Home Loan Modification Helpful Definitions

Simple Definitions of Prominent Loan Modification Terms

ARM (Adjustable Rate Mortgage) – A long term note where the interest rate fluctuates in accordance with the current market conditions. This entails that your monthly payments may increase or decrease. Most ARM's include what's known as a cap, or a maximum amount that your payment is capable of reaching.

Deed-in-lieu-Foreclosure – A performance tool or agreement in which a homeowner bears all interest on a home or piece of property to the lender in order to fulfill a loan that is in default or in the process of foreclosure. In other words, in order to keep foreclosure off your history, you sign the house over to your lender.

Fixed Rate Mortgage – A home loan that utilizes a fixed or stable interest rate. It will not change at any time during the term for which the loan is applied. A fixed rate mortgage is substantially more stable, and is not vulnerable to market conditions.

Forbearance – An additional agreement on a mortgage between the homeowner and the lender that delays or halts the foreclosure process. A forbearance gives the homeowner the chance to "catch up" on owed amounts and stop foreclosure proceedings.

Hope Now – "Hope Now is the government subsidized coalition of regulators, 'servicers,' lenders, and community advocates attempting loan modifications for troubled homeowners." The Hope Now Bill was passed in February of 2009.

Loan Modification – A process by which a current home loan is modified outside the original terms of the contract agreed to by the lender and borrower (i.e mortgagor and mortgagee). In general, any loan can be modified. Specifically, a loan modification may include:

A change in the term of the loan
A change in the interest rate
Modifying an ARM to a Fixed Interest Rate Mortgage
Deferral or forgiveness of owed amounts

Loss Mitigation – The act of a firm intervening in the process of stopping foreclosure. It usually entails that the firm is the "middle man" between the lender and the homeowner, aiming to negotiate on behalf of the homeowner in order to obtain a more affordable payment. The types of loss mitigation include:

Loan modification
Repayment Plan
Short Payoff
Deed-in-lieu Foreclosure
Special Forbearance
Partial Claim
VA Loan Modification / Refunding

Refunding (VA [Veteran's Affairs] loans only) – A mortgage or home loan the United States government guarantees to veterans and/or their surviving spouses. It guarantees no down payment and allows veterans to 100% finance without private mortgage insurance. A VA funding fee of 0 to 3.3% of the loan amount, is paid to the VA and is allowed to be financed. Finally, a veteran may choose to borrow or finance 100% of the sale price or reasonable value, whichever is less.

Short Sale – entails that you sell the property and/or home for less than it's worth (Fair Market Value). The value received for the home is then given to the lender as a payment for the home. Although deemed as a last resort, short selling your home is a lot less damaging on your credit than foreclosure.

TARP (Troubled Asset Relief Program) – A financial program formulated by the Obama Administration in which mandated a total of $700 billion to "purchase assets and equity" from financial institutions. Approximately $75 billion dollars of the total $700 billion is allocated to "helping" troubled homeowners (i.e. loan modifications).

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