Mortgage Loan Modification - Do it Yourself vs. Using a Service

As the U.S. housing crisis rages on and millions of homeowners face skyrocketing adjustable rate loans and the prospect of foreclosure, loan modification can be a viable solution for financial troubles. The first question for those considering loan modification, of course, is where to begin. Is it smarter to hire a loan modification service, or better to do it yourself by negotiating directly with your mortgage lender?

Both routes have advantages and disadvantages. It's certainly less work for you to enlist the help of a loan modification service, but that doesn't always ensure the best results - in fact, some of these companies are outright scams, while others are more concerned with receiving their commissions than negotiating the deal that is best for you. Read on for more pros and cons on mortgage loan modification options.

How a Loan Modification Service Can Help

A loan modification service is an attractive option for several reasons. The biggest advantage is that the third-party company will do a bulk of the work for you, saving you significant time and energy. They also have the experience and expertise to negotiate a good deal, and may have more influence with lenders than the average consumer. Some banks will only consider mortgage loan modification after the borrower has missed a couple of payments, but loan modification firms are usually exempt from these rules.

On the downside, a loan modification service will charge a premium for their efforts on your behalf - anywhere from $2,000 to $8,000 is common - and they usually keep this money whether or not they are able to get the desired results. Also, there's always the chance that a loan modification officer may have to settle for a higher payment than you can afford, or may not have all of the detailed information about your account and circumstances.

What's more, they may not have as much experience as you think. The industry is still young, with many loan modification companies originating only within the past two or three years.

When to Deal with Your Lender Directly

Negotiating with your bank directly can be a nerve-wracking process, but it's usually the way to go unless you know a mortgage loan modification service that you trust implicitly. You have all of the knowledge about your accounts and your finances that any mortgage negotiator would need, and anyone can do the necessary research to learn about strategies for loan modification.

The first step is to contact your bank and ask to be sent a written loan modification package. This package will allow you to prepare answers to all the questions your lender will ask and can save you from encountering surprises over the phone. You should also look into your bank's requirements for loan modification - many lenders require at least 2 or 3 months of delinquent payments before they will consider negotiations.

Most lenders will consider negotiating your loan if you can demonstrate a recent financial change, such as cutbacks in your work hours, a recent layoff that resulted in taking a job with lower pay, or medical (or other) bills that represent an unexpected draw on your finances. As long as you do your research and come prepared with all the necessary information, it's possible to negotiate your own loan and stay in control of the process - without turning to a loan modification service for help.