in the end – you'll pay far more back than you would have paid on the original loan.
As an example: Suppose I lent you $100 and you agreed to pay me back in 2 weeks by paying me $50 a week. You came back a few days later and explained that you weren't going to be able to afford to pay me $50 – is there something else we could do? "Oh, absolutely," I'd say, gallantly. "Instead of paying me $50 a week for 2 weeks, how about if you only pay me $10 a week for 17 weeks?"
See – in the end, you'll pay me back $170 instead of $100 – that's how a consolidation loan works. But remember – we're not talking a $100 loan for a couple of weeks – by the time you pay that $5000 loan of yours back over many years, you'll pay a few thousand more than you might have paid if you didn't consolidate that loan.
I've attached some information about consolidating from the Department of Education – take a few minutes to read it over. If you do choose to go this route, be sure to consolidate with a reputable lender (or directly with the government) and not with some fly-by-night operation that you learn about from some pay-per-click site shilled on Yahoo! Answers.
Good luck to you!
I'd suggestion contact your bank, credit card company or perhaps asking your family or friends.
To have a mortgage loan you must have land involved, so no trailer park rentals. Lender's are not fond of mobile homes because they lose value – unlike a stick-built home which will appreciate in value. You are unlikely to find 100% financing for a mobile home. 90% or less is the norm and that is with good credit. Your interest rate will be higher as well.
If you are buying this as an investment (in your own future-not as an investment property) you should look into a modular home. Anything but a mobile. You won't get out what you put into a mobile. That said, there are some very nice mobile homes out there.
No one will "take over" your loans. You will still owe the money to your lender when you are in forbearance. They will simply add interest every month while you are making payments.
If you are asking about defaulting the lender will just contract out with a collection agency to start calling and hounding you to mail them payments. If you make 6 to 12 months worth of willing and reasonable payments you can ask your lender to "rehabilitate" your loan. This is when you are issued a new loan and pay off the one in default so you can get federal fin aid again. Again, rehabilitation can only be done after you have made 6 to 12 months of payments.
Try this site
http://free-college-information-usa.blogspot.com/
Free College information on financial aid for students, scholarship, student loans and more.
I'm not sure why you would want to get a home equity loan to pay off student loans. Typically interest rates on student loans are much lower than home equity loans. It is true that you can use interest paid on a home equity loan as a tax deduction, but you can also use interest paid on student loans as a deduction.
I used direct loan consolidation. It took about 2 months.
http://www.loanconsolidation.ed.gov/
All I can say is, if you own the motorcycle, take it back. If he does, tell him to get a title loan. He can make payments but depends on what he still owes you.
Nope. It will no longer be a student loan then. You may be able to consolidate several student loans into another student loan at a better rate, but if you pay it off with a personal loan you'll be left with a non-deductible personal loan.
Nope, sorry, but personal loan won't qualify, as you will have nothing in writing to say that it is student loan interest.