What is a loan modification?

Loan modifications are generally characterized as a reworking or restructuring of a loan that you have with an existing bank or servicing agency. Most often, the loan modification process itself is a marathon, it’s not a sprint. My clients need to be committed to the process. That process involves financial disclosures, usually, bank statements, tax returns, pay stubs. If you own your own business sometimes that includes profit and loss statements.

We gather all those documents, submit them over to the bank for review, and then if the bank accepts the financial disclosures for review of that modification, then that modification itself usually can change three primary terms.

The first is going to be the principal loan amount. We see that sometimes, but not as often as we see the other two.

The second is the interest rate. Oftentimes, we’ll take it from an adjustable or variable down to a market rate, or perhaps you are in a 7% or 8% loan, we’re bringing it down to a market rate.

The last is the length of the loan. A lot of times if there’s only, say, 10 years left on the loan, but they’ll extend it out to a 20-year or 30-year new loan.